Stop assuming that audit is a painful and exhausting interrogation to uncover real or imagined crimes. But this misleading impression ignores the fundamental part internal and external auditors recreate in the business world. These two types of scrutiny are necessary for our capital markets to have integrity, and businesses will operate less efficiently.
Auditing in the UAE is pervasive and complex, as companies must be audited annually. An audit is an independent examination of an organization’s financial reports by a third party. The audit’s purpose is to reflect the financial statements provided by management indeed. Therefore, the CPA discusses the scope of audit work requirements so that additional actions can be planned for the auditor’s performance to maintain independence from management to achieve targeted performance.
Difference Between Internal Auditors and External Auditors
Both internal and external auditors help firms in UAE ensure that their financial reporting complies with accounting standards, that internal controls are functioning correctly, and that the company complies with relevant laws and regulations. Risk assessment is a critical consideration for both types of auditors and requires a solid understanding of the industry and the company. However, the way they work is a bit different.
As the name implies, internal auditors work within the companies as employees. On the other hand, auditors are independent of the firm they audit. Moreover, an internal audit is a discretionary function within an organization, whereas an external audit may be mandatory. For example, public companies are required by law to undergo annual audits. However, lenders and other stakeholders may need audited financial reports as a requirement of ongoing financial support.
Registered External Internal Auditors in UAE
Registered auditors must comply with all rules and regulations of the country. Certified auditors must ensure that all financial records are accurate and transparent. IFRS must prepare financial statements. The follow-up documents required during the review are:
- Bank statements Credit/Debit confirmations for all financial transactions in the books All invoices – purchases and sales Business license, Memorandum of Association (MOA), Articles of Association (AOA) VAT certificate.
- Registered auditors gather evidence and feedback from their exams, which can be the basis for the opinions and solutions they can provide to business owners. Auditors will consult third-party sources such as banks for evidence and statements.
- Business activities accuracy of financial data/ records/VAT compliance with regulations on financial fraud, money laundering, creative accounting, etc.
What is Internal Audit?
Internal auditing is an independent and accurate consulting activity that adds value and enhances a company’s operations. It helps companies achieve their strategic objectives, detect fraud, and Improve operations. Moreover, internal auditors also ensure that corporate governance is functioning correctly. They may also be asked to review the budget process for special projects or to review internal operations. Finally, internal auditors ensure that the company is ready for external audits.
Depending on the organization’s size, the internal audit function may be performed by the company’s internal audit department or outsourced. Their scope of work is supervised by management, but they maintain objectivity and independence by reporting to the higher authorities. Their audit reports are shared with senior management in the areas they review. These reports highlight ways to improve internal controls and simplify operations.
Internal audits are usually conducted on an ongoing basis. Their audit work provides a comprehensive view of an organization’s financial and non-financial indicators for overall risk management. They also offer the company’s business practices to help achieve its strategic objectives. Their priority is both forward and backward: they check that financial transactions are correctly recorded in the company’s information systems while also looking to ensure its long-term strength.
Benefits Of Hiring Internal Auditors:
- Certified auditors review the financial statements and verify compliance with the rules. They provide unbiased feedback to adjust financial information and help improve economic conditions by enabling more informed decisions.
- Certified auditors provide advice and observations on any transaction with real insight, identifying activities in the organization that may expose the business to potential fraud risks. Extensive investigations are conducted to identify financial crime and propose measures to improve training.
- Enhance the goodwill and public image of the organization through the independent review of auditors. The reliability of financial statements improves the company’s situation.
- After a detailed review of your financial statements, they provide areas for improvement and new controls to improve the company’s financial position. They advise on cash flow management strategies and techniques to improve the business.
- Registered auditors help reduce errors in calculations of preparations. Quality control measures can add more value to financial statements.
- Factual and fair financial statements have won the trust of shareholders, who will increase their investment in the business and make it a profitable company.
- A prepared audit report provides long-term benefits such as changes in operations, accounting controls, etc., improving the company’s growth options and creating an overall picture.
- Certified auditors track the causes of errors, inconsistencies, and misstatements in their financial statements and systems. They provide your accounting system with a stamp of approval to function efficiently.
What is an External audit?
An external audit assures investors, lenders, and other interested parties that the company’s published financial statements present the organization’s results materially correct and fairly. In the UAE, this is known as providing a “true and unbiased view”. This assurance is provided by verifying that the company reports its financial results using relevant accounting standards.
In addition to performing financial statement audits, audit services may include checking an organization’s compliance with specific laws or regulations. Although the scope of the audit is determined by its purpose, external auditors design their audit work plan based on their assessment of the risks within the organization.
Unlike internal auditors, external auditors do most of their work at the end of the year, looking back to verify that the organization’s financial records accurately reflect past events. However, this year-end exclusive focus is changing. Some audit firms are moving to a sequential approach, conducting many small audits throughout the year.
When auditors complete their work, they report to management and other interested parties. The Auditing Standards determine the content and format of these external audit reports. During an exit meeting with management, auditors can discuss deficiencies in the company’s internal controls and make business improvement recommendations to management. External auditors can propose changes, but they are not allowed to implement them as this would affect their independence.
Benefits of hiring an external auditor
An external audit firm examines a business’s financial statements to determine whether the company’s prepared statements are accurate and organized by International Financial Reporting Standards. External auditors review financial documents to ensure companies present a “real and fair” view of their financial position. An audit firm in the United Arab Emirates specializes in external audits, assisting organizations in accurately preparing annual financial statements.
Some of the main benefits why UAE companies should undergo external audits:
- It is helpful to appoint an external auditor to review the financial statements for compliance with established standards.
- External auditors can identify items in the books of accounts that do not comply with the organization’s regulations.
- Hiring an external auditor is beneficial because unbiased feedback will help the organization align its financial statements with the rules and regulations.
- External auditors examine financial reports and bookkeeping records and report any suspicious activity or transactions to management. External auditors also provide advice and feedback on any actions or transactions undertaken by the organization that may expose the business to potential fraud risks.
- Hiring an external audit firm will increase the business’s credibility as external auditors review and approve financial statements. A successful external audit informs the public, financial firms, and government authorities that the company is reliable.
- Financial reports approved by external auditors are more credible and trustworthy than internal auditors.
- External Auditors can advise the company on spending requirements in different areas and offer strategies to improve business efficiency.
- An external auditor can limit any errors in preparing the company’s accounts. Business organizations may consider internal audits sufficient to verify a company’s financial records.
- External auditors may also comment and recommend to internal auditors to improve the company’s financial analysis and inspections.
- Having an external audit of the company provides transparency to shareholders regarding financial stability and whether the organization is profitable.
There are many benefits of hiring an internal or external auditor in Dubai. VVAS is committed to providing a range of audit-related services that will benefit your company in the short and long term. In addition, they have a qualified and experienced team that can effectively audit your company and provide suggestions and tips for improvement.
VVAS provides the best auditing services in UAE. Our dedicated team of experts can help you improve your financial management and business strategy. We appreciate your trust in us. We provide you with the best accounting and auditing services to accelerate your business goals and achieve your goals. Our audit experts can assist you with your audit requirements. We analyze your current performance, recommend that you perform better in anticipated extensive investment opportunities, and uncover opportunities for discerning investors.