Changing Auditor in Hong Kong: Procedure and Deadlines

At a glance

The procedure, form numbers and deadlines are as set out in Part 9 of the Companies Ordinance and as most recently published by the Companies Registry.

Why is there so much procedure?

Because an auditor is accountable to the shareholders, not to the directors.

So the law makes sure the reason for an auditor leaving cannot be concealed by the company acting alone. If the auditor considers there is something members or creditors ought to know — a serious disagreement with management, a significant problem found — they have a duty to make a statement of circumstances, and that statement goes to the Companies Registry for registration.

What that means in practice: if you are changing auditor because they would not issue the report the way you wanted, it leaves a trace.

What does the full procedure look like?

One: decide and agree the terms first. Talk to the new auditor about scope and fee, and confirm they can take the work on.

Two: the outgoing auditor leaves office. On a resignation, they give written notice; on a removal, follow the statutory procedure. Deal with the statement of circumstances if there is one.

Three: file it. A resignation is filed on NA2 (within 15 days of receiving the notice); a removal on NA1. This step is usually handled by the company secretary.

Four: appoint the new auditor. Following the Companies Ordinance and the articles.

Five: hand over. The new auditor will normally contact the outgoing one to find out whether there is anything to be aware of, and will ask for last year’s audit file material.

That 15-day deadline is the same species as the ones for changing the company name and changing a director — miss it and you are in breach.

When is the smoothest time?

The best time: after this year’s audit is finished and the report has been issued.

The new auditor then takes over from a clean starting point — last year’s figures have been audited, and what they are doing is a fresh year.

The worst time: halfway through an audit.

Work already done has to be redone, the time is wasted, and it very easily collides with the tax filing deadline.

If you genuinely realise mid-audit that something is wrong, it is usually worth finishing the year and changing next year — unless the problem is serious enough that carrying on is not an option.

What will the new auditor ask the old one?

This step surprises a lot of owners: the incoming auditor will contact the outgoing one on their own initiative.

It is professional practice, and the point is to find out whether there is any reason they should not accept the appointment — unpaid fees, a serious disagreement, an integrity concern.

Two practical consequences:

One: do not assume changing wipes the slate. The previous firm’s concerns travel to the next one.

Two: settle up before you leave. Outstanding fees will come up during the handover, and can hold up the transfer of material.

What to get back before they go

Before the outgoing auditor leaves office, make sure you hold:

• Last year’s signed audit report and financial statements
• The tax computation — needed by the new auditor and for the tax return
• The year-end adjusting entries — they determine the opening balances for the new year
• The carried-forward loss balance — this has to link up year on year, and a break in it is painful
• The fixed asset register and depreciation allowance computation

This material belongs to your company, and asking for it back before they leave is entirely reasonable. Chasing it after they have left is generally much slower.

When should you not change?

Because they ask too many questions. An auditor asking a lot usually means your material is incomplete — a new one will ask the same things. The real answer is getting the accounts ready.

Because you got a qualified opinion. Changing auditor does not make a qualification go away. If the reason is cash income or stock with no records, the new auditor sees the same facts and reaches the same conclusion.

Just to save a few thousand dollars. The hidden costs of changing — handover time, a first year learning the business, rebuilding the working relationship — usually cancel out the difference.

Genuinely good reasons to change are: chronic failure to respond, serious delays, a fee that bears no relation to the quote, or a firm that no longer fits the size or industry of your company.

Finally: this belongs with the company secretary

A change of auditor involves forms, deadlines, resolutions and registration — the same line of work as the rest of your company’s statutory filings.

We provide company secretarial services, which covers the forms and the 15-day deadline, following up on the handover material, and making sure nothing drops between the outgoing and incoming firms. The statutory audit itself is carried out by a licensed accountant.

Want to change auditor without it turning into a mess? Talk to us, or get started.

This is general information and does not constitute legal or audit advice. The procedure, forms and deadlines for the appointment, removal and resignation of auditors are as set out in Part 9 of the Companies Ordinance and as most recently published by the Companies Registry.