How to review HK company audit as a director

Reviewing an audit as a director of a Hong Kong company involves several steps to ensure the accuracy, completeness, and compliance of the financial statements and audit report. Here’s a checklist to guide you through the review process:

Understanding the Financial Statements

1. Familiarize Yourself with Accounting Standards: Understand the Hong Kong Financial Reporting Standards (HKFRS) applicable to your company.
2. Review Financial Statements: Carefully examine the balance sheet, income statement, statement of changes in equity, cash flow statement, and notes to the accounts.
3. Check Accounting Policies: Ensure the accounting policies are appropriate for your business and consistently applied.
4. Assess Estimates and Judgments: Review the key estimates and judgments made by management in preparing the financial statements, such as valuation of assets and liabilities.
5. Examine Notes and Disclosures: Ensure all required disclosures are complete and understandable.

Understanding the Audit Process

1. Review Audit Plan: Understand the scope, focus, and methodology of the audit as planned by the auditors.
2. Assess Risk Management: Review how significant risks, including fraud risks, were identified and addressed by the auditors.
3. Evaluate Internal Controls: Understand the auditors’ assessment of the company’s internal control system, particularly related to financial reporting.

Reviewing the Audit Report

1. Audit Opinion: Check the type of opinion issued (unqualified, qualified, adverse, or disclaimer) and understand the reasons behind it.
2. Management Letter: Review any points or weaknesses raised in the management letter and the implications for the financial statements and internal controls.
3. Representation Letter: Ensure that all representations requested by the auditors have been provided and are accurate.

Communication with Auditors

1. Discuss Findings: Meet with the auditors to discuss the audit findings, any issues encountered, and how they were resolved.
2. Clarify Misstatements: Understand any misstatements identified during the audit, whether corrected or uncorrected, and their impact on the financial statements.
3. Ask Questions: Address any concerns or questions you have regarding the audit process, findings, or the auditors’ judgments.

Internal Review and Action

1. Follow-up on Previous Issues: Check if previously reported audit findings and recommendations have been addressed.
2. Implement Recommendations: Plan and implement actions to address current audit findings and recommendations.
3. Communicate with the Board: Present the audit findings, implications, and your recommended actions to the board of directors for discussion and approval.

Documentation and Compliance

1. Document Review Process: Keep records of your review process, including dates, questions raised, and the responses received.
2. Ensure Regulatory Compliance: Confirm that the financial statements comply with local laws, regulations, and listing rules, if applicable.

By following this checklist, you can help ensure that your company’s audit is thorough, accurate, and compliant with Hong Kong regulations and standards. Additionally, this process can provide valuable insights into the financial health and risks of your company, guiding better-informed decisions.