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Why financial audit is mandatory for SME companies in the UAE?

June 2, 2021

All businesses in the UAE, big or small, must assess the effectiveness of their practices to gain a better understanding of their financial situation. To improve the company's financial situation, an unbiased evaluation of its business functions is mandatory. Financial audit firms and accounting companies in Dubai conduct unbiased analyses of the company's business practices and report on any risks in the company's financial status.

Do SME companies in the UAE need financial audits?

Is financial auditing required in the UAE? Is it necessary to audit the books of accounts every year? Is it necessary to submit financial reports to any authority? These are the questions that most "Small and Medium" business owners in the UAE ask themselves. According to Article 27, Chapter 2 of the new UAE Commercial Companies Law, Federal Law No. 2 of 2015, companies must appoint a licensed auditor registered with the Ministry of Economy in the UAE to audit their books of accounts. However, many businesses do not adhere to this requirement. Generally, companies in the SME category have their books of accounts audited under the following conditions:

Legal Requirements

  • Free zone companies

    Some free zone authorities have made it mandatory for companies registered to submit audited financial statements to the authority to renew their trade licenses. Dubai Airport Free Zone (DAFZA), Dubai World Central (DWC), Dubai Silicon Oasis (DSO), Dubai International Financial Center (DIFC), Jebel Ali Free Zone (JAFZA), and Creative City Fujairah are examples of such free zones.

  • Company liquidation

    One of the most important documents required to prepare the liquidator's report is the audited financial statement of companies in liquidation.

  • Foreign company branches

    Every year, foreign companies are required to submit audited financial statements of their branches registered in the UAE.

Other government authorities, such as municipalities, various ministerial departments, insurance authorities, and so on, also require companies to submit audited financial statements when demanded by the authorities.

Financial Audit for SME Companies

Management purposes

To understand the financial position, evaluate the performance of the entity, assess the progress of the business, and get guidance from professional financial experts, some of the SME companies get their books of accounts audited. Small businesses in the SME sector typically cannot afford the services of full-time CFOs or experienced management accountants on their payroll to provide professional guidance in decision making.

Small businesses may employ only a bookkeeper to keep track of their day-to-day operations. They anticipate that the auditor will finalize the books of accounts and provide the necessary inputs for management financial decision-making. Such business owners even seek advice from external auditors on whether it is possible to withdraw a portion of the profit or retain it in the business.

The owners even seek advice on the business's net worth to determine whether selling a portion of the shares to prospective owners (partners or shareholders) at a premium is a prudent strategy. At the same time, the majority of SME businesses that are properly managed have their books audited every year.

Third-party requirements

Lenders, such as banks and/or other non-banking financial institutions, require companies to have their books of accounts audited by an audit firm that has been approved by them.

Suppliers or other dealers/institutions may also require SME businesses to submit audited financial statements regarding the companies' credentials and financial solvency to do business with them.

Why financial audit is essential for SMEs in UAE?

The main aim of an internal audit is to provide a company with independent assurance that its risk management, governance, and internal controls are working properly. Internal auditors deal with issues that are critical to a company's survival and growth.

Moreover, every company registered under UAE Commercial Company law must amend their Memorandum of Association (MOA) on or before June 30, 2017, in order to comply with the provisions of the new UAE Commercial Company law, which was issued in 2015. The provisions of the Law require that the books of accounts be audited every year. Consequently, beginning July 1, 2017, every company registered under the law must have their accounts audited by a registered auditor.

Why SMEs should hire auditing services in Dubai ?

Every company begins to grow by identifying and correcting the mistakes that it makes at the start. This is a critical cornerstone of business, especially for SMEs. Businesses need to conduct audits with the assistance of professionals who can provide the companies with a transparent picture of their business to correct errors.

An internal audit company in Dubai can help SMEs in Dubai, UAE in the following areas:

  • Identifying pain points
  • Internal assessment and progress
  • Preventing fraud
  • Increasing credibility
  • Implementing better internal controls

Why should a company use internal auditing services in UAE?

UAE is one of the world's top business hubs, home to a wide range of businesses, both large and small. Each company must conduct regular internal audits to identify system flaws, tighten internal controls, and assess risks. Hiring the best audit company in Dubai can go a long way in improving the business's credibility and reputation.

Avyanco is a Dubai-based financial audit company that offers bookkeeping and accounting services as well as auditing services in Dubai. We have an efficient team of internal and external auditors who can carry out financial audits, statutory audits, and due diligence audits to make sure that businesses are meeting regulatory requirements and that their business processes are designed effectively and efficiently.
Call/WhatsApp: +971 50 3989000, (T): +971 4 240 5000, Email: info@avyanco.com

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