You always wanted to build that dream venture in Dubai? Now you also have to account for VAT which was introduced on 1 January 2018 and Corporate Tax which was introduced on 1 June 2023. Accounting for taxes in Dubai, not exactly the most glamorous of topics.
Choosing an auditor is one of the most lengthy and difficult tasks for an accounting department. It is not a simple decision as it involves not only determining who will audit the accounts but also whether this auditing will be done internally or externally.
The easier way to do finance We exist to give you the most incredible audit and accounting experience while also supporting the growth and success of your startup. Our mission is to be your financial partner, reducing unnecessary stress, work, and annoyances. Let us do the heavy lifting so that you can focus on what is truly important to you and your business.
Key Takeaways
- Dubai’s regulatory environment shifted significantly with the 2023 Corporate Tax laws.
- Founders must distinguish between different oversight methods to ensure total compliance.
- Regular financial reviews identify operational gaps and boost your overall efficiency.
- Staying compliant acts as a shield against penalties and legal risks.
- Finanshels simplifies the financial backend, allowing you to focus on strategic growth.
- Strategic financial automation helps maintain clear records for any official inspection.
1. Auditing in the UAE: Setting the Foundation
Auditing is mandatory in the UAE. Auditing is a mechanism to ensure good governance and efficiency in management and to enhance the financial health of an organization. An audit is an official examination of an organization’s financial accounts and activities.
To help maintain the confidence of stakeholders, an Internal Auditor examines an organisation’s financial statements and activities. Regular audits are undertaken to ensure that any possible problems are identified.
1. Audit Evidence and Auditor’s Finding: The auditor must be independent and make findings based on sufficient and appropriate audit evidence.
2. Objectivity: The auditor shall be objective and free from bias.
Auditing is an important function in the UAE. Auditing enables compliance with laws, regulations and good standards of practice, helps in managing risks and increases transparency in governance. Audit knowledge equips you with an understanding of the criteria and the thought process an organisation may undertake when deciding on policies, practices and controls.
2. Understanding Internal Audit
We help businesses grow by using internal audits. They make sure your controls and risk checks are strong. This helps you work better and follow rules.
2.1 Definition and Core Purpose of Internal Audit
What internal audits cover Internal audits deal with assessing controls, governance and risk management practices and are carried out by applying an audit methodology (process) to check if the processes are working adequately to support the business operations.
An internal audit carries out a verification in relation to whether adequate arrangements have been put in place for risk management, governance and internal control.
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2.2 Internal Audit Process and Risk Assessment
Internal audits identify, assess and manage risks. The purpose of an internal audit is to ensure that the organisation is functioning effectively and that there is a clear link to the organisation’s strategic objectives. An internal audit will help you to identify, assess and manage key risks.
- Identify risks that could impact your business objectives
- Assess the likelihood and possible impact of these risks
- Develop strategies to lessen or handle these risks
2.3 Internal Auditor Responsibilities and Scope
Internal auditors verify whether adequate risk management, control and governance mechanisms are in place. They make recommendations for improvement and investigate controls, regulatory compliance and governance practices.
You may not fully appreciate the breadth of activities that we as internal auditors carry out. If you had a better understanding of our contributions, you might be able to make better use of the services we provide.
3. Understanding External Audit
In the UAE, knowing about external audits is key for businesses. These audits are needed for most companies. They check if financial statements are right and follow the rules.
3.1 Definition and Core Purpose of External Audit
An external audit is a professional examination of a company's financial statements and accounting procedures. The audit assesses whether the information presented gives an accurate reflection of the company's financial situation.
An audit is a process carried out by an audit firm that has no affiliation with the company. Audit firms ensure the impartiality of the audit process.
3.2 External Audit Process and Methodology
External audit is the examination of a company’s financial statements. Auditors check the accounting practices in respect to cash and whether controls are in place and whether the accounting practices are in line with the accounting standards.
The steps include:
- Planning and risk assessment
- Testing of transactions and balances
- Evaluation of internal controls
- Review of financial statement presentation
3.3 The Role of External Audit Firms in UAE
Audit Firms in the UAE Audit firms in the UAE play a very important role in the economy of UAE. Their role in audit is to verify the accuracy and the true and fair view of the financial statements of the companies.
All Public Auditing Firms in the UAE have to be incorporated and licensed in the UAE and shall adhere to the International Accounting Standards (IAS). Auditing firms are engaged to ascertain whether accounts really and truly represent the financial position of the Company.
Auditing accounts for companies in the UAE is essential in order to ensure that companies in UAE are complying with all the laws and regulations of the UAE. Auditing accounts for companies in the UAE is a procedure whereby an auditor reviews the way in which financial statements have been presented.
4. Internal Audit vs. External Audit: Key Differences
It's important for businesses in the UAE to know the difference between internal and external audits. Both types have their own roles and benefits. Understanding these differences helps businesses make better choices.
4.1 Objectives and Scope of Work
To verify the company’s risk management and regulatory compliance procedures, internal audits are implemented. Internal audits aim to examine a large number of issues.
An external audit primarily concerns itself with whether or not the accounts are correct. They tend to concentrate more on the accounting and are more concerned with the presentation of the accounts in relation to accounting regulations.
Key differences in objectives and scope include:
- Internal audits: Focus on risk management, internal controls, and operational efficiency.
- External audits: Focus on financial statement accuracy and compliance with financial regulations.
4.2 Independence and Reporting Lines
An internal auditor is a personnel of an organization which it audits. Thus, they are also independent. For this reason, the auditor reports to an audit committee.
An external auditor is not an employee of an organisation. Rather they are appointed by the organisation’s management or board of directors. This helps to ensure that they are an impartial third party. The organisation’s management and board of directors are interested in the organisation’s affairs, whereas an auditor is not. The auditor has no direct involvement in the organisation and is not accountable to any particular part of it. This helps to ensure that the auditor can provide an impartial assessment of an organisation’s financial statements.
4.3 Frequency and Duration
The frequency and duration may vary. In general, it is carried out by the auditing firm responsible for the economic area of each entity. Although it can be done continuously, it is typically performed intermittently, based on the risks identified and adapted accordingly.
Every year there has to be an external audit. The length of the audit is determined by the annual accounts and by the size of the company.
4.4 Focus Areas: Compliance Audit and Financial Audit
Internal audits often check if the company follows its own rules and looks at the money side too.
External audits mainly check the money side. They make sure the money reports are correct and follow the rules.
4.5 Audit Report Audience and Usage
- Audits reports are for management and the audit committee. They allow to assess internal processes and therefore to limit the risks associated with them.
- External audit reports are for users outside the organisation, for example investors, governments. External auditors verify that the financial information presented in the financial reports is presented in a reliable manner.
The main differences in report audience and usage are:
- Internal audit reports: For internal stakeholders to improve operations and risk management.
- External audit reports: For external stakeholders to assess financial health and compliance.
5. Benefits and Cost Comparison
UAE businesses must think about the good and bad of internal and external audits. Both types have special benefits that can change how a business works, handles risks, and makes people trust it.
Key Benefits of Internal Auditing
Internal audits bring many good things, like:
- Improved Operational Efficiency: They find ways to make things better, making processes smoother and cutting down on waste.
- Enhanced Risk Management: They spot and check risks, helping businesses find ways to avoid problems.
- Better Governance: They help create a culture of following rules and being open, keeping businesses honest.
Key Benefits of External Auditing
External audits have their own special benefits, such as:
- Independent Assurance: They give outsiders a true view of a company's money reports.
- Compliance with Regulations: They make sure businesses follow the law, avoiding big problems.
- Enhanced Credibility: A good report from an external audit can make a company look better to others.
Internal Audit Costs: In-House vs. Outsourced
The cost of internal audits changes a lot, depending on if a company has its own team or gets help from outside.
Cost Component In-House Outsourced
Staffing Costs $100,000 - $200,000 per year $50,000 - $100,000 per year
Training and Development $5,000 - $10,000 per year $0 - $5,000 per year
Total Cost $105,000 - $210,000 per year $50,000 - $105,000 per year
External Audit Costs in UAE Market
How much external audits cost in the UAE changes based on the business size, how complex it is, and the audit firm.
Cost-Benefit Analysis for UAE Businesses
UAE businesses should think about these things when comparing costs and benefits:
- Risk Mitigation Audits cover a wide variety of aspects and offer a number of advantages in order to mitigate a variety of risks.
- Audit of operational efficiency It aims to evaluate the methods, processes and frequencies used by an organization to provide its services. This evaluation relates to the use of technology and all other methods and processes used by an organization to achieve its targets and to enable it to proceed with its works and activities in the best way possible.
- Stakeholder Confidence Our External audits can get people to have more confidence in a company, which can increase the company's value and lead to new business opportunities.
Internal and external audits occur at all levels of society, both within governments and organizations. Audits provide valuable information about the management and use of resources and help determine whether the activities carried out are efficient, legal and relevant. The advantages and disadvantages of audits should be weighed when deciding how to proceed with respect to audits for your business.
6. UAE Regulatory Requirements and Choosing the Right Audit Services
The UAE has strict rules for audits. It's key for businesses to know and follow these rules. Getting help from experts can make sure your company follows all rules.
Mandatory Audit Requirements in UAE
In the UAE, some businesses must get audits. The UAE Ministry of Finance and others say who needs audits. Knowing this helps avoid fines.
Free Zone and Mainland Compliance Differences
The audit rules for free zones and mainland are completely different. Free zones have their own audit rules which may be different to the audit rules for the mainland. It can differ per free zone whether annual audits are required or not.
Chinese companies listed in the US stock market are required to follow US Generally Accepted Accounting Principles (GAAP) which are mandated by the US federal government. What type of audit required will depend on the type of entity, and the business that the entity conducts. Understanding the differences between the types of audits will help you select the right audit services for your specific situation.
When to Implement Internal Audit
Starting an internal audit is a smart move. It finds ways to work better, checks rules, and lowers risks. It's good for growing fast, having complex work, or being in strict industries.
When External Audit is Essential
External audits are more than just rules for many. They show that a company is financially sound and follows rules. They're needed for listed companies, those with public interest, or by regulators.
How Finanshels Delivers Comprehensive Audit Solutions
At Finanshels, we get the UAE's audit rules and the need for the right services. We give audit solutions that fit your business. Our team helps with internal audits for better work or external audits for rules. We aim to help your business grow and follow rules well.
7. Conclusion
The large majority of companies in the UAE are not aware of the difference between an internal and external audit. An internal audit is a procedure that is carried out by companies and organizations within their own premises to check the accuracy and the reliability of the financial accounts and that they correspond to the internal procedures of the organization. It aims to increase transparency, good governance and to observe regulations and laws. The external audit is carried out by the certified public auditors to verify that the accounts of the company have been presented correctly and in accordance with the standards and laws in force in the UAE.
Auditor role The accounts revealed more about the role of the auditor. We looked at the procedures the auditor carries out to ensure that a company’s accounts are accurate and that the business is functioning normally. There are two aspects to the auditor’s role in relation to accounting controls. The first is an audit of the internal controls that operate within the business. The second is an audit of the accounts that are presented to shareholders to check that they give a true and fair view of the company’s position.
Statutory and Internal Audit is mandatory for all companies in the UAE. Statutory Audit highlights the opportunities and potential problems in your business, and ensures you are in compliance with all laws and regulations. Internal Audit evaluates existing control procedures to determine whether they are adequate and are functioning effectively and efficiently, thus providing management with the confidence in the integrity of the internal control system. Finanshels provides a full spectrum of Audit services to cater to your specific requirements and help you make better business decisions.
FAQ
Is an external audit mandatory for all companies operating in the UAE?
In mainland UAE and in larger Free Zones such as DIFC or ADGM an annual audit is usually required by most companies in order to renew their trade license, and to comply with the statutory obligation to file annual accounts and reports.
How does a compliance audit differ from a standard financial audit?
A financial audit involves an examination of financial statements in order to express an opinion on whether the statements present a true and fair view of the financial position of the entity. A compliance audit is an examination of accounts and records of an entity, made to check whether there has been any non-compliance with laws, regulations, financial rules and management guidelines.
Can we use our internal team to conduct an external audit report?
No. Internal audits are performed by employees of the audited organisation. An external audit is a third party audit carried out by an audit firm and the audit report will be considered binding for all parties involved.
Why should a growing startup invest in internal audit services early on?
An internal audit verifies that the internal controls are in place to ensure that the accounts present a true and fair view and are not materially misstated. In addition to verifying the audit procedures, an internal audit will also look at itself in the mirror and assess the effectiveness of the process, and deal with any anomalies or issues that arise as part of the audit process. Internal audits are always more effective if they commence at the beginning of the process as opposed to being carried out at the end.
How does Finanshels simplify the audit process for founders?
Our online accounting and audit services can help you and your auditors with their tasks. Whether your accounts are complex or simple, we can present your financial information in a manner that is clear and easy to understand.
