The coronavirus (COVID-19) outbreak has substantially impacted the global economy and has challenged almost all businesses in the Greater China Region. Given the recent travel restrictions and special work arrangements, many foreign entities are struggling to manage their business during the pandemic. In the face of disruptions to business operations and activity, audit and accounting considerations are rapidly changing due to the impact of COVID-19.
Now more than ever, it is essential for businesses to be aware and stay on top of these heightened audit risks that COVID-19 will cause for your business.
Audit risks during COVID-19
Here are some of the biggest auditing challenges that can threaten the survival of your foreign entity in Hong Kong:
1. Obtaining sufficient audit evidence
Given the recent travel bans imposed, many of our clients with businesses in Hong Kong have found it increasingly difficult to gain access to their local business and gather sufficient audit evidence. As such, auditors need to develop alternative procedures to gather sufficient audit evidence, including the use of technology, where possible. Fortunately, governments have accounted for the current situation and need for additional resources, extending reporting deadlines so companies can still complete high-quality audits.
2. Developing risk assessments
With the increased threats and risks that have arisen from COVID-19, you may need to revise the auditor’s risk assessment. While a number of preferential tax policies for businesses in China have been implemented to reduce burden, businesses are still heavily exposed to financial risks in the long term. Due to the volatility of the current situation, the risks need to be constantly monitored to modify the audit strategy and plan accordingly. Your company will need to reassess the risks of material misstatement as the information on which the initial risk assessment was based has likely changed. Ongoing revisions to your audit plan will undoubtedly take up a lot of your time and resources, and will need continuous communication with your auditors.
3. Modifying the audit processes
The effect the outbreak will have on your reporting timetable and the impact on the audit processes is another challenge for many businesses at the moment. This is especially challenging for companies looking to support their claim to overseas tax exemptions via their audit report. Given the sheer amount of documentation and preparation required to prove that their profits came from overseas, it has become very difficult for Hong Kong companies to successfully apply for offshore tax exemptions due to delays in audit processes and gathering sufficient evidence.
A lot of other businesses have been encountering delays in arranging the audits due to poor business performance. We do not recommend them to delay auditing processes, otherwise, they will be subject to a fine of up to HK$10,000 and triple the amount of the tax.
More than ever before, you will need to liaise closely with auditors to ensure that audit processes are correctly completed. It is important for the auditor to keep careful documentation of all the requests made for information, and the reasons for those requests. Optimising your audit processes with a trusted audit partner like Hongda can save on time and avoid delays.
Hong Kong company auditing with Hongda
At Hongda, our in-house professionals can help take care of your Hong Kong tax, accounting and auditing needs to mitigate the above risks caused by COVID-19 and ensure compliance with Hong Kong law. By partnering with Hongda to arrange and oversee your annual Hong Kong company audit, you can focus more of your time on navigating your business through these difficult times.
We are aware of the many issues that your company has experienced due to the pandemic, including the transition to teleworking, virtual meetings and other contingency measures. Our team at Hongda stands ready to facilitate these transitions with your company and assist you in formulating an appropriate audit strategy and plan for your foreign business in Hong Kong.
We fully understand your situation and will closely communicate with your business to determine the most appropriate course of action during these difficult times. Click the button below to request a FREE no-obligation phone consultation to discuss your company’s situation.
