Audit Coordination

Overview

According to the Hong Kong Companies Ordinance, all Hong Kong Limited Companies are required to have their financial statements audited by a Certified Public Accountant (CPA). The audited accounts are required to be submitted together with the annual profits tax return filing to the Inland Revenue Department (IRD) as well, unless the company qualifies as a small corporation.

It is to be noted that the small business filing exemption for the IRD does not extend to the statutory requirement of the audit under the Companies Ordinance and the directors are liable for non-compliance.

The objective of an external audit is for the auditor to express an opinion on the truth and fairness of financial statements. This opinion greatly enhances the credibility of the financial statements with users, such as lenders, creditors and investors.

Based on this opinion, users of the financial statements are more likely to provide credit and funding to a business, possibly resulting in a reduced cost of capital for the entity.

Here are 3 key areas where your business can benefit from an external audit.

Accountability

Financial statements are the main source of accountability of management performance by the shareholders. Relying on external verification by auditors, shareholders will gain reasonable assurance that the accounts are free from material misstatements and can therefore be relied upon to represent true and fair view of the affairs of the company.

Reliability

Apart from the needs of owners, other users of financial statements may need to place reliance on the financial statements. An External audit is a means of providing a reasonable basis for the users to place reliance on financial statements.

Examples of stakeholders (other than shareholders) that rely on audited financial statements include the following:

Tax authorities rely on audited financial statements to determine the accuracy of tax returns filed by the companies.
Financial institutions require audited accounts of prospective borrowers for assessing the credit risk by analysing their liquidity and financial position.
Management uses the audit exercise to re-evaluate the company’s risk management processes and internal control system by considering the feedback given by external auditors during the course of the audit in this regard.

Scope

The scope of an audit is tailored to provide a reasonable level of assurance, and to avoid excessive time and cost that may outweigh any benefit that may be derived from enhanced assurance.

We engage external auditing firms and can discuss your specific needs to find the right auditor for your size of business.