What is an Audit?
An audit is an impartial examination and evaluation of the accounting records of a company by a statutory auditor. The purpose of the audit is to verify that the records are an accurate and fair representation of the company’s transactions, and involves obtaining evidence about the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
What Is an Auditor?
An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost operational efficiency. Auditors work in various capacities within different industries.
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- The main duty of an auditor is to determine whether financial statements follow generally accepted accounting principles (GAAP).
- The Securities and Exchange Commission (SEC) requires all public companies to conduct regular reviews by external auditors, in compliance with official auditing procedures.
- There are several different types of auditors, including those hired to work in-house for companies and those who work for an outside audit firm.
- The final judgment of an audit report can be either qualified or unqualified.
Types of Auditors:
- Internal auditors are hired by organizations to provide in-house, independent, and objective evaluations of financial and operational business activities, including corporate governance. They report their findings, including tips on how to better run the business, back to senior management.
- External auditors usually work in conjunction with government agencies. They are tasked with providing an objective, public opinion concerning the organization's financial statements and whether they fairly and accurately represent the organization's financial position.
- Government auditors maintain and examine records of government agencies and of private businesses or individuals performing activities subject to government regulations or taxation. Auditors employed through the government ensure revenues are received and spent according to laws and regulations. They detect embezzlement and fraud, analyze agency accounting controls, and evaluate risk management.
- Forensic auditors specialize in crime and are used by law enforcement organizations.
The purpose of an audit for your business in Dubai:
The general reason for an audit is to create an independent and impartial view on the information offered in the financial statements, whether that information reveals the true and fair interpretation of the operations of that business or not. For example, the auditors will prove and give their opinion on whether the reported incomes, payments, profit/loss, possessions, obligations, and equity are specified at their true and fair standards or if there is any material misstatement.
Audit requirements for listed companies in Dubai:
In the UAE, the following types of companies must have an audit at any time in the financial year if they are:
- joint-stock companies;
- limited liability companies;
- affiliations or partnerships limited by shares;
- any other business which is mandatory by any other law.
Small companies in Dubai are audited when they are required to do so by any supervisory unit or financial institution or to meet any other special condition.
Power and Duties of an Auditor:
- The auditor has a right to receive information and explanation regarding the matters which are necessary for the performance of his duties. He needs to know whether:
- The company makes loans and advances against proper security and the terms of these are prejudicial to the interests of the company.
- Transactions that merely represent a book entry are prejudicial to the interests of the company.
- In the case of a company that is not an investment or banking company, it sells the assets. They are in the form of shares, debentures, and other securities at a price less than their purchase price.
- The company shows the loans and advances that it makes as deposits.
- It charges personal expenses to the revenue account.
- Every auditor has a right of access to the books of account and vouchers of the company at all times, whether they are at the registered office of the company or at any other place.
- The auditor of a holding company also has a right of access to the records of the subsidiary company if they are necessary for the purposes of the consolidation.
- An auditor also has a right to receive notice of any general meeting. He may attend it himself or through his authorized representative who is also qualified to be an auditor. He also has a right to be heard on any part of the business which concerns him.