Switching Auditors in Hong Kong Process Guide

Switching Auditors in Hong Kong Process Guide | Bestar

Hong Kong Auditor Switch Guide

Switching Auditors in Hong Kong Process Guide

Switching your company's auditor in Hong Kong is a regulated process governed by the Hong Kong Companies Ordinance (Cap. 622). Whether you are seeking better service, lower fees, or specialized industry expertise, the transition must follow specific legal steps to ensure compliance with the Accounting and Financial Reporting Council (AFRC) and the Inland Revenue Department (IRD).

This guide provides a comprehensive roadmap for business owners, FDs, and CFOs on how to navigate the auditor switch in 2026.

1. Common Reasons for Switching Auditors

Before initiating the change, it is helpful to document your reasoning, as this may be required for "Statement of Circumstances." Common drivers include:

• Service Quality: Slow response times or missed filing deadlines.

  
  

• Industry Expertise: Your current firm lacks experience in your specific sector (e.g., Crypto, eCommerce, or ESG reporting).

  
  

• Fees: Seeking more competitive or transparent pricing.

  
  

• Audit Rotation: For listed companies or large groups, periodic rotation is often a matter of good corporate governance.

  
  

• Technology Gap: Moving from manual, paper-based auditing to a firm that uses cloud-based tools like Xero or QuickBooks.

2. The Step-by-Step Process (2026 Guide)

The process typically takes 2 to 4 weeks, depending on how quickly the outgoing auditor responds.

Step 1: Identify and Propose New Auditor

Once you have selected a new Hong Kong CPA firm, they must perform their own due diligence. You will need to provide them with your latest audited financial statements and group structure.

Step 2: Professional Clearance (The Handover)

This is a mandatory ethical step. The Incoming Auditor sends a "Professional Clearance Letter" to the Outgoing Auditor.

• Purpose: To ask if there are any professional reasons why they should not accept the appointment (e.g., unpaid fees or ethical disagreements).

  
  

• Requirement: You must provide written authority to the outgoing auditor to discuss your affairs with the new firm.

Step 3: Resignation or Removal

There are two ways an auditor leaves:

• Resignation: The auditor sends a formal Letter of Resignation and a Statement of Circumstances to the company.

  
  

• Removal: If the auditor refuses to resign, shareholders must pass an Ordinary Resolution at a General Meeting to remove them. This requires a "Special Notice" of 28 days.

Step 4: Board and Shareholder Approval

The Board of Directors must meet to:

1. Formally accept the outgoing auditor’s resignation.

   
   

2. Propose the appointment of the new auditor.

   
   

3. Convene an Extraordinary General Meeting (EGM) or use a Written Resolution to get shareholder approval.

Step 5: Statutory Filings (Form NA2)

Under the Companies Ordinance, the company must notify the Companies Registry of the change.

• Form: NA2 (Notification of Resignation of Auditor).

  
  

• Deadline: Within 15 days of the resignation or removal.

  
  

• Failure to file: Can result in fines for the company and its officers.

3. Transition Checklist for 2026

To ensure a smooth "Year 1" audit with your new firm, have the following documents ready:

Document Type	Details Needed
Prior Year Records	Final audited accounts, tax computations, and management letters.
Trial Balance	A clean, reconciled trial balance for the current period.
Statutory Records	Updated Register of Members and Directors.
Accounting Access	Login credentials for cloud accounting software (Xero/QuickBooks).
Bank Confirmations	A list of all active bank accounts for the new auditor to verify.

4. Pro-Tips for the Switch

• Timing is Everything: The best time to switch is immediately after your current audit is signed off and filed with the IRD. Switching mid-audit is significantly more expensive and complex.

  
  

• Check Practice Certificates: Always verify that your new firm holds a valid Practising Certificate from the HKICPA.

  
  

• Hidden Costs: Ask the incoming firm if they charge a "setup fee" or "onboarding fee" for taking over the prior year’s opening balances.

Template for the "Authority to Seek Professional Clearance" Letter to Send to your Current Auditor

This letter is a formal requirement that gives your current auditor permission to speak freely with the new firm you intend to appoint. Without this, the outgoing auditor is bound by confidentiality and cannot provide the necessary "Professional Clearance."

Below is a professional template you can copy and adapt to your company letterhead.

Authority to Disclose Information

(To be prepared on Company Letterhead)

Date: [Insert Date]

To: [Partner Name] [Outgoing Accounting Firm Name] [Firm Address] Hong Kong

Attn: The Engagement Partner

RE: Authority to Communicate with Successor Auditors – [Your Company Name]

Dear Sir/Madam,

We are writing to formally notify you that we have decided to propose a change in our auditors for the financial year ending [Year-End Date, e.g., 31 December 2025].

We intend to appoint [Name of Incoming CPA Firm] as the new auditors of the Company. In accordance with the ethical requirements of the Hong Kong Institute of Certified Public Accountants (HKICPA), the incoming firm will be contacting you shortly to seek professional clearance.

By this letter, we hereby authorize you to:

1. Discuss the affairs of [Your Company Name] (and its subsidiaries, if applicable) with [Name of Incoming CPA Firm].

   
   

2. Disclose any information or provide any explanations that they may require to decide whether they should accept the appointment.

   
   

3. Provide them with access to, or copies of, such working papers and documents as may be reasonably requested to facilitate a smooth transition of the audit.

We would like to take this opportunity to thank you for your professional services rendered to the Company in the past.

Please acknowledge receipt of this letter.

Yours faithfully,

For and on behalf of [Your Company Name]

(Signature)

[Name of Director] Director

Key Reminders for the User:

• Check for Outstanding Fees: Outgoing auditors may withhold clearance if there are significant unpaid invoices. Ensure your account is settled to avoid delays.

  
  

• The "Circumstances" Statement: Remember that for a resignation to be valid in Hong Kong, the outgoing auditor must also provide a "Statement of Circumstances" (or a statement that there are none) which you must then file with the Companies Registry alongside Form NA2.

Checklist of the Documents the Outgoing Auditor should Prepare for the Handover

The "Outgoing Auditor Handover Checklist" includes all the essential financial records, tax documents, and statutory information required for a smooth transition to your new auditor.

Outgoing Auditor Handover Checklist

• Trial Balance and Lead Schedules for the last audited period

• Final Audited Financial Statements and Tax Computations

• Breakdown of key balance sheet items (Fixed Assets, Prepayments, Accruals)

• Bank Reconciliation statements and confirmation copies

• Inventory count results and valuation summaries

• Signed Management Representation Letter

• Detailed General Ledger for the prior year

• Correspondence with the Inland Revenue Department (IRD) and Profits Tax Returns

• Statutory records including Register of Members and Directors

• Statement of Circumstances (if applicable) for the resignation

Frequently Asked Questions (Q&A)

1. Is it legal to switch auditors mid-year in Hong Kong?

Yes. While it is most common and cost-effective to switch auditors at the Annual General Meeting (AGM), you can change auditors mid-cycle. However, the outgoing auditor must formally resign or be removed via an ordinary resolution, and they must provide a Statement of Circumstances explaining the reasons for the change.

2. How long does the entire auditor transition process take?

For a typical SME in Hong Kong, the process takes 4 to 6 weeks. This includes the time needed for the new auditor to perform professional clearance (approx. 2 weeks) and for the company to handle internal resolutions and Companies Registry filings (approx. 2 weeks).

3. Does my current auditor have to "agree" to the switch?

No, an auditor cannot block you from switching. However, they must participate in the Professional Clearance process. Under the HKICPA Code of Ethics, they are required to respond to the new auditor’s inquiries. They can only withhold clearance if there are unresolved ethical issues, though unpaid fees are a common reason for delays.

4. What are the mandatory filings required for a change of auditor?

You must notify the Companies Registry within 15 days of the change:

• Form NA2: Used if the auditor resigns.

• Form NA1: Used if the auditor is removed by a shareholder resolution. Failure to file these within the 15-day window can result in fines for both the company and its directors.

5. Will switching auditors trigger an audit by the Inland Revenue Department (IRD)?

Switching auditors is a common business practice and does not automatically trigger an IRD audit. However, if the switch happens very close to a filing deadline or if the "Statement of Circumstances" mentions significant accounting disagreements, it could potentially flag your file for review.

6. Do I need shareholder approval to appoint a new auditor?

Yes. Under the Companies Ordinance, directors can only appoint the first auditor of a company. All subsequent appointments (including filling a vacancy caused by a resignation) must be approved by the shareholders via an Ordinary Resolution (requiring >50% approval).

7. Why should I choose a cloud-based auditor like Bestar?

Traditional firms often rely on paper records, which lead to higher billable hours and manual errors. Bestar utilizes cloud technology (like Xero and QuickBooks) to automate data retrieval. This results in:

• Faster audit turnaround.

• More accurate "real-time" financial insights.

• Lower overall fees due to increased efficiency.

How Bestar Hong Kong can help

Switching Auditors in Hong Kong Process Guide

Transitioning your audit doesn't have to be a headache.

Choosing a new partner for your annual audit is a strategic decision. At Bestar Hong Kong, we specialize in making the transition from your current auditor seamless, compliant, and value-driven.

Here is how Bestar’s unique approach simplifies the switching process while optimizing your business for growth.

1. Zero-Friction Onboarding

Switching auditors can feel like a logistical burden, but Bestar manages the heavy lifting.

• Professional Clearance Liaison: We handle the formal communication with your outgoing auditor, ensuring the "Professional Clearance" process is completed ethically and swiftly.

  
  

• Successor Auditor Formalities: Our team prepares all necessary Board Resolutions and shareholder documents required to formalize our appointment under the Hong Kong Companies Ordinance.

  
  

• Historical Data Health Check: Upon joining, we don't just look forward; we perform a "health check" on your prior year’s data to identify and rectify any legacy errors before they lead to IRD inquiries.

2. Audit-Ready Technology Integration

Bestar is a leader in cloud-first auditing. We move your business away from manual spreadsheets and into a real-time environment.

• Xero & QuickBooks Experts: As certified partners, we integrate directly with your cloud accounting software, allowing for 100% data testing rather than traditional random sampling.

  
  

• Real-time Visibility: Our digital-first approach means your books are "audit-ready" 365 days a year, significantly reducing the "audit season" stress for your finance team.

3. Transparent, SME-Focused Pricing

Many firms in Hong Kong hide costs behind "disbursements" or "bank confirmation fees." Bestar offers a refreshing alternative:

• Fixed-Fee Proposals: You receive a clear, tiered pricing structure based on your transaction volume and complexity—no surprise invoices.

  
  

• Value-Added Advisory: We don't just sign off on accounts. Our audits include a Management Letter that identifies operational gaps and internal control weaknesses, helping you mitigate risk.

4. Comprehensive Compliance Shield

Beyond the audit, Bestar acts as your one-stop compliance partner in Hong Kong.

• Tax Optimization: We align your audit with proactive tax planning, ensuring you take full advantage of the two-tiered profits tax regime and offshore claim opportunities.

  
  

• Statutory Filings: We handle the filing of Form NA2 with the Companies Registry and ensure your Profits Tax Return (PTR) is submitted to the IRD on time, every time.

Comparison: The Bestar Difference

Feature	Legacy CPA Firms	The Bestar Advantage
Communication	Slow / Ticket-based	Dedicated Senior Consultant
Technology	Manual / Paper-based	Cloud-native (Xero/QuickBooks)
Pricing	Hidden Disbursements	Fixed, Transparent Fees
Focus	Compliance Only	Strategic Growth & Tax Advice

Ready to make the switch?

Don't let a slow or expensive audit hold your business back. Let Bestar handle your transition with professional precision.

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