Audit
Learn what an audit is, the main types, and which Hong Kong businesses must have their accounts audited.
Published Friday 24 July 2026
Table of contents
Key takeaways
- Every company incorporated in Hong Kong must have its annual financial statements audited each year, with no exemption based on company size.
- The auditor must be a Certified Public Accountant (Practising) who holds a practising certificate from the Accounting and Financial Reporting Council (AFRC).
- You need to keep your business records for at least 7 years, and companies usually file audited accounts with their Profits Tax Return.
- Good day-to-day bookkeeping makes an audit faster and less stressful, and cloud accounting keeps your records accurate and ready.
What is an audit?
An audit is an independent examination of a company's financial records to confirm they're accurate and give a true and fair view. An independent auditor reviews your accounts and reports whether they comply with the applicable accounting standards.
In Hong Kong, the most common audit is the statutory audit of a company's annual financial statements. It gives shareholders and the Inland Revenue Department (IRD) confidence that the figures can be trusted.
Types of audit
The word audit covers a few different reviews, depending on who runs it and why:
- Statutory (external) audit: an independent review of your annual financial statements, required by law and carried out by an external auditor
- Internal audit: a review run inside your business to check controls, processes and risk management
- IRD tax audit or investigation: an examination by the Inland Revenue Department into your tax affairs
Who needs an audit in Hong Kong
Every company incorporated in Hong Kong must have its annual financial statements audited by an independent auditor under the Companies Ordinance (Cap. 622). There's no size-based exemption, so small businesses are included too. The main exception is a company formally declared dormant under section 447.
The reporting exemption lets smaller companies prepare simplified financial and directors' reports, though it keeps the audit in place. Your auditor must be a Certified Public Accountant (Practising) who holds a practising certificate issued by the Accounting and Financial Reporting Council (AFRC).
Keeping records for an audit
Under section 51C of the Inland Revenue Ordinance (Cap. 112), you must keep your business records for at least 7 years, with a fine of up to HK$100,000 for non-compliance. Companies generally submit their audited financial statements with their Profits Tax Return to the Inland Revenue Department.
How to prepare for an audit
A little preparation through the year makes an audit far smoother. Follow these steps to stay ready:
- Keep your records organised and up to date throughout the year
- Reconcile your bank accounts regularly so your books match your statements
- Separate your business and personal finances into different accounts
- Keep supporting documents for every deduction you claim
- Work with a qualified accountant who understands Hong Kong requirements
Stay audit-ready with Xero
With Xero's cloud accounting, your bank transactions and receipts flow into one place, so your records stay accurate and ready when an audit comes around. You can reconcile as you go and share clean, up-to-date reports with your accountant, and new customers can get one month free.
FAQs on audits
Here are answers to some frequently asked questions about audits for Hong Kong businesses.
Is an audit mandatory in Hong Kong?
Yes, every company incorporated in Hong Kong must have its annual financial statements audited each year, with no exemption based on company size. The main exception is a company that has been formally declared dormant.
Who can perform a statutory audit in Hong Kong?
Only a Certified Public Accountant (Practising) who holds a current practising certificate from the AFRC can sign off a statutory audit. A company's internal bookkeeper or an unlicensed accountant cannot.
How long must I keep my records?
You must keep your business records for at least 7 years, and destroying them early can lead to a fine of up to HK$100,000. Keeping them in cloud accounting software makes them easy to retrieve if the IRD asks.
What is the reporting exemption?
The reporting exemption lets smaller Hong Kong companies prepare simplified financial and directors' reports. It reduces the disclosure you make, though your accounts still have to be audited.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.