Hong Kong Accounting Requirements: What Every Director Must Know[a]
INTRODUCTION
Most Hong Kong directors know they need accounts. Fewer know exactly what the law requires.
The Companies Ordinance (Cap. 622) sets out specific obligations for how accounts must be prepared, maintained, and audited. Getting this wrong is not just an accounting problem.
It is a legal one.
The Legal Basis for Accounting Obligations
Hong Kong’s accounting requirements for companies are set out primarily in the Companies Ordinance (Cap. 622) and the Inland Revenue Ordinance (Cap. 112).
The Companies Ordinance requires every company to keep proper books of accounts that give a true and fair view of the company’s financial position. The Inland Revenue Ordinance requires records sufficient to allow the IRD to verify profits and losses.
We have seen directors prosecuted for failing to keep proper records under the Companies Ordinance. These are parallel obligations. A company that keeps records for tax purposes but not for Companies Ordinance purposes is still non-compliant.
Hong Kong Financial Reporting Standards
Financial statements must be prepared in accordance with Hong Kong Financial Reporting Standards (HKFRS).
HKFRS is issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and is substantially aligned with International Financial Reporting Standards (IFRS). For most practical purposes, the two frameworks are equivalent.
A founder once asked if he could use US GAAP instead of HKFRS because his parent company used it. He could not. Hong Kong law requires HKFRS. Small companies may qualify for the Small and Medium-sized Entity Financial Reporting Framework (SME-FRF), which is a simplified alternative.
Your auditor can advise whether your company qualifies based on size thresholds.
The Annual Audit Requirement
Every Hong Kong company must have its annual accounts audited by a Certified Public Accountant (CPA) holding a practising certificate in Hong Kong.
This is not optional for most companies. The audit must be completed before the annual return is filed and before the profits tax return is submitted to the IRD.
Knowing what records to keep is one thing; actually organizing them is another. We have a separate post on day-to-day bookkeeping practices.
We have seen companies assume they are too small to need an audit. They are usually wrong. The auditor examines your financial statements, checks that they are prepared in accordance with HKFRS, and issues an auditor’s report. This report is attached to your profits tax return and is also required for your annual general meeting or equivalent process for private companies.
What Records Must Be Kept
The Companies Ordinance and IRD requirements are specific about what records must be maintained.
required records include bank statements and reconciliations, sales invoices and receipts, purchase invoices and expense receipts, payroll records and MPF contribution statements, and contracts and agreements. You also need board minutes, resolutions, share register, and statutory records.
A founder we worked with lost a laptop with two years of transaction files. His backup was on an external drive that got damaged in a flood. He had to reconstruct records from bank statements, which took three months and cost HKD 20,000 in accounting fees.
All records must be kept for a minimum of 7 years from the end of the accounting period.
Physical records are acceptable. Digital records are also acceptable provided they are complete, accurate, and accessible for inspection.
The Financial Year and Annual Cycle
Every Hong Kong company has a financial year end date. This date determines when your accounts must be prepared, audited, and filed.
Most common financial year end dates are 31 March, 30 June, 30 September, and 31 December. There is no legal requirement to follow any particular date.
After your financial year end, the cycle starts. You prepare management accounts, complete the audit, file the profits tax return with audited accounts attached, and file the annual return (NAR1) with the Companies Registry by the due date.
The entire cycle typically takes three to six months after the financial year end, depending on how well-organised your records are.
One of the most common questions we get is how long to keep records. The answer matters more than most directors realize; read our post on Hong Kong’s seven-year retention requirement.
Director Responsibilities Under the Companies Ordinance
Directors are personally responsible for ensuring the company meets its accounting obligations. This is not something you can delegate entirely to an accountant or auditor.
Specifically, directors must ensure proper books of accounts are kept, financial statements are prepared and approved, and the company does not trade while insolvent. You must sign the directors’ report and approve the accounts before the audit.
Failure to maintain proper accounting records is a criminal offence under the Companies Ordinance. The penalties include fines for the company and personal liability for directors in serious cases.
This is not theoretical. Directors have faced prosecution and personal penalties for non-compliance.
Common Accounting Failures in Small Companies
The most frequent accounting problems we see at ABLE Hong Kong come from the same patterns.
The most common issues are no proper bookkeeping during the year, creating a scramble before the audit, bank statements missing or not reconciled, and expenses claimed without supporting invoices. Personal and company finances mixed together is also frequent.
A founder we worked with had no records of expenses for the year. We had to go through six months of bank statements to categorise every transaction. The audit cost double what it should have. Records not kept for the full 7 years happens more often than it should.
None of these are catastrophic if caught early.
Final Thoughts
Hong Kong’s accounting requirements are not designed to be burdensome.
A company with clean, well-organised records will complete its audit and tax filing with minimal friction. The directors who struggle are the ones who leave everything to the end.
Keeping books current throughout the year means your accountant spends less time reconstructing records and more time on legitimate tax planning.
Need a Hong Kong accountant who keeps things running smoothly year-round?
ABLE Hong Kong handles accounting, audits, and IRD compliance for companies across all industries. Book a free consultation.
FAQ
Are Hong Kong companies required to have their accounts audited?
Yes. Most Hong Kong companies must have annual accounts audited by a CPA holding a Hong Kong practising certificate. There are limited exemptions for dormant companies.
What accounting standards apply to Hong Kong companies?
Hong Kong Financial Reporting Standards (HKFRS), issued by the HKICPA. Smaller companies may qualify for the simplified SME Financial Reporting Framework.
How long do I need to keep accounting records in Hong Kong?
At least 7 years under both the Companies Ordinance and the Inland Revenue Ordinance.
What happens if a company does not keep proper accounting records?
Failure to maintain proper records is a criminal offence under the Companies Ordinance. Directors can face fines and, in serious cases, personal liability.
Can I use digital records instead of paper?
Yes, digital records are acceptable provided they are complete, accurate, and can be made available for inspection when required.
When do accounts need to be prepared by?
There is no fixed legal deadline for preparing accounts, but they must be ready before the audit and before your profits tax return is filed. Most companies complete this within three to six months of their financial year end.
Ready to get professional help? Compare the top options in our roundup of the best accounting services in Hong Kong.