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.
But the work does not stop there. After the setting up of the business, it is necessary for the management to keep tabs on the business activities which are being performed. One of the best way to do this is to take help of Audit and Assurance services.
- What are Audit and Assurance Services?
- What are the different types of Audit?
- Why should a Business avail of Audit Services?
- What are the benefits of Financial Audit?
- Documents to be prepared for a Company Audit?
- What is the difference between Audit and Investigation?
- Frequently Asked Questions (FAQ)
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. The audit of a company can either be conducted by individuals which are in the employ of the business or by a third party. This decision has to be taken by the management as to how it wants to conduct the audit. Both the options provide a different benefit to the business and the method depends on the business activity being performed and the requirement of the business. 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. Making sure of this will help in increasing the profitability of the business.
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. The preparation of an Audit report is the final step in the audit process and this comprises of 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 and to ensure that the business is complying to all the changes which have been made.
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.
Audit - 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.
Investigation - 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."
Every organization requires information to go about its business. The better the data can be found out about the company, the better the management's decisions will be. This information will help the company know the company's current financial statures, assist in developing a budget, and prepare a plan of action for the company's future. All these benefits can be obtained by availing the Accounting services for the business.
- What does one mean by Accounting Services?
- What are the Documents to be prepared during the Accounting Process?
- What is bookkeeping, and how is it different from Accounting?
- Why should all Business avail of Accounting and Bookkeeping Services?
- What are Accounting Standards?
- What is Outsourcing Accounting Service, and how can it benefit your Business?
- How can a Business find the proper Accounting and Bookkeeping Services in the UAE?
- Frequently Asked Questions (FAQ)
The Middle East has become a breeding ground for Business as there are a number of businesses that are coming in from all over the world in the country, both national and international, which has led to considerable demand for Accounting and Bookkeeping services in the country. This is why it is recommended that every Business should take the assistance of a Reputed Chartered Accountancy firm so that the development of the company is not hindered.
What does one mean by Accounting Services?
For any company to function, it needs to analyse all the information generated by its various business processes. This is where Accounting comes into play. Accounting is a functioning in which all the data of the company is accumulated, summarized and analysed. The data analysis provides various insights which can be used in taking a decision for the company's future. This is why the accounting function is so essential and is considered the lifeblood of a company.
The Accounting function may sound like a straightforward and easy function which it may be at the start of the Business, but as the Business grows, the Accounting and Bookkeeping of the company will grow more complex. Accounting is one of the functions of a business that cannot be disregarded. It forms the basis of almost all the decisions taken by the management of a business.
The accounting function can be a very repetitive function, but any business management cannot be overlooked. This function is so necessary for a business that it has been dubbed as the language of companies. A keen and learned accountant can find out any information about the company, which makes the accounting function very important.
What are the Documents to be prepared during the Accounting Process?
Whenever the accounting function is performed, then the. As a result, there are mainly three different types of report which are prepared. These are:
- Income Statement
- Profit and Loss Statement
- Balance Sheet
Each of these statements provides in-depth information about the business's work and assists the management in taking decisions for the future of the Business.
The Income Statement provides an insight into the total income of the Business in a particular time frame. This time frame may be a business quarter, a financial year or any other duration as decided by the management.
The Profit and Loss Statement, also sometimes known as Cash flow Statement, provides the information that if the Business is on the correct path of growth. Suppose the profit of the Business turns out to be less than the losses incurred by the Business. In that case, the management must do a further analysis of all the functions so that the Business regains the momentum before it is too late for the Business and the Business has to shut down. This is the reason a business needs to create, maintain and improve the cash flow of the business, which will, in turn, streamline the business processes and will also increase the profits of the company.
A Balance Sheet provides a comprehensive picture of the company as it lists all the assets and liabilities and their present worth. It also provides the shareholder's equity and also shows the total investments made by the investors. The balance sheet, when used alongside the different financial reports, provides a complete financial picture of the Business and also helps the management in finding out the various financial ratios.
The statements as mentioned above or documents of the company are very necessary for both the management and the investors of the company, both present and future investors. This is why the importance of these three company statements cannot be more stressed.
People often get confused and proclaim that the Bookkeeping and Accounting function are one and the same. This cannot be further than the truth.
What is Bookkeeping, and how is it different from Accounting?
Bookkeeping is a function which keeps track and record all the transactions of a business. It is a bookkeeper’s job to provide all the important transactional information and data of a business to the accountant. Bookkeeping mays sound or feel very similar to accounting, but they both have their own differences.
One of the significant differences is that in bookkeeping, all the business's financial transactions are recorded by the bookkeeper. These transactions are then presented to the accountant, who will further analyze the data. The job of a bookkeeper is only to maintain a record of the transactions of the Business, whereas the analysis part is done later during the accounting process.
The job of a bookkeeper may sound very simple and easy right now. Still, the bookkeeper has tremendous pressure as it forms the basis of all the accounting activities of the company, and by extension, I responsible for all the decisions made by the management.
Why should a business avail Accounting and Bookkeeping Services?
Bookkeeping and Accounting services are very important for every business and should be followed by the management to the letter. Bookkeeping and Accounting may be elaborate and time-taking, but they also form the basis of all the management's decisions. It will assist the management not only in taking the decisions for a better future of the company but will also help in streamlining all the activities of the Business.
Some of the benefits of a Professional Bookkeeper for a business are as follows:
- An expert bookkeeper will record and maintain all the transactions o the Business in a way that is compliant with the rules and regulations of the jurisdiction.
- It will provide assistance to the accountant and will also help collect the required information.
- It will also help future investors as all the transactions would have been recorded by the business management.
To know more advantages of Bookkeeping for a business, please refer to our blog. Why should you hire a professional Bookkeeper for your company?
The next step after the Bookkeeping function is the Accounting Function. The various advantages of the accounting function for a business are:
- One of the most significant advantages of Accounting is that they help in the preparation of the various financial statements, which help the management in understanding the present financial situation of the Business.
- These financial statements also help the management make a decision for the future of the Business and help the management keep the company on the right path.
- A business needs to deal with matters of taxes at some time, and the Accounting Function helps a business to prepare and maintain all the necessary reports which will be used to assess and file taxes.
There are many more advantages of availing the Accounting Function for a business. To know more about the advantages of the accounting functions, refer to our previously published blog, Why is Accounting necessary for the Business?
What are Accounting Standards?
Businesses need to follow the rules and regulations which have been set by the jurisdiction or will have to face huge penalties. In the United Arab Emirates, businesses need to follow IFRS or International Financial Reporting Standards.
These are standards for Accounting Standards that need to be followed by each and every company in the UAE. The IFRS has been issued by IASB or the International Accounting Standard Board and has been ratified by the IFRS Foundation. The IFRS slows for the easy understanding of the Business's financial statements if the Accountant changes or the accounting reports are analysed in a different jurisdiction.
The IFRS provides a sense of consistency as about 90 countries in the world use the International Financial Reporting Standards for their accounting requirements. For more details on the accounting standards to be used by private businesses, refer to our blog Accounting Standards for Private Companies in the UAE.
What is Outsourcing Accounting, and how can it benefit your Business?
There can be instances when it is not possible for a company to keep an in-house accounting department. This may be due to the financial constraints of a business or due to any other reason. In such a situation, it is recommended that the company should outsource its accounting function to a third party.
In this process, all the accounting functions of the company are outsourced to a third party. This helps in freeing up the company's human resources and will also allow the management to focus on the company's growth and development properly. Outsourcing the accounts of the company to a third party will also help the company to follow all the compliance requirements of the jurisdiction. It will also reduce the costs and time incurred in the accounting process.
Availing outsourced accounting services can be very beneficial to a company. Some of the benefits of outsourcing the accounting process are as follow:
- It will play a huge part in reducing the costs of the Business and will also allow the management to focus on the business processes properly.
- As the accounting function of the company is being handled by a third party, the management can be assured that all the accounting processes will be handled by expert professionals who will use all the expertise to conduct the task at hand.
- As the management will not have to conduct accounting for the company and will be free of the burden, the management will have the time as well as the resources to focus on the various aspects of the Business, which will, in turn, increase the productivity of the company.
To know more about the benefits of outsourcing the accounting functions, refer to our blog Outsourced Accounting: How can it Benefit your Business?
There can be situations in which the company may only require accounting assistance only in certain business aspects. In such a case, instead of opting for or outsourcing the accounting services, the company can avail the Accounting Supervision Services.
If a company avails Accounting Supervision Services, then the management can be assured that no detail about the company is missed during the accounting process. The experts at JAXA Chartered Accountants will supervise all the accounting requirements of the Business. They will guide the accounting department of the company to conduct the process in a proper manner.
There are various advantages which be availed by a company by utilizing the Accounting Supervision Services. These advantages include:
- Accounting supervision services will allow the management to understand if any fraud or any other activity is happening in the company.
- It will help the Business to address all the compliance issues and will also assist the company in being more profitable.
To know more about Accounting Supervision Services, you can go through our Accounting Supervision Services page.
How can a Business find the right Accounting and Bookkeeping Services in the UAE?
As proper Bookkeeping and Accounting are very important in making any future decisions of the company it is crucial that the company avails such services from a reputed firm which will fulfil all the necessary requirements of the company and will also provide the best services possible.
Before availing the services from any of the Accounting and Bookkeeping firms, the management should do research as to which firm will be able to provide the best possible services to the Business. The management also keeps in to account the cost of availing the services and also if the firm provides any other services to the company. Also, the services should be sector or industry-specific so that the Business is able to avail of the best possible services.
The management also needs to keep in mind that Bookkeeping services are different from accounting services. There are many firms in the market that only provide one of these services, but many of the firms also provide both of the services together. A firm should try to avail services from such a firm as bot the services are provided by the same company, which will result in seamless transfer of data between the two functions.
In order to select the correct Bookkeeping and Accounting firm for the company, the management needs to keep in mind certain key characteristics such as:
- Look at the qualifications of the firm. The firm should be equipped with the necessary qualifications, and to check this, the management should conduct background checks. They can also ask around and look at the reviews of the services of the firm.
- The costs of the services availed affect the organization in a major way. Many start-up businesses may not be able to spend so much on the services. The management should look into the firms which provide the best possible services within acceptable costs.
- The firm should be updated with the latest changes in the business environment and should be able to use the latest technologies such as Accounting Software, Cloud Accounting, etc.
To know more about choosing the best accounting and bookkeeping firm for your Business, Refer to our blog titled How to select an Accounting firm in the UAE?