What is Statutory Audit?
A statutory audit is an obligation of a business to provide its accounting records and business activities for review by an external entity i.e. auditors. It tells how correct a business’s financial reports are. Statutory audits help ensure that businesses are fair at the reporting date. Thus, a statutory audit is an independent examination of financial records by the approved auditors to ensure compliance with legal requirements and accounting standards.
Statutory Audit Requirements in Dubai
Statutory audit requirements come from the government to screen and evaluate business performance. These requirements are almost similar but may vary depending on the business type and the company’s location. Statutory audit requirements in Dubai require the following documents:
- Information regarding fixed assets, bank accounts & statements, displaying financial transaction details, cash receipts, and payment.
- Data related to secured and unsecured loans and advances, as well as trade payables and receivables.
- Information on both local and imported purchases.
- Specifics about local sales and export sales.
- Details about inventory, administrative costs, and expenses related to selling.
- Information about foreign exchange earnings and expenses.
- Details about statutory dues and other levies that need to be paid.
The Procedure of Statutory Audit in Dubai
Under the UAE Federal Law no. (2) of 2015, companies in Dubai must undergo a statutory audit, during which the auditors will request the documents above for review. To fulfill this requirement, you can hire a competent statutory auditor. The statutory audit process in UAE involves comprehending the company’s operational conditions and controls and testing internal systems and records.
The audit scrutinizes records maintained by the organization including financial transaction records and other finance-relevant documents, such as revenue and expenditure reports, return on investment, and much more. This helps to establish a cumulative financial ratio. Through the statutory audit process, gaps can be identified, and accompanying actions can be scrutinized. It is important to note that any inaccuracies may result in penalties or even imprisonment.
Difference Between Statutory, Regulatory and Performance Audit
|Statutory Audit(External Audit)||Regulatory Audit(Tax Audit)||Performance Audit(Internal Audit)|
|1. It is an obligatory audit of financial statements to ensure compliance with applicable rules and regulations.||1. It is an audit conducted by a government agency or regulatory body to ensure compliance with regulatory requirements. i.e., VAT & Corporate Assessment Audit||1. It is an independent audit conducted to evaluate the effectiveness and efficiency of an organization’s operations.|
|2. The purpose of a statutory audit is to ensure that financial statements accurately represent the financial position of an organization.||2. A regulatory audit aims to evaluate an organization’s adherence to laws and regulations that govern its operations.||2. A performance audit aims to identify areas for improvement in an organization’s processes and operations.|
|3. The firm’s shareholders appoint the auditor, and the report is delivered to them.||3. The auditor is appointed by the regulatory body.||3. The organization’s management or a government agency may appoint the auditor.|
|4. The auditor’s opinion is based on whether the financial statements are presented fairly in all material respects and comply with accounting standards.||4. The auditor’s opinion is based on whether the organization has complied with all applicable laws and regulations.||4. The auditor’s opinion is based on whether the organization’s operations are effective, efficient, and compliant with applicable laws and regulations.|
Why Do UAE Companies Need Statutory Audits?
In Dubai, the statutory audit requirement is crucial to ensuring financial accountability and transparency for companies operating in the region. This requirement helps to ensure that companies provide accurate and reliable financial information to the public, which is especially important for investors, stakeholders, and the general society.
Auditors inspect various financial records and transactions during the statutory audit, including bank balances, accounting records, and related economic exchanges. This process helps identify any discrepancies or inaccuracies in the financial statements and ensures that the company complies with relevant regulations and standards. The General Meeting of Shareholders is responsible for selecting the statutory auditors, who typically serve for three to five years, depending on the size and location of the company.
The chosen auditors must be independent and objective and shall report any irregularities or issues they identify during the audit. Mainland companies in Dubai are required by law to undergo a statutory audit, while companies located in free zones may have different requirements depending on the regulations of their specific locale.
Benefits of Statutory Audit in UAE
The benefits of conducting a Statutory Audit for businesses in Dubai are numerous. Here are some advantages that companies can gain from a Statutory Audit:
- Ensuring the Accuracy of Financial Statements by providing reasonable assurance
Auditors conduct a statutory audit to verify the accuracy of financial statements. This helps increase the authenticity of financial statements, enhancing investor confidence.
- Ensuring Management Attention
A Statutory Audit ensures that management has paid sufficient attention to fulfilling business responsibilities. This helps prevent potential issues arising from a lack of attention or oversight.
- Compliance with Regulations
Companies must comply with the laws and regulations of their jurisdiction to survive in the current business environment. A Statutory Audit helps ensure that a company complies with all the legal requirements and regulations.
- Understanding Company Processes
An audit of a company allows management to better understand the business processes. This can help management to analyze the processes and make plans for the future, leading to improved business operations and increased profitability.
- Access to Credit
A Statutory Audit report is important because it helps management get loans from banks and other financial institutions. It also allows the business to obtain other forms of credit, which can be crucial for business growth and development.
Why Choosing Avyanco Auditing LLC
At Avyanco, we know auditing inside out and understand how crucial it is for your business. We get it. Gathering all the documents and figuring out what an audit firm requires can be daunting. But fear not. We’ve got you covered. Our expert team makes it easy for you by providing clear and concise details on what’s needed for a statutory audit of your firm. Our team of professionals has a proven track record of helping businesses in Dubai succeed, and we’re committed to delivering nothing but the best for you. You can trust our statutory auditors in Dubai to handle your audit with professionalism and attention to detail. Don’t wait any longer. Contact us now to get a quote and see how we can help you with our statutory audit services in Dubai.
Jashvant Prajapati, founder and CEO of Avyanco Group of Companies; Business Setup Consultancy, Avyanco Tax and Accounting LLC, and Avyanco Auditing LLC. He keeps a varied portfolio with core expertise in investment management, corporate structuring, commercial law, business consultancy, lead management, business planning and market research. Aspire to help potential entrepreneurs and investors to come ahead and form their companies in highly emerging economies like UAE.