Where a professional is required: the audit
Audit is required for all companies, including those within the reporting exemption, except dormant companies[1]. Only a practice unit, as defined in the Professional Accountants Ordinance (Cap. 50), is eligible for appointment as auditor of a company[2]. An officer or employee of the company, or a partner or employee of such a person, is disqualified[2], so the person who keeps your books as an employee cannot also be your auditor.
Where the law sets a duty, not a profession
| Task | Who the law makes responsible |
|---|---|
| Keeping accounting records | The company, with each director taking all reasonable steps to secure compliance |
| Preparing the annual financial statements | The directors, for each financial year |
| Records for tax | Every person carrying on a business, in English or Chinese, for not less than 7 years |
| Profits tax return | The company, with audited financial statements where it has gross income |
| Annual return (Form NAR1) | The company, signed by a director or the company secretary |
Every company must also have a company secretary (section 474 of the Companies Ordinance)[6]. The conditions the Ordinance sets are that an individual secretary ordinarily resides in Hong Kong and a corporate secretary has its registered office or a place of business in Hong Kong[6]; being an accountant is not one of them.
The Companies Ordinance gives a director charged with failing to keep proper records a defence if they had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with that duty and in a position to discharge it[2]. That is the legal footing for handing the bookkeeping to an employee, a bookkeeper or an outside firm. It does not say the person must be an accountant.
Tax representatives
A tax representative is a person a taxpayer has authorised in writing to act for it under the Inland Revenue Ordinance, and only such a representative can lodge block extension applications for its clients' profits tax returns[4]. Using one is a choice the company makes; the filing duty stays with the company.
What is at stake if the records fail
A director who fails to take all reasonable steps to keep proper accounting records is liable to a fine of HK$300,000, and to HK$300,000 and 12 months' imprisonment if the failure is wilful[2]. Under the Inland Revenue Ordinance, failing to keep sufficient records without reasonable excuse can bring a fine of up to HK$100,000[3]. Delegating the work does not remove the director's duty; it gives the director a defence only if the person chosen was competent and reliable[2].
Splitting the work sensibly
- Daily records and bank reconciliation: in house or a bookkeeper, as long as the records meet section 373 and section 51C[2][3].
- Year end financial statements: prepared under the directors' responsibility, often with outside help, then audited[1].
- Audit: a practice unit, every year, unless the company is dormant[1].
- Tax computation and return: the company itself, or a tax representative it authorises in writing[4].
Small companies
A small private company within the reporting exemption may prepare simplified financial statements, for example under the HKICPA's Small and Medium-sized Entity Financial Reporting Framework and Standard, but they must still be audited[1]. Simpler accounts mean less disclosure work, not the removal of the auditor.
Rules, forms and figures can change, and the official pages listed below are the authority wherever this summary differs from them.