To prepare for an audit is quite challenging for any firm, especially for firms in the United Arab Emirates (UAE) where compliance with rules and regulation is paramount. But by particularly adhering to a few key strategies, the audit preparation can be done in a much more systematic way.
Understanding the Audit Preparation Process
To effectively navigate through the checklist outlined below, it is crucial to get acquainted with the process of audits and their purpose. An audit is a formal inspection of the financial records of an organization, as well as of its accounting procedures and adherence to legal requirements. The purpose of an audit is to give reasonable assurance to the stakeholders that the financial statements contain no material error and are complete.
- Identify the Audit Scope and Objectives
The first one is identification of the audit plan, that involves defining the goals and tasks of the audit. This involves getting to know which areas of the organization the audit is going to cover, the periods in which the audit will be done, and the rules and regulations that need to be complied with as well as the relevant auditing standards. The expectations and requirements should always be discussed with the audit team in order to have a clear understanding.
- Assemble the Audit Team
Ensure the preparation of an internal audit team whose main duty is to organise the entire audit process. Members of the team should have a relevant level of skill and experience to enable them assist in the accomplishment of the audit goals. These may include employees from the finance department or the accounting office, legal department and the compliance office.
- Gather and Organize Relevant Documentation
Compile all relevant financial statements, reports, and other documentation required for the audit. This may include:
- Balance sheet, income statement, cash flow statement.
- General ledger and supporting schedules.
- Bank statements and reconciliations
- Tax returns and the documents submitted as evidence
- Records of the meetings of the board and the shareholders
- Policies and procedures manuals
- Contracts and agreements
- Internal control documentation
Save the documents in an orderly and easily retrievable arrangement like a password protected website or a well categorized and arranged folder.
- Review and Update Internal Controls
Evaluate the efficiency of the established internal control system in the company, including the internal policies and procedures as well as issues related to the internal control processes. Determine if there are any gaps that need to be improved or strengthened and make the necessary amendments. Another measure is to document the internal control framework and consider reviewing and updating it periodically.
- Prepare Substantive Test and Analytical Procedures
Identify some of the matters that could be susceptible to extensive audit testing and analysis in the course of substantive testing. Ensure that you collect and maintain all kinds of evidence to support the transactions and come with extensive information to explain the reasons behind the transactions to the audit team.
- Communicate with the Audit Team
Always ensure that you are in contact with the audit team and ensure that you respond promptly to any requests they might have for information and other documents. Hold periodic meetings and briefs to talk about the audit work and to address any concerns or challenges.
- Review Draft Audit Reports and Respond to Findings
Address the issues or recommendations provided in the draft audit reports to the audit team. Make sure to develop a clear and specific operational plan to mitigate the shortcomings or errors that were discovered and document the measures taken to correct those problems.
- Supervise and Assess the Audit Programme
Review the status of the audit and assess the readiness and contributions of the internal audit team. Determine whether there are any insights acquired or adjustments that can be made to strengthen the audit process for future engagements.
Table: Audit Preparation Checklist
| Steps | Description | Documentation |
|---|---|---|
| 1. Identify audit scope and objectives | Determine the areas to be audited and the financial periods covered | Audit engagement letter |
| 2. Assemble the audit team | Identify and assign internal resources to support the audit | Organizational chart and team roles |
| 3. Gather and organize documentation | Compile all relevant financial statements, reports, and documentation | Financial statements, ledgers, bank statements, minutes, policies |
| 4. Review and update internal controls | Assess and improve internal controls, policies, and procedures | Internal control framework and documentation |
| 5. Prepare for substantive testing | Identify key transactions and supporting documentation | Transaction samples, evidence of authorization |
| 6. Communicate with the audit team | Establish open lines of communication and provide timely responses | Meeting agendas, minutes, and correspondence |
| 7. Review draft audit reports | Address findings and prepare an action plan | Draft audit reports and management letters |
| 8. Monitor and evaluate the process | Identify lessons learned and areas for improvement | Audit preparation evaluation report |
FAQs
Q: Who are internal auditors and what do they do?
A: The goal of internal audit is to review various aspects of the company such as internal control system, financial reporting procedures and the internal control to the legal requirements.
Q: How frequently should a company be audited?
A: Audits can be done at regular intervals but the frequency varies depending on several factors that include size, nature of business and legal necessities in the course of business.
Q: What is the difference between an internal audit and an external audit?
A: An internal audit is conducted by a company’s internal resources, while an external audit is performed by an independent third-party auditor.
Therefore, it can be stated that audit preparation is essential for UAE businesses to meet regulatory requirements and enhance their overall performance to support investor confidence. Based on the checklist and recommendations outlined above, it is possible for the companies to optimize on the audit process and eliminate such risks in future. It is recommended for companies operating in UAE to seek comprehensive services of experienced auditing firms in UAE in order to ensure regulatory compliance with UAE laws and regulations.
