4 Types of Auditors’ Opinions and How to Get a Clean Accounting Report?
According to the Inland Revenue Department (IRD), every registered company must submit a profit tax return form and an annual audited report. In April 2023, the Hong Kong government introduced a new policy about tax forms and audit report submissions regardless of companies’ sizes or amount of annual turnover.
Prior to that, many small businesses with an annual turnover of less than HKD $2 million would just submit a tax form without an audited report to the IRD. This was a general misconception as the government never indicated there was no need to submit an audited report; it was time-consuming and cost-in-efficient for them to check on every small business because there were so many registered companies in Hong Kong. In fact, the government has the right to ask any company to submit an audited report at any time. As for inactive companies, they are still required to submit a zero-tax form and a zero-audited report to the IRD.
Aside from being a company formation agency, we are also a professional accounting firm. This article will guide you through the general practice of accounting and auditing in Hong Kong, so you know what to expect if you plan to incorporate a company in the future.
Main Duties of an Auditor
The main duties of an auditor are to express an opinion on the audit report by examining the financial data provided by the company based on their expertise. Auditors are also responsible for ensuring the accuracy of the accounting records as well as making certain the finances comply with the law.
Every limited company in Hong Kong must appoint a certified public accountant (CPA) registered under The Hong Kong Institute of Certified Public Accountants (HKICPA) to conduct auditing every year. However, not all CPAs are qualified to sign off audit reports because the Hong Kong government will only accept ones that are signed by a HKCPA (practicing). As you can probably tell, a practicing HKCPA has a higher qualification than a regular accountant.
The 4 Types of Opinions
Unqualified Opinion: This is the best outcome a company can receive on its audit report. An unqualified opinion means that the financial statements provided by the company are accurately reflected in the report.
Qualified Opinion: This means there are some minor flaws shown in the report perhaps due to a few missing invoices. A qualified opinion may not be the best result, but it certainly isn’t the worst. In fact, this is quite common among start-up companies because of their lack of experience in the business field.
Disclaimer Opinion: Let’s say you somehow lose all of your supporting documents, then it is very highly likely you will receive a disclaimer opinion because it’s almost impossible for your auditor to analyze the accounting records. It can be a violation of the law if one fails to keep a record of the necessary supporting documents required. If you lose all your bank statements and invoices, you should contact your bank to retrieve previous transaction records. Likewise, if you lose all your expense receipts, you should contact your supplier(s).
Adverse Opinion: This is the worst possible outcome that can occur, and it will only show in the report if your auditor finds inconsistencies in the accounting records. For example, if they think that the information is falsely stated or insufficient. We recommend you keep safe of all your records in Google Drive or a flash drive in case an unfortunate event happens like a computer malfunctioning.
Accounting Software
Some of you might find the overall accounting fee in Hong Kong expensive, this is solely because the labour cost is generally higher compared to other less developed countries. The higher the total transaction number your company has means the accountant would need to book each transaction into the book which means more time costs.
Alternatively, you can choose to do your accounting with a software program. Xero is a popular choice in the market as it is relatively user-friendly. You can easily generate a management account (balance sheets, general ledger, profit & lost report etc.) and even expense receipts or supplier invoices. Beware that some company formation agencies or accounting firms will try to upsell you to purchase the software by charging a marked-up price way above the market value. This is a typical bait-and-switch tactic, and we urge you to be vigilant and not fall into their trap.
We hope you find this article helpful! Please feel free to inquire about our accounting services, you can contact us via email at info@cheapincorp.com or by WhatsApp at +852 54040902.