The audit and Profits Tax Return filing season may be a daunting task for businesses of all sizes. However, careful preparation can help relieve stress for company owners during an audit and, in fact, speed up the process! We will go through what an audit is, and how it relates to your tax return, and give some pointers to help small business owners get through this process!
What is an audit and why are they conducted?
An audit is the independent inspection of a company’s financial statements, carried out for the purpose of complying with Hong Kong’s Company Ordinance and tax rules set forth in the Inland Revenue Ordinance by an outsider.
All Hong Kong incorporated businesses are required by law to undergo an audit of their financial statements on a yearly basis, in accordance with this Regulation. A balance sheet, an income statement, a statement of changes in equity, and a cash flow statement will all appear in these financial reports.
During an audit, accountants examine a firm’s financial records to verify that the information presented is accurate and fair. Your auditors will provide your audited financial statements and profits tax computation hk to the Hong Kong Inland Revenue Department (“IRD”) for review after they are finished with their audit.
The IRD will then utilize these records to compute the company’s tax obligations for that fiscal year. As a result, a successful statutory audit may assist guarantee that their tax obligations are met correctly.
4 Tips for small businesses to pass successful audit
1. Do not wait to do reconciliations.
Reconciliation is critical in company accounting since reconciled accounts assist prevent errors in financial documents. Because reconciliations also aid in the presentation of cash flows correctly in the financial reports, make sure they are completed correctly.
Ensure that all of your accounting procedures match up to your trial balances, and most importantly, that they are reconcilable. Make sure you have access to any relevant documents so that when your auditors come in, they have enough information for context and a thorough examination.
Given that the audit procedure is the last place you want to find an error in your financial statements, you can never start preparing for your audit too soon!
2. Prepare your records before the audit begins.
After an audit, auditors will want you to submit a variety of papers and information for inspection, depending on the type of assessment being done. Given that the audit process is time-consuming and stressful for all parties, and that auditors will frequently ask follow-up inquiries, there is no such thing as over preparation.
It is recommended to gather all requested documents/information before the audit begins in order to facilitate the audit process. This way, your auditors can minimize the time spent conducting their tasks and will have a window of time to ask additional questions if needed. To the extent that your auditors are employed on a time-cost basis, adequate preparation may result in lower audit expenses.
3. Prepare a trial balance before you begin.
Trial balances are a company’s general ledger accounts (both revenue and capital) listed in order of their balance. Trial balances are prepared on a regular basis by businesses to ensure that their bookkeeping entries are accurate. During an audit, auditors frequently request trial balances since they have an objective.
Companies should take measures to prepare regular trial balances to guarantee a successful audit. In the event that your trial balances do not match your financial records, you will need more time and resources in order to fix any mistakes discovered during this time-sensitive process.
4. Use cloud accounting software
The ability to manage your finances through cloud accounting software, such as Xero, gives users simple yet efficient methods to handle their money. Accounts payable and accounts receivable are frequently handled manually by small offices. Dedicated accounting software, on the other hand, allows businesses of all sizes to better manage every aspect of their operations. The use of good quality content management software will ensure that the information given to your auditors is of the greatest possible quality.
In addition, one of the more appealing features of cloud accounting software is the convenience it provides in sharing information with your experts. Xero, for example, is a cloud accounting software that allows numerous people to access and import information as needed. Cloud accounting software thus minimizes the amount of time it takes to perform an audit.
What happens when an audit is finished?
When an audit is completed, your auditors will assist you in getting your company’s final audit reports and tax filing submitted to the Hong Kong Inland Revenue Department (IRD) for review.
The IRD will examine your audit report and tax computation hk to see if you owe any taxes for that year of assessment once you submit them. Once again, a properly completed audit may assist the IRD in correctly capturing your company’s tax obligations for that year.
Even after a satisfactory audit report has been submitted, compliance with Hong Kong audit laws continues. It is essential to understand all of the regulations and deadlines associated with a Hong Kong tax audit. For additional information regarding the specific audit I requirements in Hong Kong, please see our e-book A Beginners Guide to Hong Kong Taxation.
We attempted to describe what a successful statutory audit in Hong Kong is and some ideas on how to make your future tax filing go more smoothly. Next, let us explore the requirements for an audit and tax submission!
If you require assistance, FastLane is a CPA firm in Hong Kong. We can help clients with their audits and taxation with our team of certified experts. Please get a price quotation from the FastLane Group if you need assistance preparing your financial statements, tax computation hk, or communicating with the IRD!
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