Early detection of error can reduce a company’s losses by a big margin and protect from such instances in the future, but fraud and error detection methodologies are not always fool-proof. This is where the role of auditors comes to the fore. Auditors in Dubai, UAE are always expected to detect discrepancies and irregularities in the company’s financial statements without error because carelessness on the part of the auditor has the possibility of appearing as a manipulation. There are many techniques and procedures that can help with the timely detection of frauds and errors. Here a few generally accepted procedures used while auditing in Dubai, UAE. This knowledge may help you plan and use your resources in a better way.
Types of error
First, we will look into different types of errors that an auditor in Abu Dhabi, UAE must be aware of: –
- The error of Principle: This occurs when the entry is not made according to the principles of accounting. It might be a mistake or a manipulative effort to enhance or diminish the financial performance. Examples include improper depreciation, transferring commission to a personal account instead of a business account, wrong accounting of stock, investments, machinery, etc.,treating revenue expenses as capital expenditure, and so on.
- The error of Omission: This happens when a transaction is totally absent from account books. Other examples include the omission of outstanding or balance amount. As expected, the detection of such errors is difficult.
- The error of Duplication: This is another error that is difficult to detect. A purchase transaction or a sale transaction may get recorded more than once. This is only detected after careful verification of all original and duplicate receipts and invoices.
- The error of Commission: These are errors in misreading similar content. For example, writing 25,000 as 2500, or credit into the account of AB company in place of BA company.
- The error of compensation: This is when the expense of an error is compensated with another error. This does not affect the whole trial balance but affects the specifics.
Procedures for error detection
Auditors are expected to perform an audit as per professional standards and guidelines. They cannot guarantee that no fraud exists. However, they can follow these procedures to increase their efficiency: –
- Brainstorming:- An auditing team in Dubai, UAE can gather its members as well as the client’s staff to brainstorm regarding the kind of errors and frauds that may happen or have happened. This may give auditors an outlook of what to expect and consider how the client can commit errors or frauds. Brainstorming sessions are very helpful in the planning of the audit process. Some members may have an idea that other members of the auditing team may not have considered. You can increase the effectiveness of a brainstorming session by adopting certain measures like keeping the agenda clear or using a smaller group for discussions and larger groups for coming up with ideas to narrow your focus.
- Testing:- Testing journal entries is an important procedure. Any error or fraud in the company books can be proof of manipulation of accounts. After understanding the company’s process and protocols, the auditor in Dubai, UAE may choose any particular entry depending on various factors. Entries made by upper management, entries made late in the accounting period, and with less time between subsequent entries or any entry appearing interesting or suspicious may be chosen. Then documents like receipts and invoices can be verified related to the entry.
- Verification:- Unusual transactions of a company may also be a source of error, which is worth verifying. When a company engages in business outside its domain or usual sphere of operations, auditors must examine the causes, purpose, and motive of the business. Once the management of the company gives an explanation, it should be verified with other documentation for irregularities and inconsistencies.
- Estimation:- Another source of accounting errors could be accounting estimates. Accounting estimates are the values assigned to items’ sale or purchase, which have no accurate way of determining value. Examples of estimates include estimating the useful life of an asset, bad debts, and depreciation. Auditors in Dubai, UAE can look for changes in the estimation procedure as recent changes may indicate the possibility of fraud or manipulation. Auditors can also check if, in a certain period, the majority of estimates are either of increasing or decreasing income as this may indicate a possibility of shifting income from one period to another.
While it is important to be vigilant and asking lots of questions for cross-verification of accounts, it is also important to keep in mind the difference between error and fraud. Errors take place when miscalculations and wrong entries are done by mistake. Fraud is when they are done deliberately. It is important to discuss in your team, whether a misstatement comes under the category of error or fraud.
However, if your team concludes that a particular misstatement comes under fraud, you must take necessary steps that include informing senior members of your team and the client team and suggesting the client for a legal counsel to deal with the criminal proceedings.
Suggestions that can be made
In case of error detections, after the completion of audits, the auditor must make suggestions to the client to improve and streamline his operations as an auditor does not have the power to make changes in the business operations. An auditor in Dubai, UAE can ensure that the client follows certain guidelines and standards:-
- Improvements in business’ internal control
- Suggesting ways of fraud prevention
- Suggesting setting up a system of fraud detection including anonymous tip-lines
- Following the accounting principles diligently
- Following the provisions of the companies act
- The profit and loss account and the balance sheet must show the true and fair level of concern
Requirements of an auditor
As an auditor, you also have to follow certain guidelines:
- An auditor in Dubai, UAE must operate as per guidelines of auditing
- Any inconsistency, no matter how minor it appears, must not be overlooked.
- Errors should be made notice of, and frauds should be entered into the audit report in Abu Dhabi, UAE.
With this information by your side, you can new easily detect the errors in your accounting records and take corrective actions before any damage occurs.
For more information on this topic, please visit our Insights Section or Contact Us
For enquiries, call +971 5679 52590 / E-mail: info@aviaanaccounting.comm
Related Articles:
- Top Ranked 10 Audit Firms in Dubai UAE 2024: Guide and Reviews
- Audit Firms in Khalifa Industrial Free Zone Abu Dhabi – KIZAD
- Audit Firms in Abu Dhabi
- Audit Firms in Fujairah
- Audit Firms in Ajman
- Audit Firms in Sharjah
- Top Audit and Accounting firms in Dubai, Abu Dhabi, Sharjah, UAE (2023)
- Audit Firms in Ras Al Khaimah- RAK
- Approved Auditors in Dubai Silicon Oasis Authority
- Approved Auditors in DAFZA- Dubai Airport Free Zone Authority
- Approved Auditors in Dubai Design District – the D3
- Which are the Advantages and Disadvantages Of Cash- Basis Accounting in Dubai?
- Which are the Accounting Missteps That Most Entrepreneurs Make in Dubai?
- Which are the Best accounting apps for Dubai based Startups?
- How does Outsourcing of Accounting work in KSA?
- What are Methods of Error Detection While Auditing for Dubai and Abu Dhabi?
- What are Questions to be asked to CPAs to Reduce Audit Risk in Dubai?
- What is Dubai Silicon Oasis (Free zone in Dubai)?
- What are Principles for DMCC Approved Auditors in Dubai?
- What is Importance of Hiring Best Audit Firms in Dubai for better Tax planning?
- What are Qualities in Approved Auditor in DMCC (Dubai)?
- What is Role of Auditors in Abu Dhabi and Dubai?
- How does Audit work in DMCC in Dubai?
- How does Audit work in JAFZA in Dubai?
- How does Audit work in SAIF Zone in Dubai?
- How does Audit work for Free Zone companies in Dubai and Abu Dhabi?
- How does Audit work in Dubai South?
- What are Functions performed by internal auditors in Dubai?
- Bahrain Guide: What is VAT Audit?
- UAE Guide: What is VAT Audit in Dubai?
- UAE Guide: What is FTA Audit File of VAT in Dubai?
- Role of Internal Auditing In Change Management
- What is Auditing Evidence? How External Auditors support their Opinion?
- How Artificial Intelligence Will Change the Auditing Function
- Value Addition for Business with Auditing
- Compliance and Auditing: Are these both the Same?
- Auditing Role in Modern Cybersecurity Challenges