There are statutory provisions concerning the obligations of a company in relation to audit and auditors.  These include provisions:-

  • requiring that a company’s annual accounts for a financial year must be audited in accordance with the applicable provisions (subject to certain exceptions); and
  • relating to the distribution of an auditor’s report to the members of a company.

Audit

All companies, except  dormant companies, are required to have an auditor’s report prepared on any financial statements prepared by the directors in each financial year.  The term ‘audit’ is not defined in the Companies Ordinance (Cap. 622) (the “Companies Ordinance”).  However, the duty of a company’s auditor is to make a report on the annual accounts of a company if copies of those annual accounts are laid before a company in general meeting or otherwise distributed by the company.

An auditor’s opinion on the following matters must be stated in the auditor’s report:

  • whether the financial statements have been properly prepared in compliance with the Companies Ordinance; and
  • whether the financial statements give a true and fair view of the financial position of the company (except where the company falls within the reporting exemptions).

A statement detailing each of the following circumstances listed below, if applicable, must also be included in the directors’ report:

  • where the directors’ report is not consistent with the financial statements;
  • where adequate accounting records have not been kept by the company;
  • where the auditor has failed to obtain all the information that, to the best of the auditor’s knowledge and belief, are necessary and material to the audit; and
  • where the financial statements do not comply with s. 383(1), which requires the financial statements to include details of various types of directors’ benefits and interests.

An auditor’s report must be signed by:

  • the auditor, if s/he is a natural person; or
  • in the case of an audit firm or company, by a natural person who is authorised to sign on behalf of such audit firm or company.

The name of the auditor must be stated in the auditor’s report, and every copy of it that is laid before the company or is otherwise issued.

Rights of auditors

An auditor is entitled:-

  • to attend any of the company’s general meetings;
  • to be heard in any general meeting on any matter involving the auditor;
  • to access the company’s accounting records; and
  • to require any related entity of the company to provide such information as the auditor reasonably requires for the performance of the duties of the auditor.

Criminal liabilities and penalties

The auditor, and every employee and agent of the auditor will commit an offence if they knowingly or recklessly caused a statement required by the Companies Ordinance to be omitted from the auditor’s report.  The penalty for such an offence is a fine of HK$150,000.

In addition, in certain circumstances, failure by the auditor to comply with the requirements in the Companies Ordinance can cause criminal liabilities to be attached to every ‘responsible person’, which means any person who:

  • was an officer or shadow director of the company; and
  • such person authorises or permits, or participates in, the failure to comply with the requirement to prepare a directors’ report.

For example, every responsible person will commit an offence if the auditor’s report does not state the auditor’s name.  The penalty for such an offence is a ‘level 4’ fine (i.e. a fine of an amount ranging  from HK$10,001 to HK$25,000).

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