Hong Kong Standards on Auditing (HKSA): What Your Auditor Checks

Every private limited company in Hong Kong must have its financial statements audited by a Hong Kong Certified Public Accountant (CPA) each year. The audit must be conducted in accordance with the Hong Kong Standards on Auditing (HKSAs), a set of standards issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) that govern how auditors carry out their work.

This guide explains what the HKSAs are, who sets and enforces them, and what the key standards require. For context on the annual audit obligation, see our annual requirements guide and our profits tax guide. For how the audit works in practice, including cost and timing, see our Hong Kong company audit guide.

What are the HKSAs?

The Hong Kong Standards on Auditing (HKSAs) are the professional standards that govern how auditors conduct audits of financial statements in Hong Kong. They set out the objectives, requirements, and guidance for audit work.

The main goal of an audit is to provide an independent, objective opinion on whether a company's financial statements give a true and fair view of the company's financial position and comply with applicable accounting standards. In Hong Kong, audited financial statements are submitted with the company's Profits Tax Return (BIR51). For the tax filing process that requires audited accounts, see our Hong Kong corporate tax guide.

Audited financial statements must include:

• Balance sheet (statement of financial position)
• Income statement (profit and loss account)
• Statement of changes in equity
• Cash flow statement (not required for companies reporting under SME-FRS)
• Notes to the accounts
• Auditor's report

Who sets and enforces the HKSAs?

HKICPA

The Hong Kong Institute of Certified Public Accountants (HKICPA) is the professional body that sets auditing standards in Hong Kong. It issues the HKSAs through its Auditing and Assurance Standards Committee (AASC), together with the Code of Ethics for Professional Accountants, which contains the independence requirements. Compliance with the HKSAs is mandatory for all HKICPA members who conduct audits.

AFRC

The Accounting and Financial Reporting Council (AFRC) is the independent regulator of the accounting profession. It does not write the HKSAs. Since 1 October 2022, its responsibilities include:

• Regulating auditors of public interest entities (PIEs), such as listed companies, and overseeing the HKICPA's registration of local PIE auditors
• Inspecting audit work to monitor audit quality
• Investigating possible auditing and reporting irregularities and taking disciplinary action against CPAs and practice units
• Overseeing the HKICPA's performance of its functions

See the AFRC's description of its role for details.

Alignment with international standards

The HKSAs are closely aligned with the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). This alignment ensures that financial statements audited in Hong Kong under HKSAs are comparable and credible in international markets.

Hong Kong accounting standards

The HKSAs govern how audits are conducted. The standards that govern how the financial statements are prepared (HKFRS, or SME-FRS for qualifying smaller entities) are covered in our Hong Kong accounting standards guide. In either case, the audit of those financial statements is conducted under the HKSAs.

Key HKSAs and what they require

You can browse the full set of standards in the HKICPA's standard-setting resources. The ones most relevant to a small company audit are below.

HKSA 200: Overall objectives of the independent auditor

The foundation standard. It requires auditors to:

• Obtain reasonable assurance that financial statements are free from material misstatement (whether from error or fraud)
• Comply with relevant ethical requirements, including independence, which are set out in the HKICPA Code of Ethics for Professional Accountants
• Exercise professional skepticism: questioning management's explanations rather than accepting them at face value, and remaining alert to evidence that contradicts stated assumptions

HKSA 210: Terms of engagement

Requires a formal engagement letter before the audit begins. The letter documents the scope, objectives, responsibilities of each party, and the basis for fees. It prevents misunderstandings and gives both parties a clear reference if disputes arise.

HKSA 220 (Revised): Quality management for an audit of financial statements

HKSA 220 (Revised) deals with quality management at the level of the individual audit engagement. The engagement partner is responsible for the quality of the audit. This covers:

• Assignment of suitably qualified personnel to the engagement
• Direction, supervision, and review of the audit work
• Consultation on difficult or contentious matters
• Engagement quality review where required

The firm-wide system of quality management sits in a separate standard, HKSQM 1, which replaced HKSQC 1 with effect from 15 December 2022. See the HKICPA's page on quality management for firms and engagements.

HKSA 230: Audit documentation

Auditors must prepare and retain documentation that records:

• The procedures performed
• The evidence obtained
• The conclusions reached

This documentation provides the basis for the auditor's opinion and must be sufficient to allow an experienced auditor with no prior connection to the engagement to understand what was done and why.

HKSA 240: Fraud and error

This standard sets out the auditor's responsibilities relating to fraud in an audit of financial statements. Key requirements:

• Maintain professional skepticism about the possibility of fraud throughout the engagement
• Perform risk assessment procedures specifically designed to identify fraud risks
• Design audit procedures that respond to the fraud risks identified, including testing journal entries and reviewing significant estimates for possible bias
• Report identified or suspected fraud to management or those charged with governance, as appropriate

The auditor does not guarantee that all fraud will be found: the primary responsibility for preventing and detecting fraud rests with management and those charged with governance.

HKSA 250: Laws and regulations

The auditor must understand the laws and regulations that apply to the company and its industry. If potential non-compliance is identified (for example, breaches of tax law or industry regulations), the auditor must evaluate the impact on the financial statements and report findings to management and those charged with governance.

HKSA 260: Communication with those charged with governance

Requires the auditor to communicate with the board of directors (or audit committee) on:

• The planned scope and timing of the audit
• Significant findings during the audit
• Significant deficiencies in internal control identified
• Disagreements with management
• Any limitations on the scope of work

This communication is separate from the audit report. The audit report is addressed to the members (shareholders) and sets out the audit opinion, while HKSA 260 communication goes to the directors and is usually given in a separate letter or meeting.

HKSA 550: Related parties

The auditor must identify and assess the risks arising from related-party relationships and transactions (entities or individuals with close relationships to the company) and perform procedures to confirm those transactions are properly authorised, disclosed, and measured. Related-party transactions carry a higher risk of manipulation. (HKSA 620, by contrast, covers using the work of an auditor's expert, such as a valuer.)

HKSA 570: Going concern

The auditor must assess whether the company can continue operating for the foreseeable future. The management assessment should cover at least 12 months from the date of the financial statements (the end of the reporting period). If management's assessment covers a shorter period, the auditor asks management to extend it. If there are material uncertainties about going concern, these must be disclosed in the financial statements and referred to in the audit report. See HKSA 570 (Revised) on the HKICPA site.

HKSA 610: Using the work of internal auditors

Where a company has an internal audit function, the external auditor may use the internal auditors' work to inform their understanding of the company's operations and controls. However, the external auditor must still perform their own procedures to determine how much reliance can be placed on the internal audit work.

Summary of key HKSAs

The table below lists the most frequently referenced HKSAs and the core scope of each:

HKSA 315 and HKSA 330 work together. HKSA 315 requires the auditor to identify where material misstatements could occur and why. HKSA 330 then requires the auditor to design and perform procedures specifically to address those identified risks. Together they form the core of the risk-based audit approach used in Hong Kong.

HKSA 500 sets the general requirements for what counts as sufficient and appropriate audit evidence. It is the foundation standard for all evidence-gathering. HKSA 505 extends this to external confirmations, such as bank confirmation letters and debtor confirmation requests sent directly to third parties to verify balances.

HKSA 540 covers estimates, which are among the most judgement-dependent items in financial statements. Provisions for bad debts, depreciation rates, fair value measurements, and inventory write-downs all require the auditor to challenge management's assumptions and gather evidence to assess whether the estimates are reasonable.

HKSA 560 deals with events after the balance sheet date but before the audit report is signed. If a material event occurs in this window, the auditor must assess whether it requires adjustment or disclosure in the financial statements.

HKSA 700 governs the auditor's report itself: the format, content, and the expression of an unmodified opinion. HKSA 705 covers situations where the auditor cannot give an unmodified opinion, and sets out the 3 types of modified opinion: qualified, adverse, and disclaimer of opinion. HKSA 706 covers emphasis of matter paragraphs, which draw attention to a specific disclosure in the financial statements. An emphasis of matter paragraph does not modify the opinion: it sits within an unmodified opinion.

What this means for Hong Kong companies

As a company director or owner, you are not required to understand the full technical detail of the HKSAs. That is your auditor's responsibility. However, you should know that:

1. Your auditor must remain independent: they cannot have financial or personal interests in your company that would compromise their objectivity. Appoint your auditor early, before the financial year closes, so they can plan the work
2. You must provide complete and accurate information when requested. Deliberately misleading an auditor is a serious breach. Respond promptly to requests for invoices, contracts, or bank statements, because delays push the audit past your filing deadlines
3. Your auditor will assess going concern: if your company has financial difficulties, this will be reflected in the audit report
4. The auditor will review related-party transactions (HKSA 550): loans to directors, payments to connected parties, and similar arrangements require proper documentation, ideally at the time they occur. For guidance on maintaining the underlying records your auditor will review, see our bookkeeping and accounting guide. The Companies Ordinance requires directors to ensure adequate accounting records are maintained
5. The audit report is relied on by the IRD, banks, investors, and regulators. It carries legal weight
6. There are four types of audit opinion: unmodified (clean), qualified, adverse, or disclaimer of opinion. An unmodified opinion can still include an emphasis of matter paragraph or a going concern paragraph. A modified opinion or going concern paragraph will be visible to the IRD, your bank, and any future investor

Your company secretary coordinates the annual audit as part of the compliance cycle. For the full list of annual obligations, see our annual requirements guide.

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