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Entrepreneur’s Guide to Corporate Accounting & Statutory Audit

Hong Kong startups usually have a misunderstanding of their duties of accounting and their audited account. Here we will explain their importance and difference for you.

General Meaning and Regulations

Corporate Accounting:

In business, accounting is the ongoing process of keeping records of financial transactions, and preparation of the financial statements covering a period, e.g. monthly, quarterly, and annually.

Both the Companies Ordinance (“CO”) and the Inland Revenue Ordinance (“IRO”) require the HK companies to handle their accounting duties. So, corporate accounting is an obligation.

Firstly, according to section 379(1) of the CO, all directors of an HK company must prepare their financial statements for each financial year. The CO also requires the accounting reports must follow the accounting standard specified by the HK Institute of Certified Public Accountants (“HKICPA”).

For Small-to-Medium Enterprises (SMEs) in HK, they have to follow the SME Financial Reporting Framework and Standard to ensure that the accounting reports are comparable and able to reflect the financial position of the company. They are required to prepare for the following accounting reports at least:

  • General Ledger
  • Account Payables and Account Receivables
  • Balance Sheets
  • Profit and Loss (P&L) Statement

Secondly, there is a legal requirement for financial records keeping. According to Section 51C of the IRO, all companies have to keep sufficient records related to expense and expenditure to enable tax assessment for not less than 7 years.

The definition of “sufficient records” is subjective. Based on the IRD Interpretation and Practical Note, the companies must keep and organize not only the financial transaction records but also the supporting or proof to these transactions. The companies must take care of the following documents at least:

  • Staff payroll record & MPF contribution records
  • Bank account statements
  • Purchase invoices/receipts
  • Sales invoices/receipts
  • The record of expense and income of cash and cheque

Statutory Audit:

The Statutory Audit is the analyse and examination of accounts and financial statements of a company each of the financial year by an independent accountant (also known as auditor). In other words, the Statutory Audit starts after the financial statements are ready, and it ends after the documents are audited. The Statutory Audit will start again next year.

Statutory Audit is an obligation: According to Section 405 of the CO, the financial statements must be audited. But, who can audit the financial statements?

Under the Professional Accountants Ordinance (Chapter 50), only the following entities can provide the statutory auditing services for the Hong Kong companies:

  • Firms of certified public accountants (practicing) or corporate practices registered with the HKICPA, or;
  • Certified public accountants holding a valid practicing certificate issued by the HKICPA

The duties of your Certified public accountants (“CPA”), commonly known as auditor, is to analyze the financial statements and their supporting documents and information so that the CPA can express the opinion of whether these financial statements can give a true and fair view of the company based on the adapted financial reporting standard.

The CPA usually sample the accounting material and query the accountants and the directors to reach their judgment and opinion.

The statutory auditing service for the Hong Kong company is governed by the Hong Kong standards on auditing, specified by the HKICPA which is the regulatory authority of the registrar of the HK CPA.

Therefore, the work of the CPA is standardized for the HK SMEs. After the auditing, the company receives a collection of documents namely “audit report”, which includes the audited financial statements and an auditor’s report.

The auditor’s report is a report that contains the CPA’s judgment on the preparation and presentation of audit financial statements. When these statements are fairly appropriately presented and comply with the standards, the CPA gives an unqualified opinion which is written on the auditor’s report.


For SMEs in HK, the importance of proper handling of accounting and statutory audit are as follows:

  • Taxation
  • Loan and investment


Accounting and Statutory Audit are part of the tax obligation of the HK companies. The Inland Revenue Department requires the HK company to file the Profits Tax return and submit it with the Audit Report. (link)

Therefore, the procedure to fulfill the taxation responsibility begins at the stage of records keeping, followed by the corporate accounting, annual statutory audit, and filing of Profits Tax returns. For example, if the accountants cannot properly deliver the financial reports to the auditor, the auditor would fail to complete the Audit Report.

Failing to comply with the IRO would result in punishment and penalty.

Loan and Investment:

When the company needs to apply for a corporate loan from a bank or other financial institutions, it is always required to provide the Audit Reports of the company with the application; It happens when the company is seeking funding from investors.

It’s because the Audit Report is a set of treatable document for other parties to have a view of the financial position of a company.


Simply put, corporate accounting is to keep track of financial information and to keep the financial records continuously, these tasks can be performed by internal staff or outsourced to others; statutory audit a one-off process for each financial year to make sure these financial records are free from material misstatements, the auditing service must be provided by an independent HK CPA.

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