It is often beneficial to start a business at Hong Kong due to its straightforward taxation system, low tax rates and territorial concept for profits tax. The system may be different from other countries; however, compliance of the taxation system is of the utmost significance in instilling an effective tax regime in Hong Kong.
Audit is directed by a licensed Hong Kong Certified Public Accountant (CPA). These are tax specialists who have studied and passed the necessary examinations to show their competency in accounting, auditing and taxation. Companies in Hong Kong can approach a Hong Kong CPA for assistance in analyzing their accounts and to file their annual taxes.
According to the Hong Kong Companies Ordinance, Hong Kong incorporated companies are required to perform annual audit for the economic reports by a Hong Kong practicing Certified Public Accounts (CPA). All Hong Kong incorporated companies required to do this, regardless of commencing business in Hong Kong or any other country. Hong Kong- incorporated companies are required by law to prepare audited financial statements. Even though there is no requirement that private companies file annual financial statements with the Companies Registry, proper books of account must be kept and preserved at the company’s registered office. Companies should mention managers, members and the location of a registered office while filing annual returns. The auditing and filing should be complied as per regulations and requirements of IRD.
Accounting ideals in Kong Hong are known as Hong Kong Financial Reporting Standards (HKFRS) which are almost fully converged with International Reporting Financial Standards (IFRS). The Hong Kong Institute of Certified Public Accountants (HKICPA) is authorized by the Professional Accountants Ordinance (PAO) to develop and issue Economic Reporting Standards (HKFRS) and Hong Kong standards on quality control, auditing, assurance and related services (HKSA). The standards of accounting and auditing practices are to be observed and applied by members of the HKICPA.
As per the Companies Ordinance, the directors of every company should place audited financial statements before the shareholders in the annual general meeting unless expressly exempted. Financial statements are to be presented at least annually. The accounting period should normally cover one year except for the first accounting period after incorporation. The end accounting year can be decided by the company.
The company has to supply the auditor with financial reports to display overall business. The auditor’s work is to review all particulars along with the additional documents, scrutinize their accounts and offer an opinion as to accuracy of financial statements of the company.
Following details are required for an audit:
The process of auditing and accounting in Hong Kong is similar other commonwealth countries:
Companies must search for a statutory auditor to conduct an annual audit of the financial stability of the organization. The Companies Ordinance has given powers to the Registrar to compound offences for late filing of annual returns. A branch of a foreign corporation in Hong Kong is not necessitated to file statutory audit under the Companies Ordinance, although the Inland Revenue Department (IRD) may require audited accounts of the foreign corporation for its profits tax return.
Hong Kong also adopts its variation of IFRS for SMEs, which is known as HKFRS for private entities, for companies that do not have public accountability.
Auditors are appointed by the shareholders in the annual general meeting to hold office until the next annual general meeting. The first auditors of a company may be appointed by the directors at any time before the first annual general meeting to hold office until the conclusion of the meeting.
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