In Hong Kong, some companies are exempted from the compulsory audit requirement, usually by the nature of their structure and level of their activity. At One IBC, we help businesses navigate these exemptions and ensure compliance with local regulations. The following are the major types of companies that enjoy the exemption status:
1. Sole Proprietorships
Sole proprietorships are those owned and operated by an individual and are not legally separate entities. For this reason, they are not compelled by law to audit their books of accounts.
2. Partnerships
Similarly, partnerships are also exempted from the audit requirement, in which two or more persons keep and run a business. Just like a sole proprietorship, a partnership is not a separate legal entity. As such, no audit is needed unless so provided by the terms of the partnership agreement, or unless such an audit is needed for the needs of the business.
3. Dormant Companies
Dormant companies are those limited companies that have no substantial accounting transactions in a financial year. According to Hong Kong’s Companies Ordinance, they are not required to undergo any audit processes in case they file a declaration called a Dormant Company Declaration with the Registry of Companies. Such an exemption is useful when a company is quite temporary or sits on any assets until they show up for use.
Small Private Companies (Exempt from Public Filing, Not Audit)
Smaller private companies must audit and perhaps are exempt from the filing of financial statements publicly. Under the Hong Kong Companies Ordinance, companies that meet the following criteria, like having lower revenue, total assets, or a number of employees can prepare simplified accounts. They are also required to conduct an annual audit.
Key Point:
As such, though sole proprietorships, partnerships, and dormant companies do not require audit, the limited companies whether private or public have to get their financial statements audited yearly according to the Companies Ordinance.
Sole proprietorships, partnerships, and dormant companies are exempt from audit in Hong Kong. However, a limited company, irrespective of its size, needs to be audited on a yearly basis.