Essential Guidelines for External Audits

External audits offer an objective assessment of your company’s financial records. They provide a comprehensive view of the financial state of the company and ensure that everything is in order regarding compliance, permissions, and business integrity for deals of any size.

That assurance is important in promoting trust, transparency and accountability among investors, regulators and clients. Having the proper knowledge on how to prepare for an external audit will allow your business to gain the most value from it with minimal disruption to your core operations.

In this article, discover the critical steps in getting your business ready for an external audit, and read about how these audits can help to keep your business on track for the long term.

The Benefits of External Audits

In Dubai, external audits must be conducted by a certified public accountant or an external audit firm. External audits, while mandatory, bring several benefits to your company in terms of increased credibility and transparency:

Regulatory Compliance: In Dubai, external audits are mandatory for most free zone businesses and require you to follow local and international standards by keeping up-to-date financial records for as far back as five years.
Reduced Risk: While they may be mandatory, audits are valuable for identifying potential risks that could negatively impact your operations or the company’s financial position. By catching these risks early, you have the best possible chance to address the issue successfully.
Increased Efficiency: Any problematic processes or mismanagement will be highlighted. This feedback offers an opportunity to correct any inefficiencies or missteps and can ultimately strengthen how your business operates.
Financial Transparency: The importance of transparency for stakeholders can not be overstated. Audited financial records build trust with investors, clients, and creditors by providing assurance the financial records are complete and can be relied upon.

Essential Steps to Prepare for an External Audit

To ensure a smooth, simple, and successful audit, make sure your company takes the following steps:

Organize Records: Ensure your financial records are all in order by organizing and reviewing them ahead of time. This includes all records of income, balance sheets, invoices, bank statements and any records pertaining to cash flow. Being prepared means the audit can run smoothly and in a streamlined, timely manner.
Communicate with the Audit Team: Establish clear communication channels with the audit team early on so any concerns can be communicated and addressed. There should be an initial meeting between the external audit team and the business’ key stakeholders to lay out the audit’s exact scope and what it will entail.
Review Compliance Requirements: Ensure your team understands and adheres to relevant regulations. In Dubai, for instance, companies must meet standards set by the Dubai Financial Market, the Securities and Commodities Authority, and the UAE Commercial Companies Law.
Create an Open Line for Queries: Designate a team member as the main point of contact for the audit team. By providing timely responses to the auditors' queries, you can ensure minimal disruption to the process and, most importantly, to your daily operations.
Prepare Your Team: Make sure your team is aligned and understands the purpose of the audit and how it may affect their daily work. Encourage them to cooperate with auditors and be prepared to answer questions relating to their own roles or transactions they have been part of.

Common Challenges in External Audits and How to Address Them

The most common challenge in preparing for an external audit is the issue of incomplete documentation, which can hold up the entire process. Again, this is why preparing all documentation ahead of time is so beneficial. By working with an experienced audit firm, you can ensure you are prepared with the right documentation and that it is in line with the relevant legal requirements and regulations that apply to your industry. Their professional guidance will also help you have a clear picture of what should or should not be included in the external audit’s scope. Educate your team on what will be involved, why it’s necessary, and how they should cooperate with the auditors with as much transparency as possible.

How Long Does an External Audit Typically Take?

External audits take anywhere from a few weeks to several months, depending on a variety of factors relating to the scope of the audit, the size and complexity of your business, and how well-prepared you are in advance of the audit commencing. There are several factors which can influence the duration of its timeline:

Complexity: If your company operates in a highly regulated industry, like banking, financial services, or healthcare, compliance checks will be more in-depth and complex. If there has been a major transaction like a merger or acquisition, more extensive checks will be required.

Company Size: For organizations spread across multiple locations, there are practical and logistical challenges that can lengthen the process. A larger workforce will also mean more detailed reviews of payroll and employee-related transactions.

Transaction Volume: Auditors will spend more time checking and verifying businesses with high transaction volumes, such as in retail. Seasonal spikes can also require additional attention during peak periods.

Preparedness of the Organization: Companies that maintain organized and accessible documentation can streamline the audit process, whereas disorganized records can cause delays. Strong internal controls also facilitate a faster audit, while weaknesses may result in extended testing and further review.

Conclusion

Preparing for an external audit may seem daunting, but it’s a valuable process for ensuring accuracy, compliance, and operational efficiency are not disrupted during the audit itself. By understanding the audit process, organizing records, and facilitating open communication, you can set your company up for a successful and insightful review.

If you’re ready to start your external audit journey or need help preparing, Swift Audit & Advisory can support you with expert guidance for a smooth, compliant audit process. Contact us today to learn more about how we can assist you in meeting your audit goals.

Author: Swift team, Swift Audit & Advisory