What is an audit? 7 reasons why do you need one?

Over the past three decades, as auditors for clients from SMEs and big corporations, we consistently find a lack of knowledge on what the auditor (us) actually does for a business.

There are various types of audits with very specific purposes, but we will keep this one simple and limited to external audits.

Here we will not discuss the audit needs of large corporations, like the ones that trade in the stock market. This is just for smaller enterprises, that are either in the start-up stage, are family businesses, or medium-sized partnerships or companies.

1. Accurate financials

Unlike a Multinational company, you might not have a huge team of qualified accountants who are ensuring your financial statements are accurate. Having an auditor come in to verify this is incredibly useful. By the end of an audit, your financial statements will be accurate and comply with the international standards, and will be comparable from year to year. Even if your accounts team is qualified, it is always good to have an expert to verify the accuracy of the financials.

2. Better for decision making

Once your financial statements are accurate, the management of your company will be able to analyze them to make better business decisions in the future. If the numbers you use to make your decisions are not accurate, the decision itself will be a wrong one and will impact the performance of your company.

3. Reduce risk of Fraud (Prevention & Detection)

When an independent auditor reviews your internal systems procedures and controls, they will be able to advise you on where the weaknesses are. Correcting them will astronomically reduce the chances of fraud. We have seen so many cases where frauds have not been discovered, just because an audit was not conducted. Obviously doing an audit does not guarantee that no fraud will occur, however, it reduces its odds.

4. Trust

This is probably the most important reason. In fact, all the other reasons mentioned here branch out of trust in some way or another. Doing an audit makes sure that all the stakeholders (owners, investors, lenders, etc.) of the company trust the financials being shared by the manager or accounts team. For example, if there are multiple partners in a company, and one of them is an active partner is the manager and actually runs the business. To maintain trust between partners, it is always better to get an audit done. This way all the partners relying on the financials are on the same page and don't have to feel they are being given false reports.

5. Looking for an exit or getting a bank loan approved

If you are planning to get an exit in your business, having an audit conducted every year, increases your bargaining power. You are able to assure the investors that your numbers are accurate. Even if you approached a bank for a loan or other facilities, the bank will most probably require an audit report, to see what is the financial health of your business.

6. Trusted advisors

Your auditors are also your trusted business advisors. It might not be in the scope of the audit work, to provide advice, however, most reputable small & medium-sized audit firms will be more than happy to assist. You can take advantage of their financial expertise and their experience handling many other clients in the same industry.

7. Legal & Tax Compliances

You might be required to audit your company due to any legal or tax compliances in UAE. As per the company law in UAE it is mandatory for all mainland UAE companies to complete an audit. However, the submission of audit reports to any government authority is not mandatory. This will mostly change in the future, with the additional compliances, tax systems maturing & implementation of corporate tax.