Industry professionals have revealed that many UAE businesses fail recognise the importance of thorough auditing. Vijaya Kumar, Senior Partner Risk & Assurance, KGRN Chartered Accountants, says, “Our experience and research in dealing with small and medium businesses in the UAE indicate that these businesses are not aware of the importance of maintaining proper records of their financial transactions. This mostly leads to two things – they will not be able to gauge their financial health or the financial repercussions for not following the guidelines stipulated by the UAE, or both. This sometimes leads to the closure of their businesses.”
It is imperative that businesses in the UAE – irrespective of their size, are aware of the current government regulations.
Kumar points out that the UAE authorities have been implementing numerous changes to legislation and that it is important for businesses to have an understanding of such developments. “In 2018, we saw the introduction of value added tax (VAT) for all the establishments, then came the anti-money laundering act, and recently the introduction of corporate tax in the UAE,” he says.
“With these continuous changes, it is imperative that businesses in the UAE – irrespective of their size, are aware of the current government regulations being introduced and implement these changes in their organisations.
Governmental penalties for non-compliance can be avoided, thus making their businesses more streamlined and profitable in the long run.
Omar Ali Raeisi, Director - ICV, KGRN Chartered Accountants, says that many UAE businesses overlook discrepancies in their bookkeeping. “Most of the small and medium companies here record their financial transactions on a spreadsheet. At KGRN, we can transform data into double entry books of accounts by applying integrated accounting processes and controls.”
Raeisi says that a transparent perspective on finances and integrated accounting processes can help businesses avoid fines. “Most of the battle is won during this transition period. All the loopholes or the missed transactional entries are caught during this process and by applying the applicable international auditing procedures, the financial data comes out clean and clear.
“This leads to a clear picture of where their business is heading, and most importantly, governmental penalties for non-compliance can be avoided, thus making their businesses more streamlined and profitable in the long run. This can also help build confidence among their shareholders, help them in securing loans from their bankers or attract potential investors for their business.”
Any shortfall in complying with the tax provisions can lead to a fine ranging from Dh10,000 to Dh50,000.
Meeting legal obligations
UAE businesses must also maintain their financial records to meet their legal obligations. “Under the Commercial Companies Law, all companies in the mainland are required to have their financial accounts audited and must keep their financial records for at least five years,” says James Mathew, CEO & Managing Partner, UHY James Chartered Accountants. “Furthermore, the cabinet decision 36 of 2017 on the executive regulation of Federal Law no. 7 on tax procedure also mandates the taxpayer company on maintaining accounting records covering balance sheet, profit and loss statement, salary and wage, fixed assets and stock record along with supporting documents. Any shortfall in complying with the tax provisions can lead to a fine ranging from Dh10,000 to Dh50,000.”
Mathew also says that comprehensive auditing allows companies to be prepared for the possibility of auditing by the UAE Federal Tax Authority (FTA). “Based on the practical exposure, the FTA may select the taxpayer company to proceed with a VAT audit on the basis of factors such as their VAT refund position, the number of voluntary disclosures filed, occurrence of incorrect filling, delay of payment of taxes and penalties and to some extent, the large sized businesses.”
The benefits of transparency
A key benefit of comprehensive auditing is that it provides shareholders and other stakeholders with a transparent picture of the state of a business and reduces the risk of exposure to issues such as financial fraud.
“Transparency in an audit is an old concept and its importance has increased in recent years due to frequent focus and changes to legislations and regulations. Transparency in auditing defines the ease whereby the reader can see through the auditor’s report and financial statement, to understand the underlying transactions and business carried during the period covered,” says Manan Chadha, Director, TRC Pamco.
Opaqueness in an audit report and financials is seen as one of the indicators of something wrong.
“In contrast to transparency, opaqueness in an audit report and financials is seen as one of the indicators of something wrong. On the one hand, a transparent audit will add to the trustworthiness of the underlying document and on the other hand, it will play a pivotal role in control over financial frauds.”
Reliability through consistency
Chadha refers to the famous axiom ‘nothing is constant other than change.’ He says that when change occurs, auditing should remain consistent to maintain a business’ credibility. “Reliability, like trust, takes time to develop and in auditing it is a derivative of experience over years. It involves information and frequent learning about factors such as the nature of services provided, client associations, affiliations with esteemed organisations and interactions outside the organisation.
“A reliable audit is like a plus factor on the financials prepared by management and adds to its worth as it gives a sizeable comfort to the reader that an independent third eye view has been carried on the financial reporting in the form of a reasonable assurance.
“Furthermore, all the activities of an organisation revolve around creating sustainable value for its stakeholders in which a reliable audit also plays a vital role in terms of periodic reporting and ensuring compliance with the local laws.
“Periodic monitoring of the track of progress with an added ‘third eye reliable audit’ leads to accountability and forms a direct correlation with the overall objectives of the organisation.”