Hong Kong Company Audit Requirements in 2026: Who Needs an Audit and Which Rules Apply

Does every Hong Kong company need an audit? The core rules

Yes: every Hong Kong company needs an annual audit, whatever its size, unless it is dormant. Under the Companies Ordinance (Cap. 622), the directors must prepare financial statements for each financial year (s.379), and the auditor must report on them (s.405), stating whether they were properly prepared under the Ordinance and, outside the reporting exemption, whether they give a true and fair view (s.406). Start-ups, loss-making companies, holding companies and reporting-exempt companies are all covered; only a dormant company is relieved (s.447).

The audit also supports the tax return. A corporation with gross income files Form BIR51 with audited financial statements and a tax computation, and since the 2022/23 returns this includes small corporations with gross income up to HK$2 million. The Inland Revenue Department (IRD) may treat a return without them as invalid. Its listed exceptions are dormant companies and corporations incorporated where no audit is required, which supply a tax representative’s certificate instead. The 2026 filing dates are in our compliance calendar.

Only a practice unit can be appointed auditor (s.393): a certified public accountant (practising), a CPA firm or a corporate practice registered with the Accounting and Financial Reporting Council (AFRC), which has handled these registrations since 1 October 2022. Only a CPA (practising) may sign an audit report, and an officer or employee of the company, or their partner or employee, is disqualified.

• First auditor: appointed by the directors before the first AGM (s.395).
• Later years: appointed by members at the AGM for the previous year (s.396), or deemed reappointed in some companies that hold no AGM (s.403).
• Casual vacancy: filled by the directors, or by members if the directors have not acted within one month (s.397).
• Removal: ordinary resolution at a general meeting on special notice; Form NA1 to the Registrar within 15 days (s.419).
• Resignation: written notice with a statement of circumstances; Form NA2 within 15 days (ss.417, 424).

Small private company reporting exemption: thresholds and approval in 2026

A private company falls within the reporting exemption if it meets any two of three tests: revenue up to HK$100 million, total assets up to HK$100 million and no more than 100 employees (s.359 and Schedule 3), with no members’ approval. A larger company can qualify as an eligible private company, up to HK$200 million of revenue and assets and 100 employees, if members holding at least 75% of the voting rights pass a resolution at a general meeting on special notice and none votes against (s.360). A member objecting in writing at least 6 months before a year-end cancels it for that year.

A company meeting two tests in its first financial year qualifies from then on and drops out only after failing two tests for 2 consecutive years (s.361). A holding company is tested on group aggregates, and every group company must qualify. Banks, Part V licensed corporations, insurers and certain deposit-taking businesses are excluded (s.359(4)). A copy of any resolution, or of the unanimous written agreement that lets a private company outside a group use the exemption for one year at any size, goes to the Registrar within 15 days.

Any two of the three tests must be met (revenue only for guarantee companies). Every route still needs an audit.

Full HKFRS, reporting exemption or dormant: which standards apply?

A company outside the reporting exemption prepares true and fair financial statements under HKFRS Accounting Standards, or under the HKFRS for Private Entities if it has no public accountability. A company within the exemption need not show a true and fair view (s.380(7)) and may use the HKICPA’s cost-based Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard (SME-FRS), with no auditor’s remuneration note and no business review (s.388(3)(a)).

Two HKICPA changes start on 1 January 2027. The revised HKFRS for Private Entities, issued in April 2025 and equivalent to the third edition of the IFRS for SMEs, applies to annual periods beginning on or after that date, with early adoption allowed. HKFRS 18 replaces HKAS 1 for full HKFRS reporters from the same date. No SME-FRS revision was announced in 2025–2026, as at October 2026.

Dormant companies: the only exemption from audit

A private company with no accounting transactions can avoid the audit only by registering as dormant: it passes a special resolution declaring dormancy and delivers it to the Registrar, and dormancy runs from delivery or a later stated date (s.5). An accounting transaction is anything section 373 requires to be recorded, except paying a fee required by an Ordinance, so interest or bank charges can count. While dormant, the company need not prepare or audit financial statements (s.447), hold AGMs (s.611) or file annual returns (s.663). Dormancy ends when it delivers a resolution to resume transactions, or when one occurs.

• Excluded: authorized institutions, insurers, Part V licensed corporations and their associated entities, MPF approved trustees, their holding companies, and any company that was one in the previous 5 years.
• Annual return: still due for the year dormancy starts if it starts after the 42nd day following the incorporation anniversary.
• Still required: reporting changes of registered office, directors and company secretary.
• Tax: file any profits tax return the IRD issues, without audited accounts.

Worked example: a HK$60 million trading company with a 31 March 2026 year-end

A trading company with HK$60 million of revenue for the year to 31 March 2026 is a small private company: it may use the SME-FRS, still needs an audit and, through a tax representative, files its 2025/26 return by 16 November 2026. Assumptions: a private company with no subsidiaries, not a bank, insurer or licensed corporation, with total assets of HK$42 million, 35 employees and the exemption in earlier years.

• Step 1, tests: revenue HK$60 million against HK$100 million (met); assets HK$42 million against HK$100 million (met); 35 against 100 employees (met). Two are needed.
• Step 2, tier: small private company (s.359(1)(a)), so no resolution or Registrar filing.
• Step 3, standards: the SME-FRS is available; the audit opinion covers proper preparation under Cap. 622, not a true and fair view.
• Step 4, growth: if assets reach HK$130 million and staff 120 in the year to 31 March 2027, only one test is met. The company stays exempt, and is disqualified from the year to 31 March 2029 only if it fails again in the year to 31 March 2028.
• Step 5, fallback: revenue of HK$60 million and assets of HK$130 million are within HK$200 million, so a 75% resolution would keep it exempt as an eligible private company.
• Step 6, return: the year-end falls in 2025/26, code M; issued 1 April 2026; due 16 November 2026 with a tax representative, or 1 February 2027 for a loss case listed by 2 November 2026.
• Step 7, AGM and records: lay the audited accounts by 31 December 2026 and keep the records until at least 31 March 2033.

What changed for Hong Kong audits and reporting in 2025–2026?

The Cap. 622 audit duty, exemption thresholds and dormancy rules did not change in 2025–2026, as at October 2026; what changed were the private entity accounting standard and the IRD’s filing dates. The dated items below affect the statutory audit and the return it supports, from the HKICPA’s April 2025 standard to the 14 July 2026 move of the code D deadline.

How to complete a Hong Kong statutory audit and file the return, step by step

A Hong Kong statutory audit runs from the year-end through the profits tax return to the AGM, and the order matters because the reporting tier and any members’ approval must be settled before the accounts are drafted. Most private companies with a tax representative follow these eight steps each year, starting as soon as the books for the financial year are closed.

1. Confirm the financial year-end: the last day of the accounting reference period, unless the directors have changed the accounting reference date (ss.367, 371).
2. Test the tier on year-end figures (group figures for a holding company) and file any approval within 15 days.
3. Check that the auditor is a practice unit on the AFRC register and properly appointed.
4. Prepare the financial statements and directors’ report under the chosen framework.
5. Give the auditor full records; misleading an auditor is an offence (s.413).
6. The directors approve the statements and the auditor signs its report (s.406).
7. File BIR51 with the audited statements and tax computation by the code N, D or M date.
8. Lay the accounts at the AGM within 9 months, or by written resolution, reappoint the auditor and keep the records for 7 years.

Hong Kong audit and filing checklist

The auditor and the IRD expect the size tests, the members’ approvals and the underlying records to be ready before fieldwork starts. Missing approvals matter most: without a valid 75% resolution, a company above the small private company limits is outside the exemption, and simplified accounts prepared on that basis do not comply. Have these items ready before the engagement starts.

• Size-test workings for this year and the last: revenue, total assets and employees.
• Any 75% resolution or unanimous agreement, with proof of filing within 15 days.
• Any business review opt-out resolution, passed at least 6 months before the year-end.
• The auditor’s engagement letter and an AFRC registration check.
• Ledgers with daily receipts and payments, assets and liabilities, and stock records for goods traders.
• Bank statements, invoices, receipts and vouchers for every account.
• Loan, lease and intercompany agreements and the fixed asset register.
• Prior-year audited accounts, tax computation and IRD assessments.
• If books are kept abroad: 6-monthly accounts and returns held in Hong Kong.

Record-keeping duties and penalties for non-compliance

Directors face fines of up to HK$300,000 for failing to keep, preserve or prepare the required records and financial statements, plus up to 12 months’ imprisonment if the failure is wilful. Accounting records must meet s.373 and be preserved for 7 years after the end of the financial year (s.377); books kept outside Hong Kong require accounts and returns, at intervals of no more than 6 months, to be kept in Hong Kong (s.374). The Inland Revenue Ordinance separately requires at least 7 years of business records (s.51C).

Common Hong Kong audit mistakes

Most audit problems in Hong Kong come from confusing simplified reporting with no reporting, from applying the size tests to the wrong entity, and from leaving fieldwork too late for the block extension date. Each of them can make the accounts non-compliant or the profits tax return invalid, and several expose directors personally to the fines set out in the penalties table above.

• Treating the reporting exemption as an audit exemption; only dormancy removes the audit.
• Filing BIR51 without audited accounts because gross income is under HK$2 million.
• Testing a holding company on its own figures instead of the group’s.
• Passing the 75% resolution without special notice, or with a member voting against.
• Not filing the resolution or unanimous agreement within 15 days.
• Appointing an auditor with a lapsed AFRC registration, or a company officer or employee.
• Claiming dormancy while bank charges or intercompany recharges still run through the company.
• Starting the audit too late for 16 November 2026, the code M filing date.

Hong Kong audit terms explained

These terms appear in the Companies Ordinance, in HKICPA standards and in IRD circulars on audit and reporting. Several of them sound alike but carry different consequences, notably the small private company and the eligible private company, which share one exemption but differ in their size limits and in whether members must approve the exemption by resolution at a general meeting.

• Practice unit: a CPA (practising), CPA firm or corporate practice registered with the AFRC.
• Reporting exemption: the Cap. 622 regime (ss.359–366) allowing simplified financial statements and reports.
• Small private company: meets two of HK$100 million revenue, HK$100 million assets and 100 employees.
• Eligible private company: within HK$200 million revenue and assets and 100 employees, exempt by 75% resolution.
• SME-FRS: the HKICPA’s Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard.
• HKFRS for Private Entities: the HKICPA standard for entities without public accountability; revised from 1 January 2027.
• Dormant company: a qualified private company registered as dormant by special resolution, with no accounting transactions.
• Special notice: advance notice to the company of certain resolutions, such as removing an auditor.
• Accounting date code: the IRD’s N, D or M code setting a represented company’s extended filing date.