ANNUAL

COMPLIANCE

AUDIT
 

An audit is compulsory in Hong Kong and are carried out by registered auditors licensed by the Hong Kong Institute of CPAs. Because it is compulsory we feel that a lot of accountants fail to explain the benefits of an audit.

 

Many businesses underuse their auditors and in fact completion of an audit is an excellent opportunity to ask your accountant to provide more value to your company as they have indepth access to data for the last financial year.

 

An effective audits and audit-related services can allow a Company an opportunity to: 

  • Ensure compliance with conditions governing the entity’s activities under statutory requirements, trust deeds, contracts and other agreements.

  • Ascertain whether the resources of an entity have been acquired with due regard to economy, and are applied in an efficient and effective manner towards the achievement of the entity’s objectives.

  • Review other variable information, e.g. profit forecasts and adequacy of the system of internal control.

 

Benefits of an audit

 

Very often an audit is treated as an unnecessary cost, and is carried out by the client mindlessly and as part of their annual tax filing. But clients who use the audit this way is missing out on the extensive benefits of what an audit can provide. Depending on the audit mandate, an audit can put your business on a sounder footing because it:

  • Gives the business greater credibility in the eyes of banks, financiers, government departments, creditors, potential purchasers and other users.

  • Gives you confidence that your financial reports are free of material misstatement and can be relied on for decision making purposes.

  • Satisfies statutory requirements for financial reporting.

  • Provides you with areas for improvement.

  • Provides an independent analysis of the financial structure of your business.

 

A negotiating tool

 

Having an auditor’s report on your financial reports puts your business in a stronger negotiating position. If you’re looking to sell a part of your business, merge with another organisation or simply restructure your business, then audited financial reports will be the key supporting documents in your negotiations with third parties.

 

A clean audit opinion will enhance the valuation of your business. For example, if you’re looking to renew loans from banks or finance companies, audited financial reports will lend weight to the two areas of loan applications that financiers evaluate most critically: projections of turnover and profit. A clean audit report therefore gives confidence to the bankers that your accounting affairs are up to scratch. Or if you’re applying for a government grant, audited financial reports will give greater credibility to your submission.

 

Providing insights

 

An audit can encompass more than an examination of your accounts and financial reports. A statutory audit couple with an efficiency review can look into the way the business operates and provide you with important information about your business, such as, whether:

  • Your accounting and budgeting systems are adequate.

  • Inefficient procedures and wasteful practices are costing you money.

  • The duties of those with financial control are adequately defined.

  • Earning could be improved by changes in management and pricing policies.

  • Your inventory management and control is adequate.

  • Your financial arrangements should be reviewed.

  • Your credit policies need revision.

  • Adequate systems and practices are being employed to safeguard business assets from criminal or negligent misappropriation.

© 2016 by T.K.Tong & Co.