24 May 2023
Auditing is a crucial business necessity that evaluates the proof and documentation of a company's financial operations. The financial statements are subjected to unbiased, impartial assessment by auditing firms. Financial statements become more reliable as a result of auditing, which lowers investment risk and expenses. Audit firms make sure that the auditing is thorough and adheres to various corporate objectives. With regard to the accuracy and state of affairs in the financial accounts, auditing provides an unbiased perspective to the stakeholders. The internal revenue service examines taxpayer returns along with additional financial transactions to ensure their accuracy.
An official review and verification of a company's financial records is known as an audit, or a financial audit. Making sure that a company's financial records are accurate and compliant with regulations is the basic objective of auditing. Furthermore, an audit provides reasonable confidence to investors, creditors, and other stakeholders about the company's integrity.
The main types of audits are listed below.
Internal audits are carried out by businesses to find any discrepancies in operational effectiveness, regulatory compliance, or internal control. Employees from within the company can carry out internal audits. An internal audit makes sure the business is headed in the correct direction by enhancing risk management and adhering to both international and local requirements. Internal audits are carried out by business owners for a variety of reasons, including, but not limited to, monitoring system effectiveness, identifying areas that require improvement, ensuring that the company is in compliance with laws and regulations, reviewing and verifying financial data, evaluating risk management policies and procedures, and closely examining operational processes.
It is commonly referred to as an independent auditor's examination of a company's financial records. To outsource auditing services, businesses employ external auditors. The audit's goal is to assess the authenticity of accounting records and confirm the financial statements of a company. The important stakeholders are also given access to the reports, which allow them to learn about the operations, controls, and general state of the business. It also helps outside parties evaluate an organization's potential future investment opportunities. Investors frequently want external audits in order to feel confident in the accuracy of the data and information provided by their company.
A tax audit is a procedure used by the Federal Tax Authority (FTA) to review the business records or any other information or data of the taxable people doing a business in the UAE, in accordance with the Tax Procedures Law. The FTA conducts a tax audit on a taxpayer in order to make sure that the taxable person is adhering to both the Tax Procedures Law and the provisions of the UAE VAT Law. By conducting a tax audit, the FTA makes sure that the taxpayer has fully satisfied all of their obligations and that all taxes that are owed are collected and submitted to the government within the allotted time frame. They also check to see if the taxpayer has complied with all of the applicable laws, such as issuing tax invoices and being eligible for VAT credits based on such invoices from suppliers. Pre-audit and post-audit help is provided to the businesses by tax consultants in UAE who have been registered with the FTA to ensure VAT compliance. Companies should avoid contacting tax agents who are not FTA members.
With corporate fraud on the rise, forensic auditing or fraud investigations have grown in importance. Audit companies that perform forensic audits track and look into issues relating to fraud, financial crimes, and business conflicts. Even to register a case, the UAE Police requires the certificate of the auditor. Additionally, the audit pinpoints the origins and reasons of financial inaccuracies, claimed employee fraud, decreased corporate revenue, increased costs, and other operational issues.
The ability to discover areas where resources can be optimised or expenses can be cut is one of the main reasons auditing is crucial for a firm. A business owner might find flaws in their accounting system through an audit and fix them to increase productivity. Additionally, auditing contributes to continued transparency between management and stakeholders, which eventually increases confidence. An auditor offers unbiased confirmation of the veracity of the data the management team has provided. To maintain constant performance levels and ensure accountability in all areas of operation, businesses need frequent audits. By promoting transparency amongst the various parties engaged in managing a specific organisation, auditing assists businesses in identifying potential fraud early.
All mainland UAE companies are supposed to have their financial accounts audited according to the Commercial Companies Federal Law. These businesses are required to maintain their financial records for a minimum of five years. Companies located in free zones may not always undergo audits. Companies are not required to submit an audit report by the free zone authorities. However, some types of companies must cope with a required accounting audit. Both free zone establishments (FZE) and free zone companies (FZCO) fall under this category.
Following are the reasons why auditing is mandatory in business.
Assurance of regulatory standard compliance is one of the main reasons for audits being required in the UAE. Businesses must abide by a set of rules and regulations set forth by the government, which includes the need for audits. By doing routine audits, accounting firms show their dedication to upholding these rules, boosting investor confidence.
With the help of international investors and multinational corporations, the UAE is quickly becoming a hub for international trade. The UAE government has mandated audits for businesses to guarantee compliance with global financial reporting standards in order to be in line with best practices around the world. This criterion not only brings the UAE up to level with other developed economies, but it also improves the country's chances for international investment.
In the UAE, shareholders who own stock in a company that is going through liquidation must have their financial statements audited. The licensing authorities must receive a final liquidation report from the company's liquidator, which may be any licensed audit firm in UAE. To create the liquidation report, the liquidator will need audited financial accounts that indicate that the firm has no assets or liabilities.
A company's financial accounts must be verified for its accuracy and dependability through audits. The financial records, transactions, and statements of the company are examined by independent auditing firms to determine if they accurately depict the company's financial status. This procedure aids in finding any anomalies, flaws, or inconsistencies so that businesses can fix them and have correct financial records.
When auditors examine internal controls and systems, they may identify any flaws. Business owners can certify in a way that would greatly lower the risk of fraud based on such recommendations. If a business chooses not to conduct the annual audit, a potential fraud may go undetected.
Audited financial statements are a common requirement of lenders and financial institutions as part of their verification procedure. Companies in the UAE can increase their chances of receiving funding and loans by regularly undertaking audits and providing these organizations with accurate financial data. A company's financial stability and trustworthiness are attested to by its audited financial accounts.
UAE is one of the top business hubs in the world and is home to many different companies, both big and small. Every business must perform routine audits to find system problems, strengthen internal controls, and evaluate risks. The credibility and reputation of the firm can be greatly enhanced by selecting the best audit firm.