Maintaining financial transparency and accountability is crucial for business owners and managers in the United Arab Emirates (UAE). An annual audit plays a significant role in ensuring that your company’s financial statements are accurate and comply with regulatory standards. However, preparing for the audit can be overwhelming, particularly if you’re a startup that is not familiar with the procedure. In this blog, let’s see how to prepare for an annual audit in the UAE.
Regulatory Obligations for Business Entities
The laws in the UAE play a vital role in deciding whether a company needs to conduct financial audits or not. Depending on the specific regulations, some companies may be required to undergo audits of their financial records, while others may not.
To avoid penalties and legal issues, it’s crucial to understand these legal requirements. According to the UAE Commercial Companies Law, both mainland and Dubai-registered corporations must adhere to specific regulations regarding financial audits. Being aware of these rules will help ensure compliance with the law and avoid any potential consequences. The essential criteria that companies must meet are outlined in Chapter 2 of Article 27 of Federal Law No. 32 of the new law in 2021. Mentioned below are the main points:
- All companies are required to hire one or more auditors to conduct an annual examination of their financial records.
- These companies must prepare yearly financial statements, which include a financial report and a profit & loss statement.
- To maintain accuracy and transparency in their financial information, companies must follow International Accounting Standards and Practices when creating both periodic and yearly reports.
Preparation for an Annual Financial Audit in the UAE
Collecting & Assessing Data
During the fieldwork of an audit, the auditors gather and analyze data to check if the organization’s internal controls are working properly. This involves talking to company officials, examining documents, and obtaining information to create audit reports.
Choose a Team
When assigning tasks for the financial audit, make sure to select a competent team. It’s important to avoid putting too much pressure on them during the annual audit, as this could result in significant problems.
Understanding Regulatory Requirements
Familiarize yourself with the specific audit requirements outlined in the UAE Commercial Companies Law.
Effective Planning
Being prepared and organized saves time and improves the chances of a successful financial audit. Before the audit, ensure everything is well-organized and help your team enhance their skills to avoid errors.
Request the Client-Prepared List in Advance
Before the audit, ask the client for the prepared-by-client (PBC) list, which includes essential financial documents. Obtaining this list in advance helps avoid duplication of effort and ensures all necessary records are ready for the audit, making the process smoother and more efficient.
Annual Reconciliations
Check your accounts every three months or every month to find any differences in the numbers. This helps catch issues before the audit starts, so you have enough time to fix them.
Preparing Documentation
Ensure all financial records are well-organized and accurate to streamline the auditing process. To produce an annual audit report, it is essential to maintain all documentation, such as payroll records, bank accounts, transaction details, and other important documents. Keeping these records safe and organized is critical for the auditing process.
Address Potential Audit Findings
Perform a self-assessment of potential audit findings. Address any identified weaknesses or areas that might raise concerns during the audit. Taking proactive steps to resolve these issues beforehand will demonstrate your commitment to financial transparency and help build trust with the auditors.
Digital Accounting
Using digital accounting and invoicing software makes it easy to document and organize business records. You can scan and upload documents to the cloud, which makes them accessible in a digital format.
Communicate
Before the audit starts, go over the PBC (Provided by the Client) list carefully. This list includes all the things the auditors want to see from your business. Make sure you understand everything they’re asking for. If you have any questions about what’s on the list, ask them before the audit begins.
Maintain an Audit Trail
Keep a well-documented audit trail that tracks all financial transactions and changes made to financial statements. Having an organized and transparent audit trail will facilitate the auditing process and provide evidence of your company’s financial integrity.
Preparing for the Audit
Before the audit, make sure you have enough time and that all-important team members can be present. This includes your accounting and finance team – they should be able to adjust their schedules and not be away during the audit.
Also, be quick in answering any questions the auditor might have while they’re doing the audit. This helps make sure things don’t get delayed. Even if you’ve already given them a lot of the needed paperwork before the audit, they might still need more info to understand your company well.
Organisational Alterations
See how the financial situation has changed since the last time they checked it, especially if they’ve looked at it before. New investments in projects, money given by organizations, and support from the government can affect the yearly money check.
Startup companies often lack the internal resources and expertise needed to navigate the complexities of various business functions, from legal and financial compliance to strategic planning and marketing. Though preparing for a financial audit might seem like a complex task for startup companies, it is essential for ensuring financial accuracy, transparency, and compliance.
Whether you’re a startup, a growing enterprise, or an established corporation, seeking financial audit services can provide crucial support. Being the best accounting and auditing firm in UAE, TCA provides top-notch financial audit services for a comprehensive and accurate understanding of your company’s financial health.
With audit services, startups can make informed decisions and attract and establish a strong foundation for sustainable growth in the competitive business landscape. Get in touch with TCA for more information.
