Auditors play an important role in the corporate governance of any company. Transparency of a company’s financial function is fundamental in protecting the interests of its shareholders and others. Non-compliance with corporate laws and accounting standards can easily lead to corporate fraud. All countries, therefore, have their commercial company laws regulating businesses. In the UAE, the law which regulates the auditing of companies is Federal Law Number 2 of 2015, (‘Companies Law’ in the rest of this article). It applies to all joint-stock companies (JSC) and limited liability companies (LLC).
There are some important provisions in ‘Companies Law’ with regards to audit. According to articles 27, 102, 235, 236, 243 and 244, “Every joint-stock company or limited liability company shall have one or more auditors to be elected in general assembly to audit the books of accounts. The company shall follow the International Accounting Standards (IAS) and practises for preparing its annual and periodical accounts, to give a true and fair view of the profits and losses and financial position of the company”.
Articles 94 and 132 provide the agenda of the annual and constituent general assembly of a company, which includes the consideration of annual accounts including the auditor’s report, and the appointment and remuneration of the auditor.
Compliance with international accounting standards: Auditors review the books of accounts and financial statements of the company to check for compliance with the relevant laws and international accounting standards. They provide unbiased opinions on the financial statements and help improve its financial position by providing more informed decisions to its shareholders and other stakeholders.
Detection and prevention of fraud: Auditors provide feedback and advice to the management of the company on any material transactions and identify the unusual activities of the company which can put the business at risk of possible fraud.
Guidance on corrective measures and quality control: After a detailed review of the account books and financial statements, auditors suggest areas of improvement and control procedures for the better financial health of the business. For example, auditors can identify if there is too much reliance on a few customers for a company’s revenues, or if its capital structure is overly debt-loaded. They can also suggest strategies and cash flow management techniques for the overall improved performance of the company. They help detect and correct errors in the accounts prepared. Quality control measures add more value to the company’s financial statements.
Enhanced credibility: Independent scrutiny and subsequent ‘all-clear’ certification of the company’s financial information by auditors boosts a company›s public image and goodwill significantly. The audit report prepared provides long term benefits such as modified operations, accounting controls etc., which enhance the growth options for the company and create and enhance a favourable public image.
Trust of shareholders and other stakeholders: True, accurate and fair view of financial statements gain the confidence and trust of shareholders and other stakeholders such as suppliers, customers, and creditors. As a
result, capital can be raised more easily with investors and creditors. Similarly, suppliers can work on terms more favourable to the company, while customers are encouraged to buy from a socially responsible company. This enhances further growth and profitability.
To sum up, audits are indispensable not only because of the mandatory statutory and regulatory requirements but also because they are good for business. From providing assurance for investors and creditors and improving the company’s performance for future earnings, auditing goes well beyond a legal mandate alone. The crucial differentiator here is the quality of the auditor. The right auditor enhances value by doing all of the above and more.
As a leading name in audit and assurance, MBG Corporate Services has served this role to hundreds of clients ranging from a Fortune 500 companies to local SME firms.
To know more or if you have any queries, get in touch with us:
— Taher Singaporewala is associate partner — audit and ICV,
MBG Corporate Services
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