It is the directors' responsibility to make sure the company's accounts and audited financial statements are prepared and presented to the shareholders annually.
This article "Accounting requirements that every Director should know!" - Series 1, will cover the legal requirements that every director need to fulfil in relation to accounts and audit.
Accounting Records
The Companies Ordinance (sections 373 to 378) set out the following rules in relation to accounting records:
the company must keep the accounting records that show and explain every transaction of the company;
accounting records must contain daily entries of all sums of money received and expended by the company, and to record the company’s assets and liabilities
the company must take all reasonable steps to secure that the subsidiaries also keep their accounting records
the accounting records must be kept at the registered address (or any other place the directors think fit) - either in hard copy or electronic form
the company must preserve the records for 7 years after the end of the financial year
directors has to take all reasonable steps to secure compliance with the requirements, failure of which will be liable to a fine and imprisonment
Audited Financial Statements
It is the directors responsibility to ensure the audited financial statements is prepared each year according to the sections 379 to 404 of the Companies Ordinance. Below briefly list out relevant requirements:-
financial statements must be prepare for each financial year
a holding company and its wholly owned subsidiary should prepare a consolidated financial statements, unless the directors of the subsidiary notify the shareholders in writing at least 6 months before the end of the financial year that it is their intention not to prepare consolidated statements and no objection has received 3 months before the end of the financial year. However, in the case of partially owned subsidiary, it solely requires written consent from all shareholders to not prepare consolidated statements, anytime before the end of the financial year. Please note that the agreement or consent must not relate to any other financial year
a statement of financial position must be approved by the directors, and must be signed by 2 directors on behalf of the board (for companies having 2 or more directors)
a director report (which form a part of the financial statements), must be approved by the directors, and must be signed by one director or by the company secretary
an auditor must be appointed for each financial year of the company [get quote now]
the first auditor could be appointed by the directors or shareholders of the company
the appointment of auditor for the second year shall be approved by the shareholder in the AGM or a shareholder meeting in case an AGM is not required to be held
in case there is a casual vacancy in the office of auditor, the directors could appoint another person to fill the vacancy, if the directors have not done so within one month, the shareholders may pass a resolution to appoint a person to fill the vacancy
the directors have to present the financial statements to the shareholders in the annual general meeting ("AGM") or circulate it via agreed communication channel if AGM is not required to be held
directors has to take all reasonable steps to secure compliance with the requirements, failure of which will be liable to a fine and imprisonment
MR LIBRARY Insights
Companies with no accounting transaction / have not yet commenced business
In order to be entitled to the exemption from fulfilling certain requirements in accounts and audit, the company in question has to first file its application to become a dormant company. Otherwise, the company is deemed to be liable to all relevant requirements. [get quote on becoming a dormant company] or [purchase template here]
Time frame
The preparation of accounts and financial statements take at least 3-5 working days to complete, we encourage companies to start to work with their accountant and auditor right after the end of the financial year, this also allow the company to file the annual profit tax return in time.
Costs
Accounting service in Hong Kong would cost at least HKD300-500 per month, while the audit fee in general starts from HKD6,500 a year. The costs are mainly determined by (i) the volume of transaction, (ii) the annual revenue and (iii) the business nature of the company.
WOFE
Companies that have a WOFE in China is recommended to check with the auditors in both PRC and Hong Kong before engaging their services, to ensure that they would accept the accounting works from each other and a formal communication channel will be established for information exchange. This is to secure the audited financial statements could be finalized without delay.