IRD field audit preparation checklist for Hong Kong companies

A field audit letter from the Inland Revenue Department (IRD) usually asks you to arrange an initial interview and to produce books and records. Being organised before that meeting reduces stress and supports a clearer discussion of any discrepancy. This checklist follows themes in IRD DIPN 11 (Revised) — Field Audit and Investigation and the IRD pamphlet A guide to keeping business records. For the overall process and penalty overview, see how to handle an IRD investigation or enquiry and section 82A additional tax. General information only, not tax or legal advice — follow the specific list in your letter.

1. Before the first interview

• Diary the reply / meeting deadline; if you need more time, ask in writing early.
• Confirm who will attend: director(s) who know the business, bookkeeper, and your tax representative if appointed.
• Give your representative clear instructions to ascertain true assessable profits and report them (DIPN 11 emphasises this).
• List all business books and all bank accounts (Hong Kong and overseas; business and private accounts that handled business money), including accounts in other names if used for the business.
• Do not alter, discard or “re-create” source documents after the letter arrives.

2. Core books and accounts pack

• General ledger, cash book, sales and purchase ledgers, journals
• Trial balances, year-end adjustments and tax computations for the years named
• Audited / management accounts and, where available, audit working-paper references
• Fixed-asset register and depreciation workings
• Payroll summaries and employer’s returns (e.g. IR56B) if salaries are material

3. Bank statements and cash

• Full bank statements for all accounts used in the business for the years under review
• Cheque stubs, remittance advices, and explanations of large or unusual transfers
• Cash receipts / petty-cash records if cash sales are significant
• Reconciliation of bank totals to sales and purchases in the accounts

4. Invoices, contracts and trading evidence

• Sales invoices and purchase invoices (or electronic equivalents) for sample periods the officer names
• Major customer and supplier contracts; agency / distribution agreements
• Shipping documents, delivery notes, warehouse receipts, or service-completion evidence
• Credit notes, rebates and commission arrangements

5. Stock and inventory

• Stock listings at year-end and (if requested) interim counts
• Valuation basis (cost / NRV) and how quantities were verified
• For manufacturers: production records linking materials, WIP and finished goods

6. Directors’ loans and related-party items

• Director / shareholder current-account analyses for each year
• Explanations of drawings, injections and repayments; supporting bank trails
• Related-party loan agreements, guarantees and interest (if any)
• Intercompany charges: management fees, royalties, shared costs — with agreements and allocation basis

7. Offshore / source-of-profits claims

• Narrative of what the Hong Kong company itself did to earn the profits, and where
• Evidence of where contracts were negotiated, concluded and performed
• Travel records, correspondence and email trails supporting overseas operations
• Avoid relying only on group affiliates’ activities — Board and court decisions repeatedly focus on the taxpayer’s own operations (see our tax court cases summary)

8. At the meeting and afterwards

• Expect at least two IRD officers; you may bring a representative.
• Answer factually; if unsure, say you will check and follow up in writing.
• After the interview, you should receive a record of interview — review it promptly and correct errors in writing.
• Keep a complete copy of everything handed over (indexed exhibits help).
• Diary any follow-up letter deadlines; partial timely replies plus a written extension request for the rest are usually better than silence.

9. How VCL can help

Value Consultant Limited (匯程) can help you assemble a reply-ready pack — books, bank, invoices and offshore support — and sit beside you for a calm first meeting orientation. For complex technical disputes we coordinate with your tax counsel.

Sources: DIPN 11 (Revised) (PDF) · 稅務條例釋義及執行指引第11號 · A guide to keeping business records (PDF)

Related: IRD tax investigation guide · IRD investigation how-to · Section 82A additional tax · Tax court cases summary · Accounting · Audit · Contact VCL