In the present, where the business market has increased to a large extent, it is required for business owners to make sure that the mandated procedures given to the company are being followed.
As a result, it is critical for a company to examine and conduct an audit of its financial statements and records in order to maintain transparency. This is where a statutory audit comes into the picture; it provides a fair and accurate representation of a business’ financial position by examining information such as bank balances, bookkeeping records, and financial transactions.
Let’s look in depth at what a statutory audit is from the best auditors in Dubai, PRF Management Consultancy.
What is statutory audit?
A statutory audit is an essential audit of a company's financial records by an external entity. This audit is decreed by a statute or law that governs the company's or an organisation’s principles and ethics.
These audits are managed by examining bank accounts, financial statements, transactions, bookkeeping records, ledgers, and other critical documents that are submitted for tax purposes and government requirements. The main reason to conduct these audits is to ensure that the financial records and information provided by the organisation or company to the public are true and fair, as they represent the financial position and performance of the company.
Why should a company perform statutory audit?
As per the law, every company must perform a statutory audit of its financial documents and other data to check if they accurately reflect the company's performance as it is being displayed. This audit is analysed with minute details that provide a fair view of the company.
What are the requirements for statutory audit?
It is mandatory for all UAE companies to get their accounts and records audited by a licensed statutory auditor. Therefore, there are some necessary requirements that must be kept in mind for auditing.
- You must have fixed asset details.
- You should have all documents of trade receivables and payables.
- Your company must have details regarding secured and unsecured loans.
- Companies should also have bank account statements that include transaction history.
- You must also have all import and export paperwork, with every detail.
- Tax records, along with statutory dues and duties, are mandatory documents.
- It doesn't matter if the company is big or small, profit and expenditure details are a must.
- You must maintain an inventory with accurate item specifications.
- There must be a flawless record of your expenses incurred in the sale and administration of your goods.
The requirements may change depending on the company. But every document must be flawless, and every record must be well organised. Even the time consumed for this auditing changes as per the size of the company or organisation.
What are the types of statutory audit?
Now that you understand what a statutory audit is and what its requirements are, you should be familiar with its various forms.
- Cost Audit:
Verifying cost accounts and ensuring that the cost accounting plan is being followed are the two things that a cost audit checks. - Secretarial Audit:
This audit verifies if the company or the respected organisation has followed the rules and regulations set by the government. - Tax Audit:
Tax auditing is simply a method of ensuring that all of the company's credits and debits are correct. - Financial Audit:
As the name implies, it focuses on finance-related documents. They check the company's financial records for misrepresentations, financial mismanagement, etc.
What is the procedure of statutory audit?
- To understand the company and its operating system. In this step, auditors and their team study different departments, check their documents, and ensure whether the company has followed government guidelines in their work.
- Understanding the internal control systems Auditors assess the company's internal control system and operational processes, and to understand the company’s observations and approaches more clearly, they also go through the earlier audit reports.
- Testing the performance of controls. The audit procedure includes everything from professional auditors going through business procedures to checking for fraud and errors.
- Account balance and other details testing. All financial records and statements produced by the company, such as bank statements, information on fixed assets, trade payables and receivables, etc., are subject to audit.
- Writing a report. Based on the observations, an auditor writes a thorough report, which will be presented to the firm's management and used for any additional requirements.
What are the advantages of statutory audit?
- It enhances management's ability to perform their duties effectively.
- It helps in improving the image of the company as the financial reports are free of errors.
- Auditing helps increase the confidence of employees in the company.
- It also helps in building trust in the minds of the public, shareholders, and banks.
- It helps investors get a transparent picture of a company's position and performance.
- It helps the company to keep their systems strong and updated.
- Auditors advise the company about areas where internal control is weak and risk is higher.
- Auditing helps in minimising the risk of fraud.
Conclusion
Statutory audit is a very crucial step that every company should follow. This not only helps a company establish its industry reputation, but it also builds trust with its customers and shareholders. You need to choose a company that will provide you with audits using their best and most appropriate audit methodology.
PRF is one of the best audit firms in Dubai, providing consistent audits for you by assembling the right multidisciplinary teams to address the most complex issues, using a proven global audit methodology. We are responsible for continuing our work in restoring trust in corporate reporting, which goes beyond legislative requirements for increased disclosure and strives to promote openness and repair trust with risk-based auditing.
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