In the recent past, the governments of the United Arab Emirates (UAE), Dubai and Abu Dhabi have taken many steps to welcome businesses from all over the world. There are a number of business opportunities that one can exploit to become a successful business entity. The government is trying its best to divert its focus from being a country that is based upon the revenue from the Oil and Petroleum sector and is trying to generate new sources of income for the economy. The emphasis on attracting people in business from all around the world and also the introduction of Value Added Tax (VAT) is a step towards revenue generation from different sources.
With the increasing incoming business in the UAE especially in Abu Dhabi and Dubai, the need for financial services to help a business grow and develop is more required. Thus, it is always suggested that a company should take the assistance of a professional audit firm that can provide all the necessary services to the business.
What are Audit and Assurance Services?
An audit can be defined as the interpretation and examination of the business numbers. A third party usually conducts this examination. This enhances the efficiency and accuracy of the audit performed.
An audit is one of the most basic of services that need to be performed by a business. This function not only makes sure that the business is on the right track but also will ensure that all the necessary business compliance requirements are fulfilled.
It is recommended that all the business should prepare an Audit Report which will help the management to understand better the business activities and the standing of the business in the market. An Audit report comprises all the various findings of the auditor during the audit process. It also may consist of the recommendations of the auditor for the business.
Types of Audit
JAXA Chartered Accountants comprises a team of experts and professionals who will understand your business's requirements and accordingly provide the necessary audit services. Here are some of the different types of Audit:
1. Internal Audit
Internal Audit is an activity that can be performed either by outside people or by an individual who is an employee of the company. This activity comprises an independent and objective examination of all the financial data of the business. The proper assessment will assist the management in understanding the company's present situation and how it will fare in the future.
This is a very important function to be conducted in a business because it acts as a tool to keep the company on the proper growth and development path. An internal audit will also add value to the business by uncovering any fraudulent activity taking place in the business. The internal Audit is conducted by people who are working on behalf of the company management.
2. External Audit
An external audit is the Audit of the company, which a third party is conducting. This third party is not associated with the company in any way. This will ensure that the auditor prepares the audit report without any bias or any pressure. The External Audit makes sure that all the client's data provides a clear picture of the business's current situation.
An external audit is usually conducted once a year so that the company can get the correct and accurate records of the company.
There is a very small difference between External Audit and Internal Audit, which can be seen here in detail.
3. Statutory Audit
Often, there are situations in which the government/authorities require an audit of the company to ensure that the business records are accurate. This is known as the Statutory Audit. In this kind of Audit, all the records, including the bookkeeping record, the bank balance, and all the business's financial transactions, are taken into considerations. The Company/auditor has to submit the audit report to government/concerned authorities and helps the government/authority understand that the business has no fraudulent activity and to ascertain the correct profit and calculate taxes due to the government. It also helps to gather proper economic statistics of the country.
4. VAT Audit
This Audit is more concerned with the VAT services rather than with the examination of the records of the business. A VAT audit is an examination of all the ledgers and trial balance of the company by Approved Tax Agents. These are mostly performed to check if the company has calculated and accurately provided the VAT.
Why should a Business avail Audit Service?
Many people think that their business does not require a financial audit as the business is small or because they may feel that conducting an audit is a waste of time and money. This is a misconception among people, and the management would take care that the financial Audit of a company is being conducted at regular intervals as the benefits outweigh the disadvantages.
It should be kept in mind that that only registered auditors or approved auditors can conduct Audit of a Company.
The Audit of a company does take up the company's time and resources, and it is even possible that the company may have to stop working for a while. Still, the advantages of a financial audit far outweigh the problems caused to a business due to it. Some of the benefits of a Financial Audit of a company are mentioned below.
To know more about the free zones in which JAXA Chartered Accountants have approved auditors, refer to the Approved Auditor and Accounting Services page.
Benefits of Financial Audit
The Middle East is considered a very lucrative place to set up a business. Setting up a company here will help a lot in acquiring new customers and will help in expanding the business into new markets. The Middle East countries' government has also understood the importance of Foreign Direct Investment (FDI) and have taken many steps to welcome foreign businesses into the country.
Every company in the United Arab Emirates must prepare an audit report. Many jurisdictions in the country do not have a requirement of submitting such reports to the concerned authority, but it is recommended that every business should prepare an audit report of the business.
Here are some of the advantages of conducting a Financial Audit:
- An Audit helps in Compliance and detecting if any fraudulent activity is being performed in the company.
- An audit helps in the preparation of the Audit report, which will, in turn, assist in filing for VAT, Insurance purposes, etc.
- An Audit helps determine the company's present financial condition and helps to make decisions that will affect the company's future.
- An audit will help the company to gain more credit by enhancing the confidence of the investors.
- A financial audit will not only assist the company in its survival and maintenance but will also help during the liquidation of a company.
There are many more benefits of conducting a financial audit of a business. For more details on the advantages of a financial audit for a company, you can refer to our blog titled "10 Significant Advantages of Financial Audit to a Company in 2020."
Documents to be prepared for a Company Audit
The auditor will provide all the necessary details to the business being audited about the timings, venue, and the details of the documents to be prepared by the business. Such information will help the business to prepare for the Audit and decrease the audit duration.
The documents which are needed to prepare beforehand by the management are as follows:
- Accounting reports including ledgers, trial balance, income statement, balance sheet and relevant schedules
- Copies of the invoices, bills, vouchers, receipts etc.
- A list of the bank accounts used for conducting the transaction and the copies of bank confirmation and bank statements.
- All the reports on the Payroll Function of the business are to be maintained.
- Copies of legal documents of the Company
- Confirmations from customers, suppliers, related parties etc
- Identify related parties and analysis of transactions with related parties
There are many more documents that need to be prepared by a business to prepare for a financial audit. To know more, what are the documents required for a business to prepare beforehand, refer to our blog "Essential Documents required for Internal Audit."
What is the Difference between Audit and Investigation?
There is a subtle difference between Conducting the Audit of a Company and the Investigation of a company.
An audit is usually conducted to understand the authenticity/correctness of the financial statements. It can be understood as an examination to confirm whether the financial statements give a true and fair view of the operations of the Company.
Once the Audit is finished and if any discrepancy is found, then an investigation is conducted. An investigation is a detailed scrutiny of the transactions and process and helps the management to understand if there was fraud or misconduct or if there's a better way to conduct the process. It also helps in decreasing the wastage of resources and benefits find out new and innovative ways to conduct the process.
An investigation has no fixed duration and can take a longer time in comparison to an Audit. An audit depends on the size and nature of the company. The investigation can be conducted by the owner of the business or a third party. Still, an audit cannot be undertaken by the owner and has to be always conducted by an external third party which is appointed by the owner.
To know more about the differences between Audit and Investigation, read our blog, "A Comparison between Audit and Investigation."
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