External Audit in UAE
The term “audit” refers to the process of examining and commenting on items that have been validated. An audit of the books of accounts and other pertinent data is known as a financial audit. This will give the auditor the information he needs to determine whether the accounts have been properly managed and whether they have been audited in accordance with statutory, accounting, or financial reporting standards. A financial statement audit is a third-party examination of an organization’s financial statements.
A financial statement audit is a third-party examination of the organization’s financial statements. The primary goal of a financial statement audit is to provide independent or third-party assurance that management has presented a “true and fair” assessment of a company’s financial performance in its financial statements.
The auditor’s report attesting to the fairness of the financial statements and related disclosures is the result of this examination. When the financial statements are distributed to the intended receivers or stakeholders, the auditor’s report must be included.
The significance of auditing books and records
With the passage of time, the need of auditing grows, since there are always more items to evaluate and whistle when things go wrong. Businesses are becoming more complex, and company leaders are employing a variety of strategies to beat the market. When countries or civilizations advance at a faster rate with technical advancements, new methods of doing things emerge.
Accounting and auditing must be able to cope with market fluctuations and ensure that stakeholders’ interests are effectively protected in order to cover such activities. There has been a steady stream of exposes of fraudulent reporting by prominent corporations, highlighting the need for a thorough audit.
The goal of a financial statement audit
Having an expert opinion that is independent of the company’s management is critical in ensuring that what is reported in the balance sheet/statement of financial position or Profit and Loss Account is accurate. A financial statement audit’s goal is to give credibility to a company’s reported financial situation and performance. Lenders often need an audit of the financial statements of any organisation to which they lend funds, and tax authorities require confirmation of sales and income. Before extending trade credit, suppliers may request audited financial statements.
Procedures for External Audits
To cover all financial items with audit materiality, a well-planned verification is required. An audit entails gathering and evaluating data to support the conclusions reached. The following are the processes that will assist the auditor in this direction.
Risk assessment and planning
It entails learning about the company and the environment in which it operates, and then utilising that knowledge to determine whether there are any risks that could affect the financial statements.
Testing of internal controls
It entails evaluating the efficiency of an entity’s suite of controls, with a focus on issues including correct permission, asset safeguarding, and duty segregation.
Procedures of substance
From the perspective of auditors, there are many levels of assurance
A high level of assurance is provided by an audit. A review engagement, on the other hand, provides a lower level of confidence than an audit. The auditor does not do all of the processes that are performed in an audit in a review. In addition to the yearly audit, publicly traded companies must have their quarterly financial statements scrutinised.
It is often just necessary to report on specific financial data or a set of financial statements to report on factual findings, such as certifying merely the company’s turnover. As with a review engagement, the level of assurance in such agreed-upon procedures is lower.
In a compilation engagement, the auditor is hired to generate financial statements, but his competence in gathering, classifying, and summarising financial data is just required, not intended to provide any assurance on the financial statements.
Implementation of the Internal Audit Plan that has been approved
Fieldwork begins after the Audit plan is approved, and includes a walk-through, inquiry, questionnaire, and other activities. Clients are kept up to date on the audit’s progress.
Submission of draft/final reports to management to highlight concerns with risk rating and reporting of the Internal Audit Plan that has been approved
All of the observations are compiled in a draught report when the execution step is done. All observations with the responsibility of the concerned function receive a risk rating. To emphasise the difficulties, concerns, and deviations, this report is reviewed with Management or Authorized employees.
Report on Follow-up and Action Taken
The scope does not end with the filing of reports because it will be an ongoing process. The status of observations and its closure status will be communicated to management in the follow-up action taken report (ATR). Any long-pending observations that are significant to the business will be brought to management’s attention so that a course of action can be taken. When the internal auditor is not a part of the company and is independent, the evaluation and appraisal of the organization’s financial and pertinent operational operations will be better.