Issue 1, Dec. 2013 - IRD comments on 2012 field audit results

During the meeting, the IRD pointed out that out of the 337 corporation cases in which its Field Audit and Investigation Unit uncovered understatement of profits during 2012, 285 (i.e. 85%) carried clean auditors’ report.  Average understatement of profits and back tax assessed per clean report case were HK$23.05 million and HK$3.70 million respectively.  Moreover, understatement uncovered from these clean report cases accounted for 87% of the total understatement detected in the whole year. 

Corporations with clean auditors’ reports are not exempted from being chosen by the IRD as targets of field audits.  It is because auditors’ reports are made for the purpose of expressing an opinion to shareholders whether the financial statements being audited give true and fair view of the states of affairs of the companies concerned.  These opinions are based on audits performed in accordance with auditing standards and not tax laws.  Therefore, a clean auditors’ report does not necessarily mean tax compliance.  With a wider scope of review and full information obtained from third parties, the IRD is often able to identify discrepancies even when companies have clean auditors’ reports. It is a good practice for taxpayers to carry out regular tax health checks before they become the IRD’s targets so that potential risk areas are identified and early actions could be taken.  Advices from professional tax consultants should be sought if necessary.

The minutes can be found on HKICPA’s website by clicking here.