External Audit Process and its Importance for DMCC Companies
Dubai Multi Commodity Centre (DMCC) is the fastest growing free zone in UAE, founded in 2002 by the Government of Dubai to provide a financial and business hub to the trading community. Also known as JLT free zone, it consists of over 6500 companies including large multi-national organizations, regional industry participants, small and medium-sized enterprises, and start-up companies. DMCC has been established as a Gateway to Trade as it paves the way for Global Trade with a variety of business options including precious products like gold, diamond, stones, and pearls.
Auditing determines the adequacy of company internal control, promotes best practices, and ensures compliance with standards, rules, and regulations. External audit benefits DMCC free zone organization in identifying potential inefficiencies, misdoings, and waste, provide objective insight and review IT, Technology, system, and processes. However, auditing in DMCC must be done by approved and licensed auditors with fairness, transparency, and objectivity to facilitate shareholders, stakeholders, banks, and vendors in making informed decisions regarding company financial standing. In addition to that appointed auditor must be registered as an Approved Auditor with DMCCA and is listed in the approved auditor list (AAL).
Given below is the list of documents that an auditor needs to gather, maintain, and submit to the assigned authority:
- Legal documents – Memorandum of Association (MOA), Articles of Association (AOA), and Trade license copy, Share certificate, certificate of incorporation Tenancy contract, etc.
- Bank statements and bank confirmation letter
- Confirmation of balance from debtors, creditors, and third parties.
- Statement of deposits from the DMCC portal.
- Copies of Ledgers, sales invoices, purchase bills, expenses bills, etc.
- Complete set of books of accounts, trial balance, cash flow statement
- References, Notes to accounts, and other supporting documents
External auditing in Dubai, UAE ensures that the audit report will be just and unbiased since the auditor has no personal affiliation with the company. All DMCC members are obligated to provide an income statement, balance sheet, and other financial statements to auditors on request.
Developing an Audit Strategy/Plan:
The auditing process in Dubai, UAE starts with gathering and collecting documents from the DMCC companies and then analyzing it thoroughly to plan out how the audit will be conducted. Workshops are also arranged to identify potential future issues. And eventually, a comprehensive audit plan is being drafted.
: To develop a good client understanding, auditors attain the detailed knowledge and background information regarding DMCC companies to analyze the risk of misrepresentation on financial statements, evaluate procedures, conduct observations, and then decide accordingly the extent, timing, and nature of further audit actions.
This stage facilitates auditors to identify the risk of material misstatement including control and inherent risk in the system/processes.UAE auditors employ the information of DMCC companies to highlight the level of transaction account balances and discourse that is potentially misstated.
Performing Test of Control:
It ensures that all essential controls are developed, maintained, and implemented effectively. Moreover, it will guarantee that all transactions, receipts, and invoices have been recorded accurately.
After the detailed assessment and analysis of DMCC companies’ book of accounts, auditors in Dubai, UAE made the final decision regarding the status of financial statement disclosure. A meeting is arranged with the senior management to discuss the findings.
Finally a standard report is prepared by the qualified seasoned auditor showing all the necessary detail about financial strengths and weaknesses, system, and business processes.
According to the implementing rules and regulations, DMCC member has to upload the audit report in Dubai, UAE at the end of the fiscal year along with stamped audited financial statement and summary sheet to ensure the renewal of the trading license.
DMCC free zone offers great benefits to its members; most prominent is the location, close to Sheik Zayed Road and Jabel Ali Port which attracts foreign investors. Other benefits include:
- Giving complete ownership to foreign business
- No application of personal and corporate tax rate
- 100% capital repatriation and no currency restrictions
- Allowing multiple shareholders
- Unique industry clustering and purpose-built infrastructure
- Quality freehold, commercial and residential property for sale or lease at competitive rates
Importance of Audit for DMCC
The audit firm in Dubai offers external audit services that help companies to develop an accurate financial statement.
Adherence to UAE Rules and Regulation
Having an external auditor helps DMCC company to identify any loophole in preparing books of accounts and provide a recommendation on how to remove it. Since the internal auditor may not provide the required information on time and may also be biased in doing so, thus external auditor is mandatory to highlight if the industry standards, rules, and guidelines are being neglected and to avoid any legal action against the company.
Prevent fraudulent activities
External auditors conduct auditing in a way to search for any suspicious transaction while examining bookkeeping and financial records. In case of any misrepresentation, auditors persuade company leaders of DMCC to take the required action in mitigating the business risk of possible fraud. Auditors in Dubai are meant to determine risk, financial crime, and material mismanagement.
When the financial statements are audited by the external auditors, it gives more satisfaction to the government, law enforcement agencies, investors, and finance companies. As certified external auditors are considered to be more reliable and trustworthy since they have no personal agenda. Thus DMCC members appoint external auditors in Dubai, UAE to attract investors and to enhance business.
Quality Control of the Internal Audit
The external auditor in Dubai, UAE also proved to be a quality assurance officer for the internal auditor of DMCC companies. Although internal auditors have worked for a longer period with the company it will be not right to assume that internal auditing is sufficient and free of any errors. The external auditor can not only point out the mistakes but also give suggestions for future control to restrain errors while examining financial, accounting, and bookkeeping records.
Long term benefits
Maximized profitability of DMCC companies, streamlines business operations and modifies processes and accounting controls are the long-term benefits of appointing an external auditor. It gives confidence to not only the company but also investors regarding the transparency and credibility of financial information.
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