Companies worldwide operate under a set of pre-defined rules and regulations adopted by the management or company board. Therefore, it is highly essential for companies, especially public-listed companies, to conduct business fairly and transparently. Businesses are governed by company laws in every country and required to submit periodic audits to concerned authorities and the company's management. As Audit is a regular exercise undertaken in every company, companies must be well prepared to conduct the Audit and work to resolve the audit findings. However, all companies, in general, face few challenges on the audit front. Let us discuss some of the audit challenges of the companies in the UAE:
Compliance and Legal Requirements
Many Free zone authorities in the UAE made it mandatory for company types (Freezone company and Freezone Establishment) registered in their zones to submit the audited financial reports annually. The free zone license is renewed only upon the submission of the annual audit report. Some of the UAE Freezones such as Jebel Ali Free Zone (JAFZA), Dubai International Financial Centre (DIFC), Dubai Airport Free Zone (DAFZA), Dubai Silicon Oasis (DSO), Dubai World Central (DWC), and Creative City Fujairah have mandated this compliance requirement.
At the time of Company Liquidation, audit reports are required for the company liquidator to prepare liquidation documents. In addition, in UAE, branches of foreign companies must conduct and submit audited financial reports of their branches registered in the UAE. The above are some compliance and legal requirements for companies operating in the UAE to carry out audits periodically.
Bookkeeping and Accounting Expertise
A Financial Audit in a company requires a thorough audit of the company records and accounts. Unfortunately, businesses, especially small and medium businesses, adopt poor bookkeeping and accounting practices, including errors. In many cases, small companies employ a single bookkeeper to take care of the day-to-day books. They depend upon an accountant to finalize the accounts and provide insights for the company ownership. The SME sector also cannot afford full-time CFOs or experienced management accountants to provide professional guidance in bookkeeping accounting. Therefore, ineffective bookkeeping and accounting can prove a significant hurdle for companies without expert advice.
Capital availability and free cash flow play a vital role in the growth and success of a company. Therefore, companies may utilize various lenders such as banks and other non-banking financial institutions to fulfil their monetary requirements. These financial institutions require companies to have their account books audited by a qualified audit firm that they have approved. Additionally, some company clients, corporate suppliers and other dealers/institutions may require companies to submit audited financial reports regarding the companies' true credentials and financial solvency to conduct business with the company.
Process Efficiency and Fraudproof Internal Controls
A good audit report with minimal findings increases the trust of the shareholders and increases the reputation of the company in the market. Companies need to have sound and foolproof processes to achieve efficiency and minimize the chances of any frauds that affect the company's reputation. An Internal Audit enables the company management to implement robust anti-fraud mechanisms in practice.
An experienced auditor can assist the company in assessing the risks of fraud and developing fraudproof mechanisms for the company's benefit. In addition, the external audit services in the UAE helps the companies to review the internal controls within the business. Such a review will help the management determine if proper approval and authority checks exist.
Audit Plan and Execution
An audit has to be planned and executed with minimal disruptions to everyday business transactions. Companies should coordinate with the Auditors to plan the audit dates and detailed schedule. Improper planning can result in the prolonging Audit and regular disruptions to business activities. Delay in the audit process and an inappropriate report will show the company in a bad light.
Companies have to thoroughly pre-plan and put inefficient staff and process in place before the start of the Audit. The dedicated team should ensure all the internal department accounts are ready and sorted chronologically for a smooth audit process. All the process controls implemented along with supporting SOPs documents should be made available. The dedicated personnel should also ensure that all accounting bills and books are up to date before the Audit. Failing to make the pre-audit arrangements can result in delayed audits.
How Can We Help?
Jaxa Chartered Accountants are one of the top accounting and audit firms in the UAE. We work with companies in the UAE to prepare them for the Audit by studying and suggesting relevant process controls. Our experts also assist companies in setting up bookkeeping, accounting and payroll processes based on global standards. Please Contact Us with any questions related to the company audit. We'd be delighted to assist!