Challenges Companies Must Diligently Tackle while Preparing for an Audit
Companies all over the globe are required to follow the rules and regulations of the land where they set up their business. The non-compliance with such requisites results in a huge hitch in the future which may completely tamper with the image of the firm. The audit is one of the main processes through which the companies can ensure their compliance with the regulations and the accounting principles. The companies must always stay prepared for an audit and they should always focus on the results of an audit to ameliorate those results. In UAE several Free-zone authorities made it compulsory for the Free-zone companies and establishments to submit the financial audit reports annually based on which the Free-zone license is renewed. During the process of company liquidation, the liquidator uses the audit report for the preparation of liquidation documents.
Read more: All You Need to Know About Tax Audit in UAE
What are the common challenges faced during the preparation for an audit?
Mediocre bookkeeping and lack of accounting expertise
Properly maintained accounts and records are the core requirements based on which the audit is carried out. Woefully some of the SMEs acquire mediocre accounting practices which may not provide accurate information to the auditors. To cut off the costs they try to appoint sub-standard accounting firms which may not have adequate expertise and experience, hence, to reduce costs, the firms take wrong steps which brings their firm wholly at stake. This results in a big challenge in the internal and external audit process and the auditors are in a position of conflict with no solution.
The only solution for such challenges is to outsource the accounting function to professional accounting firms which provide quality accounting services in a cost-efficient manner.
Revenue ascertainment issues
There may sometimes rise a situation where the audit report prepared by the auditors may not provide the required clear picture of the accounts and records of the firm. It may be vague and complex. This is one of the common challenges faced by companies due to incomplete information and records.
To solve such issues, the auditors may conduct a substantive test of the revenue received by evaluating the sales invoices, etc. to verify the audit report prepared. Through the proper analytical procedure, the auditors can draw accurate conclusions and pieces of evidence for supporting the assertions.
Possibilities of fraud and malpractices
Fraud is considered the biggest pitfall for a company. If the management and the auditors both ignore the chances of any fraud in the company, both the entities will be accountable for the after-effects of such fraud. Generally, fraud in the company is carried out due to the loopholes in the internal control procedures of the company.
The only possible way to avoid or detect such fraud or malpractices is that the auditor must apply his professional skepticism and his expertise while conducting the audit. When such frauds are detected, they must be communicated to the management immediately and the required strategies must be applied to take down such issues. The auditor must deeply examine the records to detect any kind of fraudulent intentions or inappropriate activities.
Lack of proper inventory records
When it comes to the assertion of the stock takes off the companies, the management may consider it as a disruption in the workflow and costly. The audit firms may also fail to get accurate assertions regarding the records of the inventory management and maintenance.
The audit firms must conduct test controls to ascertain the existence and condition of the stock held by the company.
Lack of an audit plan and improper execution
Most of the companies plan to prepare for an audit when arises a need for the audit report, otherwise, they won't consider it as an important factor. An audit conducted without any proper plan and proper execution may not provide significant results. Moreover, an unplanned audit will result in disruptions in the day-to-day activities of a company. It will also result in huge costs as the company may not have any budget set aside for the audit process.
Companies must always keep in mind to prepare a proper plan before conducting an audit process. It must engage all the efficient employees so that they can contribute their skill in preparing a perfect plan for the audit and which can be executed efficiently.
Read more: What Are The Various Ways To Ensure That Your Annual Audit Goes Smoothly?
How can CDA help you?
Being one of the well-known auditing and accounting firms in UAE, CDA is dedicated to working with its clients to provide all the assistance they need in the field of auditing, bookkeeping, or accounting along with other professional services. If you have any questions or queries regarding our services feel free to approach and contact us.