Hong Kong Company Audit Requirement: Why There Is No Small-Company Exemption
Every Hong Kong company is audited every year, whatever its size, whatever its profit, and whether or not it traded. The only exception is formal dormancy – and the reporting exemption that most companies qualify for does not remove the audit, only the disclosure around it.
The rule, and its single exception
Hong Kong’s Companies Ordinance requires that a company’s financial statements be audited. The Companies Registry states the position without qualification: audit of financial statements is required for all companies, including companies falling within the reporting exemption, except dormant companies.
There is no turnover threshold. No profit test. No employee count below which the obligation lifts. A company that invoiced nothing in its first year and a company that turned over nine figures are both audited, and both audits must be signed by a Hong Kong CPA holding a practising certificate.
- Legal basis: financial statements must be audited under section 405 of the Companies Ordinance (Cap. 622).
- Only exemption: a dormant company, under section 447.
- Applies regardless of: revenue, profit, loss, employee count, or whether the company traded at all.
- Signed by: a Hong Kong CPA (Practising). An in-house or overseas accountant cannot sign.
- Not the same thing: the reporting exemption reduces disclosure. It does not remove the audit.
This is where founders arriving from the United Kingdom, Singapore or Australia are caught out. Those jurisdictions operate size thresholds below which a small company can dispense with the statutory audit. Hong Kong does not. Reasoning by analogy from a home jurisdiction is the single most common route to an unbudgeted cost and a late filing.
What the reporting exemption actually removes
Most of the confusion traces to one phrase. The Companies Ordinance contains a relief called the reporting exemption, and the word exemption does a great deal of unearned work. It exempts a company from parts of the disclosure regime. It does not exempt anything from being audited.
Concretely, a company inside the reporting exemption gets the following relief:
- No requirement to disclose the auditor’s remuneration in the financial statements.
- No requirement for the financial statements to give a “true and fair view”, and correspondingly no requirement for the auditor to express a true and fair view opinion.
- Subsidiary undertakings may be excluded from consolidated financial statements in line with the applicable accounting standards.
- No requirement to disclose material interests of directors in significant transactions, arrangements or contracts in the notes.
- No business review in the directors’ report, and no disclosure of share-acquisition arrangements, donations, or a director’s reasons for resigning.
- Financial statements may be prepared under the Small and Medium-sized Entity Financial Reporting Standard rather than full HKICPA reporting standards.
Read that list again and notice what is absent from it. Every item concerns what goes into the accounts and the directors’ report. Nothing concerns whether an auditor examines them. The relief makes the audit cheaper and simpler, because there is less to test and less to disclose. It never makes the audit optional.
The practical consequence is worth stating plainly: qualifying for the reporting exemption is a cost saving, not an escape. Firms quote lower fees for simplified reporting engagements precisely because the scope is narrower. That is the benefit. Budgeting for zero is the mistake.
The thresholds, and why almost everyone clears them
The size criteria are set high enough that the overwhelming majority of owner-managed Hong Kong companies fall inside the reporting exemption without thinking about it. That is exactly why the misreading is so common: founders qualify for simplified reporting, hear the word exemption, and conclude that the audit has gone away.
Small private company
A small private company, or the holding company of a group of small private companies, qualifies by meeting two of three conditions in a financial year: total revenue not exceeding HK$100 million; total assets not exceeding HK$100 million; and not more than 100 employees. For a group, the aggregate figures apply, and the group may include non-Hong Kong body corporates.
Small guarantee company
A small guarantee company, or the holding company of such a group, qualifies on a single test: total revenue not exceeding HK$25 million in the financial year.
Eligible private company
A higher tier exists for companies that exceed the small-company criteria. An eligible private company qualifies by meeting two of three higher conditions – revenue not exceeding HK$200 million, assets not exceeding HK$200 million, not more than 100 employees – but only with the approval of members holding at least 75% of the voting rights in the company, and no member voting against.
Note the arithmetic: 75% of the voting rights of all members, not 75% of those who happen to attend a meeting. The same distinction applies to the unanimous route described below.
How you actually enter the exemption
Qualifying on size is automatic in the sense that no application is made. If a company meets the criteria, the exemption is available in its first financial year and every subsequent year, until it is disqualified by outgrowing them. There is no form and no approval.
Two routes are not automatic, and both carry a filing obligation that is easily missed.
The unanimous agreement route
A private company that is not a member of a corporate group can fall within the reporting exemption by the written agreement of all its members, regardless of size. This is a genuinely useful provision for a standalone company that has outgrown the size tests but has a small, aligned shareholder base. The agreement must be in writing and made by all members; a resolution passed by those present at a meeting does not satisfy it.
The 75% resolution route
An eligible private company, or the holding company of such a group, uses a members’ resolution carried by at least 75% of the voting rights, with no member voting against.
The filing that gets forgotten
In both cases the company must deliver a copy of the agreement or the resolution to the Registrar of Companies for registration within 15 days of it being made or passed. Companies that take the decision internally and never file it have not completed the step. If you are relying on either route, check that the filing was made before you rely on simplified reporting for the year.
Your first financial year sets the clock
The audit obligation attaches to a financial year, and for a newly incorporated company the directors have more control over that date than most realise.
For a company registered under the Companies Ordinance, the primary accounting reference date is a date specified by the directors that falls within 18 months after the incorporation date. If the directors specify nothing, the date defaults to the last day of the month in which the first anniversary of incorporation falls. The first accounting reference period runs from the incorporation date to that primary accounting reference date, and that period is the company’s first financial year.
Two things follow. First, the first financial year can legitimately be longer than twelve months, up to that eighteen-month outer limit, which lets a company align its year end with a group parent or a natural trading cycle. Second, the choice is made by directors’ decision, not by default, and a company that never makes it will simply inherit the fallback date.
The annual return is a separate obligation with a separate clock. A local private company delivers its annual return to the Companies Registry within 42 days after the anniversary of its incorporation date. That deadline has nothing to do with the financial year end, and confusing the two is a routine cause of late filing. The audited accounts themselves go to the Inland Revenue Department with the profits tax return rather than to the Companies Registry.
Who can sign, and what happens when you change auditor
The audit must be carried out by a Hong Kong CPA holding a practising certificate. The Companies Registry directs companies to the register maintained by the Accounting and Financial Reporting Council to find one. A qualified accountant in another jurisdiction, however senior, cannot sign a Hong Kong statutory audit, and neither can an in-house finance director.
Changing auditor is more procedural than founders expect, and the procedure exists because a departing auditor may know something the members should hear.
- Resignation. The company must deliver a Notification of Resignation of Auditor (Form NA2) to the Registrar within 15 days of receiving the notice of resignation.
- Removal. If an ordinary resolution removing the auditor is passed, the company must deliver a Notice of Removal of Auditor (Form NA1) to the Registrar within 15 days of the resolution.
- Statement of circumstances. An auditor who resigns, is removed, or retires without reappointment must give a statement of the circumstances if they consider those circumstances should be brought to the attention of members or creditors. Where such a statement is given, the auditor delivers a copy to the Registrar. This duty was deliberately widened under the current Ordinance: it once applied only to resignations.
The practical reading is that an auditor cannot be quietly replaced part-way through a difficult year. If there is a disagreement worth recording, the mechanism exists for it to be recorded, and it becomes part of the public file.
Where founders get this wrong
The failures are consistent, and none of them are about the law being unclear.
- Reasoning from the home jurisdiction. The United Kingdom, Singapore and Australia all operate size-based audit exemptions for small companies. Hong Kong does not, and assuming otherwise is the most expensive assumption on this list. Verify each jurisdiction’s own rules rather than transplanting one.
- Hearing “exemption” and stopping there. The reporting exemption is a disclosure relief. The word does a lot of damage.
- Assuming a loss-making or pre-revenue company is out of scope. Nothing in section 447 turns on profit. A company with no income still files audited accounts unless it is formally dormant.
- Treating dormancy as a description rather than a status. Dormancy under the Ordinance is a formal position with conditions attached, not simply the fact of having been quiet. It is lost the moment the company transacts.
- Taking the decision but not filing it. The unanimous agreement and the 75% resolution must both reach the Registrar within 15 days. An unfiled decision is an incomplete one.
- Confusing the annual return with the accounts. The annual return follows the incorporation anniversary; the audited accounts follow the financial year and go to the Inland Revenue Department with the tax return. Different filings, different deadlines, different recipients.
- Leaving the auditor appointment late. An audit needs records that were kept as the year happened. Appointing a firm after the year end and hoping to reconstruct the file is how a straightforward engagement becomes an expensive one.
Penalties for failing to comply with the accounts and audit provisions of the Companies Ordinance do exist and are enforced. We have deliberately not quoted figures here, because published amounts vary between secondary sources and we would rather point you at the Ordinance than repeat a number we cannot verify against it.
This is general information, not legal, tax or accounting advice. If your Hong Kong company is approaching its first year end, our compliance and accounting service covers the audit coordination and the filing calendar, and the structural questions that sit alongside it are covered in Hong Kong company formation. If your position also involves an offshore claim, the source test the IRD applies runs on the same audited numbers, and our comparison of Singapore, Hong Kong and Dubai sets the compliance burden against the alternatives.
Audit questions, answered plainly
The questions founders ask once they discover the audit is not optional.
Does every Hong Kong company need an audit?
Yes, with one exception. The Companies Registry states that audit of financial statements is required for all companies, including those falling within the reporting exemption, except dormant companies under section 447. There is no threshold based on turnover, profit or size.
Is there a small-company audit exemption in Hong Kong?
No. Companies in the United Kingdom, Singapore and Australia can often dispense with a statutory audit below a size threshold. Hong Kong has no equivalent. The relief available to small companies is the reporting exemption, which simplifies disclosure rather than removing the audit.
What is the reporting exemption, then?
It allows qualifying private and guarantee companies to prepare simplified financial statements and directors’ reports. Among other things it removes the requirement to disclose auditor’s remuneration, the true and fair view requirement, and the business review in the directors’ report, and it permits reporting under the SME Financial Reporting Standard. The financial statements still have to be audited.
What are the size thresholds for the reporting exemption?
A small private company qualifies by meeting two of three conditions in a financial year: total revenue not exceeding HK$100 million, total assets not exceeding HK$100 million, and not more than 100 employees. A small guarantee company qualifies on revenue alone, at HK$25 million. An eligible private company can qualify at HK$200 million of revenue or assets with 75% member approval.
Can a company qualify without meeting the size tests?
Yes, by agreement. A private company that is not a member of a corporate group may fall within the reporting exemption with the written agreement of all its members, regardless of size. An eligible private company can use a resolution carried by members holding at least 75% of the voting rights with none voting against.
Does that agreement have to be filed?
Yes, and this is commonly missed. A copy of the agreement or the resolution must be delivered to the Registrar of Companies for registration within 15 days of it being made or passed. A decision taken internally and never filed has not completed the step.
Does a loss-making or dormant-in-practice company still need an audit?
A loss-making company does; nothing in the requirement turns on profit. A company that is genuinely inactive can be exempt, but only if it holds formal dormant status under the Ordinance. Dormancy is a legal position with conditions, not a description of a quiet year, and it ends as soon as the company transacts.
Who is allowed to sign a Hong Kong audit?
A Hong Kong CPA holding a practising certificate. The Companies Registry points companies to the register maintained by the Accounting and Financial Reporting Council to find one. An overseas accountant or an in-house finance director cannot sign a Hong Kong statutory audit.
When does my first financial year end?
For a company registered under the Companies Ordinance, the directors specify a primary accounting reference date falling within 18 months of incorporation. If they specify none, it defaults to the last day of the month in which the first anniversary of incorporation falls. The first financial year runs from incorporation to that date, so it can legitimately exceed twelve months.
Is the annual return the same as filing accounts?
No, and treating them as one obligation causes late filings. A local private company delivers its annual return to the Companies Registry within 42 days after the anniversary of its incorporation date. The audited accounts go to the Inland Revenue Department with the profits tax return, on the financial-year clock rather than the incorporation clock.
What happens if we change auditor mid-stream?
There are filings. On resignation the company delivers Form NA2 to the Registrar within 15 days of receiving the notice; on removal by ordinary resolution it delivers Form NA1 within 15 days of the resolution. An outgoing auditor must also give a statement of circumstances if they believe members or creditors should know why they left.
What are the penalties for not having accounts audited?
The Companies Ordinance provides for penalties and they are enforced. We have not quoted amounts because published figures differ between secondary sources and we prefer to point you to the Ordinance rather than repeat a number we cannot verify against it. Treat the exposure as real and the deadline as fixed.
More from the Sovera desk
Methodology & sources. Verified September 2026 against the Hong Kong Companies Registry: its FAQ on Accounts and Audit under the Companies Ordinance, for the audit requirement and the dormant-company exception under section 447, the scope and qualifying criteria of the reporting exemption, the 15-day filing of members’ agreements and resolutions, the determination of the first financial year and primary accounting reference date, and the Form NA1 and NA2 requirements on removal and resignation of an auditor; and the Registry’s key changes guidance on accounts and audit. Practising certificate holders are listed on the register of the Accounting and Financial Reporting Council. Statutory references are to the Companies Ordinance (Cap. 622).
This is not legal, tax or financial advice. Hong Kong company law and filing practice change, and how the requirements apply depends on your company’s circumstances. Confirm current obligations with the Companies Registry, the Inland Revenue Department and a Hong Kong CPA before relying on anything here. Sovera Global is a corporate services and jurisdiction advisory firm, not an audit firm or a law firm.
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