Audits may not be the most attractive aspect of running a business in the UAE, but they are certainly one of the most important. Whether it’s keeping a close eye on financial health, tracking growth, or managing risks, audits play a vital role in keeping organisations on track. While internal audits are a standard part of any company’s internal control process, external audits are often overlooked. In this blog, we will help you understand the differences between internal and external audits in the UAE.
Basics – Internal and External Audits
- Auditing is the process of checking financial records to make sure they’re accurate. Internal auditors focus on a company’s internal control system to identify possible problems. External auditors evaluate financial statements and internal controls.
- Internal auditors check for risks and problems in a company’s internal control system. They also evaluate how effective policies and procedures are.
- External auditors are independent experts who check a company’s financial statements and internal controls and report their findings to shareholders, creditors, and regulators.
- Internal auditor training teaches people about the audit process, including planning, executing, and reporting. It also provides hands-on experience in various audit processes.
Benefits of an Internal Audit
To ensure accurate accounting records, internal audits are essential for companies in the UAE. They evaluate the effectiveness of internal controls and ensure the financial statements are reliable. Internal audits can detect potential fraud and errors, protecting the company from potential loss. They also ensure compliance with statutory requirements and contribute to a safe environment for all stakeholders.
Benefits of an External Audit
An external audit is a statutory requirement conducted by an auditor to provide an opinion on a company’s financial statements. This ensures the correctness and accuracy of the accounting records and provides assurance about the financial statements. External audits also help in auditing internal controls and answer the question of whether the company’s financial statements give a true and fair view of its financial condition and performance. A statutory audit enables businesses to operate with a robust legal framework that aligns with international standards and a clear taxation policy. External audits also equip organisations with the essential skills and knowledge to conduct auditing effectively, which is why they are always recommended when conducting internal audits.
Differences between Internal and External Audits
Internal auditing is conducted by internal auditors in UAE to provide assurance to management on the accuracy and reliability of financial statements. On the other hand, external auditors are hired by companies to audit their financial reports and express an opinion on their financial statements.
The Companies Act, 2013 mandates internal audit for some companies falling under certain criteria, while for others, it is optional. During internal audits, the internal auditor conducts various tests and checks to assess the effectiveness of the internal control system. External audit services ensure the accuracy and correctness of accounting records, promoting confidence in financial reports.
Internal auditors help identify deficiencies in systems, processes, and controls to improve the efficiency and effectiveness of internal controls. Internal audits also provide skills, knowledge, and understanding of principles and practices of internal auditing of Quality Management Systems. The main objective of internal auditing is to enhance efficient operations and assure governance, competence, and compliance with established frameworks in an organisation.
Choosing the Right Audit: Internal vs External
When it comes to auditing, companies have the option of choosing between internal and external audit services. External auditors are authorised by the government and are responsible for providing legally binding audit reports that help businesses assess their financial condition, risk profile, and external financial performance.
Internal audit services, on the other hand, are conducted by internal auditors who undergo rigorous training to ensure that a company’s internal controls function smoothly. Both internal and external audits add value to businesses by providing assurance of quality services, continuous improvement of internal systems, and governance.
However, internal auditors must receive proper training to identify any deviations from prescribed processes or procedures in a company. Therefore, it’s essential to understand the audit’s purpose before deciding between external and internal audit services.
Need Help?
If you are unsure which audit service would best suit your business, it may be beneficial to conduct an internal audit to assess your company’s strengths and weaknesses. Based on the results of the internal audit, you can then plan for an external audit. TCA, a top accounting firm in Dubai, UAE, can provide helpful information on both internal and external audit services in UAE.
