Types of Audit Services

Types of Audit Services in Dubai

The world’s best businesses are eager to enter the UAE markets. There are many opportunities available in UAE that Multinational Companies are just lining up and waiting to find their chance to break into the market. They will recognize a fair and level playing field when they see one.  

Every company wants to seek an advantage over its competitors—it’s only natural—but it should never be because the law is applied differently in each case.  In the UAE, all businesses follow the same rules, and one of the most important has to do with financial record keeping, reporting, and auditing.

Every company wishing to conduct business in the UAE is required to perform an annual auditing of their Financial Records by one of the qualified audit firms that provide the best auditing services in Dubai or any other Emirate of the UAE. The reasoning behind this is to maintain transparency and ensure compliance with applicable regulations.

 

Advantages of Auditing

The chief utility of audit lies in reliable financial statements based on which the state of affairs may be easy to understand. Apart from this obvious utility, there are other advantages of the audit. Some or all of these are of considerable value even to those enterprises and organizations where audit is not compulsory.

✔ It safeguards the financial interest of persons who are not associated with the management of the entity, whether they are partners or shareholders, bankers, Financial Institutions, the public at large, etc.

✔ It acts as a moral check on the employees from committing defalcations or embezzlement.

✔ Audited financial statements help settle the liability for taxes.

✔ Useful for settling trade disputes for higher wages or bonuses as well as claims in respect of damage suffered by the property, by fire, or some other calamity.

✔ An audit can also help in the detection of wastages and losses to show the different ways by which these might be checked, especially those that occur due to the absence or inadequacy of internal checks or internal control measures.

✔ Audit ascertains whether the necessary books of account and allied records have been properly kept and helps the client in making good deficiencies or inadequacies in this respect.

✔ As an appraisal function, audit reviews the existence and operations of various controls in the organizations and reports weaknesses, inadequacies, etc., in them.

✔ Audited accounts are of great help in the settlement of accounts at the time of admission or the death of a partner.

✔ The government may require audited and certified financial statements before it gives assistance or issues a license for a particular trade.

 

What do Audited Financial Statements Include?

Audited Financial Statements include the Independent Auditors Report, Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows, and Notes to the Financial Statements. Each item is of interest to various parties, but to some, the most important part is merely its existence and the final result.

The auditor should comply with the relevant ethical requirements, including those about independence relating to financial statements audit. The following are the fundamental principles of professional ethics relevant to the auditor when conducting an audit of financial statements;

a) Integrity: Integrity requires the auditor to be straightforward and honest in all professional and business relationships. It implies fair dealing and truthfulness. It effectively means that he shall not be associated with reports, returns, communications, or other information that he believes contains a materially false or misleading statement.

b) Objectivity: The principle of objectivity requires an auditor not to compromise on professional judgment because of bias, conflict of interest, or undue influence from others.

c) Professional competence and due care: It requires that the auditor attains and maintains professional knowledge and skill at the level required to render competent professional service based on current technical and professional standards and legislation and also to act diligently and by technical and professional standards. 

d) Confidentiality: The confidentiality principle requires an auditor to respect the confidentiality of information acquired as a result of professional or business relationships.

e) Professional behavior: It requires an auditor to comply with relevant laws and regulations and avoid any conduct that he knows or should know might discredit the profession.

 

Accountability of Audit Firms in Dubai

Audit Firms in Dubai and other Emirates of the UAE are primarily accountable to the government authorities and their departments, such as the following:

● Ministry of the Economy (MOE)

● Accountants & Auditors Association, UAE (AAA)

● Dubai Financial Services Authority (DFSA)

● Real Estate Regulatory Agency (RERA) for RERA Audits (e.g., Real Estate Projects and Owners’ Associations)

● Free Zone Authorities where the Audited Company is registered (e.g.  Jebel Ali Free Zone, Dubai Airport Free Zone, DMCC, etc.)

 

In addition, auditing firms are also accountable to the following stakeholders who are direct or indirect beneficiaries of Audit Reports:

a) Management: For managing the day-to-day affairs of the company and evaluating the performance.

b) Shareholders: To analyze performance, profitability, and financial position.

c) Financial Institutions: To determine the financial position of the company.

d) Suppliers: To determine the creditworthiness of the company grant credit.

e) Researchers: For study and analysis.

f) Government: To ensure prompt collection of direct and indirect tax revenues, to evaluate arrangements.

g) Customers: To know the general business viability before entering into long-term contracts and arrangements.

h) Employees: For Bonus and Incentives.

i) Audit Profession itself and, of course, Society-at-large.

 

International Accounting and Financial Reporting Standards

Some rules are required to be followed by accountants to maintain books of accounts that are consistent, reliable, relevant, and comparable to those found anywhere else in the world.

These standards were first issued by IASC (International Accounting Standards Committee) which existed from 1973-2001, and thereafter replaced by the IASB (International Accounting Standards Board). These original standards, called the IAS (International Accounting Standards), were numbered IAS 1 to IAS 41.

Modern standards issued by IASB are referred to as IFRS (International Financial Reporting Standards) and include the first original IAS standards, but any time an IFRS standard contradicts an IAS standard, the IFRS supersedes the older version.

In Dubai, every Company preparing Accounts and reporting the Financial Results in the Financial Statements must comply with IFRS. Accordingly, the auditors have to check and give reasonable assurance as Audit Opinion that the Financial Statements comply with IFRS.

 

Types of Audit Opinion

The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, by the applicable financial reporting framework. 

To form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

That conclusion shall take into account:

a) Whether sufficient appropriate audit evidence has been obtained;

b) Whether uncorrected misstatements are material, individually or in the aggregate;

c) The evaluations.

 

There are two types of Audit Opinions issued by the auditors in their Audit Reports as mentioned below;

1. Unmodified Opinion: The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, by the applicable financial reporting framework.

2. Modified Opinion: If the auditor-

● Concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or 

● Is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.

 

Here, Modified opinion is again classified into three types. They are;

1. A qualified opinion

2. An adverse opinion

3. A disclaimer of opinion

 

Qualified Opinion	The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are material, but not pervasive.
Adverse Opinion	The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive.
Disclaimer of Opinion	The auditor shall disclaim an opinion when he is unable to obtain sufficient appropriate audit evidence and he concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive.

 

Types of Audit Services in Dubai

The following are the types of audits;

⮚ External Audit

⮚ Internal Audit

⮚ Forensic/Investigation Audit

⮚ Tax Audit

⮚ Gross Turnover Audit/Sales Audit Certificate

⮚ Cost Audit

⮚ Stock Audit

⮚ Payroll Audit

⮚ Financial Data Migration Audit

⮚ Management Audit

⮚ Compliance Audit

⮚ Mergers and Acquisitions Audit

⮚ System Audit

⮚ Performance Audit

 

External Audit

● It involves an examination of an entity’s financial statements by an independent third party.

● It is usually conducted by businesses for statutory reasons. However, a business that is not required by laws and regulations to have its financials audited may still get an audit done to assure its stakeholders that the information presented in its financial statements is reliable and presents a true and fair view.

● UAE banks require audited financial statements from approved audit companies based in Abu Dhabi, Sharjah, or mostly from Dubai audit firms before they award/renew bank facilities for their customers.

 

Internal Audit

● An internal audit involves the evaluation of an entity’s internal controls including its accounting processes and corporate governance. 

● The purpose of these audits is to ensure compliance with relevant laws and regulations as well as to help the senior management by providing them with information regarding the company’s control environment, risks, and operational effectiveness. 

● In other words, internal audit is used as a tool by companies to assess their performance.

● An internal audit department whether in-house or outsourced is responsible for carrying out regular internal audits throughout the financial year.

● This helps the companies improve their operational efficiency by identifying and addressing issues before they are discovered in external audits.

 

Forensic/Investigation Audit

● A forensic audit can be defined as an audit that involves an examination of an entity’s accounting records to find evidence regarding possible fraud or illegal activity, which can later be used, if required, in a court of law. 

● These audits not only require expertise in accounting and audit processes but also demand in-depth knowledge about the legal framework that is to be complied with when conducting such audits. 

● The process of a forensic audit is similar to a traditional financial audit which means it involves planning, gathering evidence, and writing a report with an additional step of a potential appearance in court. 

● Usually, the level of testing on transactions and accounts in a forensic audit is more detailed when compared to a traditional external or internal audit. Sometimes, the extent of testing can be 100%.

 

Tax audit

● A tax audit involves an assessment of whether an entity is complying with all the applicable tax rules, laws, and regulations. 

● In other words, this type of audit is conducted by the Federal Tax Authority (FTA) with the main objective of ensuring that an entity collects VAT from its customers and submits it to the tax authorities on a timely basis. 

● In addition, it is also used as a tool for assessing whether an entity is complying with all the relevant tax laws applicable in the UAE such as VAT laws and Excise Tax laws.

Under tax audit, the review process includes the following:

❖ Review of an entity’s existing VAT system;

❖ Review of VAT calculations;

❖ Review of an entity’s VAT returns;

❖ Compare figures reported on VAT returns with figures appearing in the entity’s accounting ledgers; and

❖ Review of payment of output VAT made by the entity.

❖ Overall compliance of the client’s business with the applicable articles of the VAT law.

 

Gross Turnover Audit/Sales Audit Certificate

● A gross Turnover Audit involves verification of an entity’s gross revenue for a particular period. 

● The accuracy and completeness of revenue are checked in detail by auditors and then a sales certificate is provided to the company. 

● This certificate is generally required by almost all the property management companies in the UAE from their retail tenants.

 

Cost Audit

● It involves a review of an entity’s cost accounts to not only verify its correctness but also to check that cost accounting principles have been properly followed during the preparation of these accounts. 

● Simply put, a cost audit can be defined as a tool used for verifying cost accounts and checking whether these accounts have been prepared by the cost accounting plan.

● Without a thorough cost audit, areas of weaknesses can be left unchecked and unaccounted inefficiencies and hidden losses will eventually have a negative impact on a company’s financial health. 

● Therefore, it is important for manufacturers especially FMCG manufacturers to conduct audits of their cost accounts preferably by an independent third party at least on an annual basis.

 

Stock Audit

● A stock audit is an audit in which an entity’s inventory assets are physically counted/verified with system records. 

● Every business having inventory should conduct an audit at least once a year to ensure that there is no difference between stock appearing in its accounting software and the stock that is physically available at its premises or warehouse.

● A stock audit helps businesses in classifying stock into the following categories:

✔ Fast-moving stock;

✔ Slow-moving stock;

✔ Damage stock;

✔ Deadstock; and

✔ Obsolete stock.

 

Such classification helps entities in making decisions that can have a positive impact on their profitability. It also helps businesses in reducing costs, prevents pilferage and fraud, and improves inventory management processes. All around the world, stock audits are considered a good tool for managing inventory assets.

It will be appreciable if the stock audit report provides details about the following:

✔ Differences in stock appearing in accounting software and stock that was physically verified during the audit;

✔ Classification of stock into the above-mentioned categories;

✔ Control weaknesses in the inventory management process; and

✔ Recommendations to improve the inventory handling and management process.

 

Payroll Audit

● A payroll audit involves an analysis of an entity‘s payroll policies, procedures, and records. 

● Such an audit can be conducted for various reasons which are listed below:

✔ To confirm that payroll information is up-to-date and accurate;

✔ To ensure that salary payable to employees are accurately calculated;

✔ To ensure the end-of-service benefits have been accurately calculated and accrued;

✔ To ensure that the entity’s payroll records and policies comply with all the relevant laws and regulations;

✔ To ensure that transactions and payments recorded in payroll ledgers match with the information appearing in an entity’s salary sheets and bank statements; and

✔ To ensure that the current status of employees is updated.

 

Conducting a payroll audit regularly can help a business in the following circumstances:

● Preventing fraud by identifying ghost employees or mismarked time cards;

● Identifying manual errors when entering transaction details into accounting software;

● Spotting calculation mistakes in case an entity prepares its salary sheets manually;

● Removing employees from payroll that have been terminated by the entity;

● Identifying employees that are eligible for a raise;

● Verifying deductions on salaries of employees are accurate; and

● Ensuring that the entity is compliant with all the relevant employment laws.

 

It is important to verify the employees included on an entity’s payroll. Verifying pay rates for each employee to ensure these are up-to-date and accurate, comparing pay rates of employees to their attendance records, and ensuring that payment is only being made to active employees.

Cross-examining salary sheets (containing details of gross payroll expense, deductions, and net payroll expense) by comparing them with the records appearing in general ledgers.

 

Financial Data Migration Audit

● Financial data migration involves the migration of all the financial and operational records from your current accounting system to the new accounting system. 

● The migration can either be done by transferring the audited balance sheet only or by transferring complete historical records of your business. 

● In manufacturing businesses, the migration from one system to another system is considered the most difficult one.

A brief detail about the pre-migration and post-migration audits is required to be provided under this audit.

 

Note:

✔ Pre-migration audit involves examination and evaluation of the new storage or information system to assess whether moving data from the old system to the new one is beneficial and in case if it is beneficial then how it can be done in a way in which the above-mentioned risks can be minimized if not eliminated.

✔ Post-migration audit involves checking whether all the data in the old system have been properly transferred to the new one and whether no data has been lost during the migration process. Such an audit is also performed to identify any compatibility or system performance issues.

 

Management Audit

● A management audit involves analysis and assessment of the capabilities of an entity’s management in achieving corporate objectives. 

● The purpose of such an audit is not only to appraise the performance of individuals but also to evaluate the effectiveness of the whole of the management in working as a team to satisfy the interests of all the stakeholders, maintaining good relations with employees, and upholding reputational standards.

● A management audit is considered an important tool for the continuous evaluation and appraisal of the methods as well as the performance of an entity’s management. 

● The main objective of a management audit is to help an entity’s management identify its weaknesses and to help them in addressing them.  

● Such an audit is usually carried out on a company-wide basis but it can also be isolated to specific business divisions/segments. 

● The ultimate goal of the management audit is to find out how effective the management is and how its performance can be improved.

 

Usually, management audits focus on the following:

✔ Critical evaluation of internal controls adopted by an entity and suggesting areas for strengthening;

✔ Review of existing business policies, practices, processes, and procedures to recommend best practices;

✔ Constructive review of an entity’s operations by keeping the focus on the client’s business needs;

✔ Review of Risk Management Framework and its effectiveness to provide suggestions for strengthening the same;

✔ Identifying and recommending areas for revenue optimization, cost reduction, and improvement in operational efficiency;

✔ Providing result-oriented and practical solutions;

✔ Confirmation of proper compliance with various operational manuals and regulatory provisions; and

✔ Assisting an entity in meeting its Corporate Governance requirements.

 

Compliance Audit

● A compliance audit can be defined as an evaluation and assessment of an entity’s adherence to external laws and regulations or internal guidelines, such as policies, controls, procedures, and corporate bylaws. 

● Compliance audits can also help in determining whether an entity is conforming to an agreement, such as when an organization accepts funds from the government or other sources.

● Compliance audits are used not only to review an entity’s compliance with laws and regulations related to financial transactions but also for reviewing compliance with quality management systems, HR laws, IT and other security laws, and other rules and regulations other than the ones mentioned above.

● Simply, a compliance audit gauges how well an entity is adhering to laws and regulations, international and local standards, and even internal codes of conduct and bylaws. 

● Part of a compliance audit may also review the efficiency and effectiveness of an entity’s internal controls.

Agreed Upon Procedures

An agreed-upon procedures engagement involves the performance of procedures of an assurance nature on which no opinion and no assurance is expressed to the intended users. Instead, only details of factual findings obtained during the performance of the procedures are reported and communicated to the intended users.

 

Mergers and Acquisitions Audit

● Mergers and acquisitions (M&A) is a business term that is used to describe the consolidation of business entities or assets through several financial transactions including acquisitions, mergers, tender offers, management acquisitions, and purchase of assets.

● There are mainly two types of M&A audits:

1. Pre-Merger and Acquisition Audit

2. Post-Merger and Acquisition Audit

Pre-merger and acquisition audit involves evaluation and assessment of the overall due diligence program in the context of an entity planning to either merge its business operations with another business entity or acquire another business entity. Such an audit also involves the evaluation of the impact of potential changes to an entity’s risk profile and related risk management activities before a merger and acquisition transaction takes place.

Post-merger and acquisition audits are conducted by businesses to ensure post-M&A integration and to track synergy capture. In other words, these audits are conducted to ensure that the objectives of identifying an area of weakness or issues arising post-merger and acquisition transactions.

 

System Audit

● The objective of a system audit is to ensure whether an entity’s IT system including its information system is safeguarding its assets, maintaining the integrity of stored data, supporting an entity’s corporate objectives, and operating efficiently and effectively. 

● In other words, system audits are conducted by businesses mainly to evaluate the efficiency and effectiveness of their information systems in addition to verifying that information systems have been properly configured and implemented.

Under system audit, the following are considered;

✔ An independent and objective review of the infrastructure of the information system, control configuration, and regulatory compliance through detailed testing and analysis.

✔ Evaluation of the overall effectiveness of the company’s overall IT control environment to ensure that these controls have been properly configured to preserve the availability, integrity, and confidentiality of critical systems and data.

The scope of such an audit primarily depends on the type, size, and scope of the company’s operations.

 

Performance Audit

● A performance audit involves independent evaluation and assessment of an entity’s operations to determine if specific functions, programs, or projects are working as they were intended to achieve stated objectives/ goals. 

● Performance audits are usually associated with government institutions and departments at all levels as most government bodies receive federal funding.

● The purpose of such an audit is to identify any area of weakness that is hindering an entity from achieving its intended objectives and provide recommendations to address the identified weaknesses so that an entity can achieve its intended objectives without any disruption and delay.

Performance audits of businesses involve a six-phase process as mentioned below:

⮚ Performing risk assessment.

⮚ Devising an audit plan.

⮚ Conducting fact-finding.

⮚ Analyzing the financial performance.

⮚ Preparing findings and recommendations.

⮚ Providing draft and final report.

 

Conclusion

Every registered company in the UAE is required to perform an annual audit of their Financial Records by qualified audit firms in Dubai or any other Emirates of the UAE.

Getting your financial statements audited is not only important due to regulatory requirements, but it is also important due to the need to have an independent check on the performance of the company as well as its staff. 

Contact us today to get any type of professional auditing services in Dubai, UAE.