All too often we can’t wait to get our Hong Kong limited open.
You’ve been enjoying the Global From Asia podcast and blogs here on the site. Now you are looking into what are the ongoing costs.
We had a popular post for the Upkeep for HK company, today we are going to focus specifically on:
What is the difference between an accountant and an auditor?
Drink so coffee (or tea) and don’t sleep on me here. Yes, this stuff can get dry – but the more we understand it, the better business owners we can be!
What is an accountant?
Think there are 2 cases.
Case one is the accountant as a bookkeeper. He or she will receive all your financial statements, either by paper or online access. They will setup your books and chart of accountants. You will then watch in awe as they classify your transactions in different income and expense accounts.
Bookkeeping should be upkept throughout the year. Ideally real time. Of course there are many of us with not tons of activity on a daily basis and we can’t afford to have a full time accountant. So I recommend weekly.
It’s not just for the work, but also for you as a business owner. To look at the numbers, the reports, the summary and see your business as a dashboard.
So this type of accountant is a bookkeeper.
The second option is the accountant as a tax form filing specialist. They specialize in a certain geography / government. Let’s say for here its Hong Kong. They know what all the different tax forms are, how to fill them out. Also, if they have experience, they will be able to tell you how to best keep the forms filled out. How to optimize your tax strategy.
This type of accountant is I believe what most of us think of when we hear a tax accountant. Having a good grasp of that government’s tax law and advising clients how to file for their personal and/or businesses.
Auditor, for many Americans (myself included) will cringe. We all hear about an IRS tax audit. The mental picture I get is a group of government officials in suits pounding on your office door to do a sudden check on your books. The business owner rushing to shred all the documents before they break the door down.
Do you get such a dramatic mental picture as that?
Well, that isn’t what we’re doing here – at least in the Global From Asia – Hong Kong tax sense. An audit here is one you pay a Hong Kong CPA (certified professional accountant) to check your books.
This auditor is the same as those who are rummaging through your shredded documents but this time you pay them to do it. Or at least you’re required by the Hong Kong Internal Revenue Department (IRD) to do so.
They will not enter your transactions into an accounting system or excel. That you should have done already. What they will do is check over your financial statements such as your profit and loss statement and balance sheet. They’ll see if it makes sense. Such things as your margins, your expense account sizes in comparison to your revenue numbers. Are you hiding something.
They are to snoop around in your financial statements, and your transaction history looking for things that may not add up.
This is their job. And they are using their expertise – AND LICENSE – to do it.
You may ask yourself, why would they dig into it if I’m the one paying them. Wouldn’t they want to keep me as the paying client happy?
You would think so – but the Hong Kong government gives them a license. Their job is on the line. If they don’t do their job and the IRD checks it later and feels the CPA was negligible, they jeopardize their license.
An Accountant Can Also Be An Auditor
You can use the same person to do both of these tasks. They will accept it, because it means more money for them!
It may make sense too. They will understand the books as they have been working with you on entering the transactions and speaking to you throughout the year on questions you have. You should have a good regular communication flow with your accountant. Alert them of new products, services, and other financial related changes in your business. Taking a new business loan? Might be a good time to alert your accountant, so they can add that as a new account in your bookkeeping system.
Will You Save Money If You Use An Accountant As Your Auditor?
I’m sure you’re wondering, will you save money if you combine your accountant and auditor? I would say yes. There are a few ways you can say it will save you money:
1) They can give you a lower bundle price than separating the services.
2) They can save time in the audit as they know the books already.
3) You will spend less of your own time re-explaining the situation 2 times.
But, you also need to remember, for a Hong Kong company audit, you need a Hong Kong local accredited CPA. Hong Kong, as we have found out from these blogs in the past, is not the cheapest. Check out cost of living in Hong Kong article for examples. So of course those costs will reflected in your pricing.
You can use an accountant anywhere in the world. you may save money on the accounting side if you outsource or have your own staff do it. Then you only use a local Hong Kong CPA to check over the books and submit the auditor’s report.
Doing that may save money as a total bundle price – but dollar for dollar – the coordination and back and forth of your own time may drag you down a bit.
It comes down to how well organized you can be.
What To Look For In An Accountant for your Hong Kong Books
So we discussed the differences, now what should you look for in an accountant. I’ve seen some people I have worked with who use an American based accountant to do it.
You can use an accountant based anywhere in the world.
While we can provide this service and would love to work with you on your case. Yet to be clear, your accountant can be someone you find on Upwork. You pay to have someone do your transactions entry in Xero or Quickbooks. Also we’re a Certified Quickbooks Advisor in Hong Kong, so look for that from others you may hire.
Some tips in looking for your accountant:
The beauty of Hong Kong for your global business is the multi-currency accounts. But for accountants, that is an added complexity. Ask your accountant if he or she has ever done bookkeeping for someone who has a wide range of currencies, and multi-currency bank accounts.
Do you have multiple entities in other countries?
Do you also have a USA company or mainland Chinese company? Maybe you have an outsourcing center in Philippines. Who is doing the accounting there? What is the relationship of those companies to this company? Will you have those books done by this same accountant, or will you have a separate bookkeeper for that country? This is something the accountant you are looking to hire will need to know.
Do you have a lot of transactions?
Are you an online based business with a lot of Paypal and merchant account transactions? Especially in B2C, you will have a lot of small purchases. Do you expect your accountant to have experience with these e-commerce payment systems? Many accountants are not familiar with this and you should keep on top of this before it gets out of hand.
Do you expect them to be “online” based or “offline” based?
As mentioned in point 3, many accountants still haven’t fully embraced the internet and computers. Don’t laugh! At least in Hong Kong, many still are getting a grasp of keeping on top of their email inbox! In your communication with the potential accountant, see what types of communication methods they prefer.
Can they work direct with your online banking systems?
When doing the transaction entry, can they work direct with your online banking systems? Again, technology. I imagine if you’re reading this blog post – then you are tech savvy. More than many of the accountants you may find out there! I am not trying to make a jab. Spoken from experience, do you expect the accountant to be able to login to your online banking with their own logins? Will you be OK with sending them a bunch of PDFs? Heck, maybe some will even want you to mail them the physical paper statements!
This is just a small list. Of course you have to trust them! And you have to agree with the way to communicate. Don’t get into the deal to only get frustrated with them later on when they are slow to respond to your emails. The only way I can reach a lot of accountants is to call them and schedule an appointment at their office in Hong Kong!
The Traditional Flow of Accountant And Auditor in HK
So let’s put this into context. You have a new Hong Kong limited company, and it’s B2B import export trading. You opened the company and then got approved for an HSBC Hong Kong bank account.
Your agency got you to sign up for their bookkeeping service, and you may send them your bank statements. You don’t have too many transactions, so you just send it to them monthly when you get the statements.
They enter the transactions into their accounting software. Many of them do not use online based accounting software and it will be locally stored on their computers in their office. A lot of times it isn’t even on a computer but instead written down on paper! Yes, this blog post is being written in the year 2016!
After about a year, you fly into Hong Kong to do some banking updates, maybe go to a trade show or 2, and check in with your accountant. You hand them a stack of receipts and your paper statements that the bank has been sending you. If you elect to pay the extra fee for the paper statements rather than e-statements, or you can print them out.
They prepare the books, and the accountant may have a few questions about some transactions in your business. You also want to make sure that your accountant understands all parts of your business, and also any kind of shareholder loans or special cash accounts, etc. If they are good, they will give you some ideas on how to better maximize your tax preparation, and other tips to optimize your company financials.
The first year you have a few extra months to file your audit, so let’s say you wait until the 18 months past. The accountant can also act as the auditor (If they are an accredited HK CPA) and they will prepare the auditor report and profit tax return. They will present it to you and show you your tax liability. You’ll then accept it by signing off, and then submitting everything to the Hong Kong IRD (Internal Revenue Department)
Then you go about your normal business life for the next 12 months, until you need to repeat the process above.
Moving to More Online Based Accounting Flow
So, we’re all lovers of the internet age. We are reading this guide online, off our mobile phone, listening to a podcast while in an airport in Dubai.
The internet is good.
So we work with an accountant who is more online based. We find one online, not based in Hong Kong, and work out a monthly payment plan. Maybe they offer packages. You signup, and get a renewing credit card transaction agreement going.
Talking to an account rep on email, they tell you to pick an online accounting software of your choice. Xero, Quickbooks, or the many others. You will also need to get a plan that works with multiple currencies, so they are normally a bit more than the basic software. You’ll get setup and link your online banking (HSBC HK supports Quickbooks), Paypal, and other systems. This can be tricky, and hopefully the accounting agency can work with you to make sure it all syncs up.
Once the initial setup is going, you have them enter the transactions manually that may not come from Paypal and online merchant accounts, such things as petty cash. You’ll also probably have times you need to explain certain transactions so they are classified correctly.
The year goes by, and you need to prepare for your HK audit.
Your Hong Kong company secretary will email you that you received a profit tax return from the HK IRD. You’ll have a few months to prepare your books and prepare the auditor’s report. This can be done with the referral of the company secretary, or you can use another accountant, CPA – auditor. Up to you.
The auditor will check the books, and ensure that you have properly accounted for revenues and outflows and he/she is willing to sign off that the books are legitimate. This is the risk of their certification and relationship with the HKICPA – Hong Kong Institute of Certified Public Accountants. If later the books seem “Cooked” – I’m sure the HK tax department will question the auditor on why they didn’t find this issue at the audit step.
Once you agree with all the books, the auditor report, you’ll need to sign and submit the profit and tax return. Write the check, and you’re done.
How Much Does This Cost? Comparison
So let’s think about how this all comes together. There are a few different things you need (recommended to get)
In today’s online world, and the fact that you’re reading this blog post off your computer monitor instead of a printed newspaper, you need software to balance things. Most choose Xero or Quickbooks. Maybe also better to ask your bookkeeper what they are familiar with. Cost – 20 to 40 US dollars a month. If you have an international business, you’ll need the more expensive multi-currency account options.
You can outsource this, with a HK accounting firm, with your own staff, or you can do it yourself! It is best to have someone on call in case there are questions or issues that arise later. Plus when there is a transaction you are not sure how to classify, the bookkeeper and accounting specialist is there to help out.Cost. Depends on how much activity you have. Let’s say from the $150 USD to $400 USD a month. Again, you can always opt to do your own bookkeeping, or have someone in your organization do it.
Yes, this is where people wonder how much will it cost. And online you won’t find anywhere that has a standard table of prices for a Hong Kong auditor’s report. Price depends on the amount of transactions, how many revenue streams, how good your books are kept, and how familiar the auditor is with your type of business.Cost – Depends on how many transactions, how active, etc etc. But I know you want a range. Low is 900 US dollars and high is up to $2,500 USD. The higher range is when you’re in the millions of dollars in revenue and it shouldn’t be as big of a cost as a percent of your profits. The lower range I have found is harder for the smaller businesses still finding their traction.
Signing and mailing the profit tax return
This will need to be filled out and signed by you, or one of the directors.Cost. The courier fees from Hong Kong and back. This needs to be mailed to your Hong Kong address, and if you’re living and working overseas, it will need to be signed by you. Or you can always take a trip to Hong Kong for this process. I always recommend meeting your company secretary, accountant and auditor yearly. Make sure you are comfortable with everything. Check in with the year in the past, talk about the future year.
Remember – Accountant Can Be Anywhere, CPA For Audit Must Be in Hong Kong
So we have drove this topic home for you. You can do your bookkeeping and accounting data entry from anywhere in the world. This person should have experience balancing company books, general ledgers, and online accounting software.
You, as the overachiever entrepreneur, may want to learn to do this yourself. I respect that. Heck, I remember learning it on Sunday afternoons back in 2004 with my first e-commerce business! Taking a Quickbooks training seminar in NYC and trying my best to classify everything. It is a good skill to have, to understand the inflows and outflows of your business.
Yet I can imagine it may not be your favorite task to do. Find someone in your company, or a trusted accounting firm to take care of it for you.
But, as skilled and knowledgeable about this as you are – you cannot do your own audit. A Hong Kong licensed CPA must do it. And, I know it is frustrating – the price is not black and white. Budget around $1,500 USD for it, a bit more if you’re in the multi-millions in US dollar revenue.
Have the books as “Clean” and prepared as possible for the auditor. The price will be lower than if it is just a big pile of financial statements.
How About Your Experience?
How has your experience been dealing with accountants and auditors? Of course I’m more focused on Hong Kong today, but even if its in America or other places- any tips for dealing with these consultants?
I’d love to hear it, as well as other readers – so please leave your comments below!