Audit and Assurance

Unlocking Business Potential with External Auditing

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Value-of-external-auditing-01.jpg

External auditing plays a pivotal role in enhancing a business’s value, offering numerous benefits that contribute to its stability, reputation, and operational efficiency. By conducting thorough and independent evaluations, external audits provide crucial insights that can transform a company’s trajectory toward sustainable success.

An external audit adds significant value to a business in several ways:

  1. Enhancing Financial Reporting Integrity:
    External audits ensure the accuracy and reliability of financial statements by independently verifying the information presented. This inserts confidence in stakeholders, including investors, lenders, and regulators, and helps maintain transparency and accountability in financial reporting.
  2. Identifying Weaknesses in Internal Controls:
    Through the audit process, external auditors assess the effectiveness of an organisation’s internal controls over financial reporting. By identifying weaknesses or deficiencies in these controls, auditors provide valuable insights that management can use to strengthen controls and mitigate risks of fraud or error.
  3. Detecting and Preventing Fraud:
    External auditors are trained to detect fraud indicators while examining financial statements and supporting documentation. By uncovering irregularities or inconsistencies, auditors help deter fraudulent activities and protect the organisation’s assets and reputation.
  4. Improving Operational Efficiency:
    The audit process often involves a review of business processes and procedures. Auditors may identify opportunities for streamlining operations, reducing costs, or improving efficiency, which can ultimately enhance the organisation’s overall performance and competitiveness.
  5. Facilitating Compliance with Regulations:
    External auditors ensure that the organisation complies with relevant laws, regulations, and accounting standards. By staying abreast of regulatory changes and requirements, auditors help mitigate the risk of non-compliance penalties and legal consequences, thereby safeguarding the organisation’s reputation and financial well-being.
  6. Providing Valuable Insights and Recommendations:
    External auditors offer valuable insights and recommendations based on their observations and findings during the audit process. These insights may include best practices, industry benchmarks, or areas for improvement, which management can leverage to make informed decisions and drive strategic initiatives.
  7. Enhancing Stakeholder Confidence:
    External audits enhance stakeholder confidence and trust by providing an independent and objective assessment of the organisation’s financial performance and operations. This can lead to stronger relationships with investors, creditors, customers, and other stakeholders, fostering long-term partnerships and facilitating access to capital.

Overall, the rigorous and systematic approach of external audits adds value to the business by promoting transparency, accountability, and sound governance practices, essential for sustainable growth and success in today’s competitive business environment.

Affiniax specialises in providing external audit services in the UAE and GCC. Get in touch with our experts to learn more.

Soft Close Audit

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Soft Close Audit

Preparation and finalization of management accounts for getting ready and reconciling the supporting schedules, while the audit is being conducted, may result in delays in meeting the deadline to deliver the audited financial statements promptly, and further distract and pile up the day-to-day operational tasks of the company’s management.

Having a comprehensive audit strategy and adopting best practices by the companies throughout the year can help everyone relax when the audit team arrives.

One of the practices is to plan and conduct a soft close audit, to review, verify and confirm the books of accounts, supporting schedules and related information are up-to-date, further, these will be ready and available to consolidate the subsequent period transactions (until the FY end) at the time of the year-end audit.

The soft close audit is the practice wherein the external auditors majorly focus on verifying historical transactions up to the cut-off date e.g. 10-month soft close audit (Oct 31). The auditors generally perform the test of the internal controls along with supporting samples, performing or/and planning a detailed walkthrough on the material and complex transactions during the soft-close to facilitate his year-end audit work.

This helps him to identify material discrepancies in the books of accounts, if any, beforehand to discuss with the management and ensure a timely conclusion of the audit post-year-end.

Soft Close Audit provides an opportunity for the management to plan and prepare the following points:

  • Closing Checklist: Will be performed to ensure that all month-end processes are completed, and all journal entries are posted. If there is no checklist to follow, quarterly and annual entries may be overlooked.
  • Document Verification: Management should not be scrambling at the hard close audit stage to find documentation for the auditors, e.g. if the Verification of documents and related agreements are required, like debt agreements, leasing arrangements, and contracts with major customers and vendors could be identified at the soft close audit stage to arrange them at time of the year- end audit.
  • Internal Controls: Soft close audit provides enough time to plan and conduct a test of controls to the external auditors to verify, whether these controls are effective, efficient, and up to the standards.
  • New Accounting Standards: Helps external auditors and management to reconcile the applicable interpretation (if any) of the newly introduced standards, changes, or amendments before closing and reporting the books of accounts for internal review purposes.
    To give awareness of new accounting pronouncements and modifications to existing pronouncements continually being introduced. It’s important to pay attention to the effective dates, and you should start on them earlier than you expect since they usually require more work.
  • Non-Recurring Transactions: If there are non-recurring transactions like the sale of property, acquisition, significant leases, a new incentive plan for management, a new line of business with a unique revenue stream, a change in debt, etc. Reach out early to soft close the audit, as it will take time for discussion and reach out to a consensus.
  • Balance Sheet Reconciliations: Balance sheet reconciliation at the soft close is audited to find any discrepancies, and fix processes throughout the year. For example, old outstanding checks on the bank reconciliation can be a sign of lost or duplicate checks.
  • Revenue Testing: To ensure accurate recording of revenue, having a process to verify that all shipments or services are billed promptly.
  • Expense Testing: A review of repair and maintenance can give an indication of impairment and identify the items that should have been capitalized as fixed assets.

Written by Raheel Tamimi, Mian Muhammad Azeem and Mufaddal Shabbir

Affiniax Partners collaborates with Pagero for KSA Compliance

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Saudi Arabia Business Advisors

Affiniax Partners is very pleased to announce it has collaborated with Pagero, a digital solution company with 20+ offices worldwide that has dedicated itself to the success of multiple conglomerates since its founding in 2009. Pagero is offering support to companies through the digitalisation of the accounts receivable and payables process; and distribution of electronic invoices in line with their ERP system. It provides access to an open, global, cloud-based network that makes on-boarding, connecting and compliance effortless.

The e-invoicing mandate in the Kingdom of Saudi Arabia, implemented from December 4 th 2021 (Phase 1), means that each invoice issued by the resident taxable person in KSA will be required to meet certain format specifications laid down under the law. The taxpayers are required to generate and archive invoices electronically according to the new content requirement. Under the implementation plan, ZATCA will be notifying taxpayers within 6 months’ before 1 st December 2023 (Phase 2) to connect with the invoicing platform.

Our collaboration will ensure that our KSA clients are compliant with the local laws of the country, implementing changes within their existing model where necessary. We continually seek new ways to better meet the needs of our clients by sharing ideas, training programs, and technical expertise. We look forward to being an active contributor in this digital transformation phase in the Kingdom of Saudi Arabia.

To know more about the project or the compliance requirements in KSA, please contact our Affiniax Partners team.

What Safety Measures Restaurants should take during the COVID-19 Pandemic

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Steps restaurants can take to get more customers during pandemic

After months of being stuck at home during lockdown, even the most experienced home chef would be longing for a meal that he or she did not labour to make in their kitchen. For some, a reason to change out of their sleepwear and get out of the house—with or without the kids—is becoming more of a necessity to keep their sanity than a celebratory activity. In short, people are eager to be able to eat out again.

It is safe to say that most, if not all, in the food-service industry are also eager to welcome back the diners that they are used to serving. Business owners are eager to be able to reopen and recover lost earnings while the service staff is eager to earn again after months of being without work. There are also many who simply miss the satisfaction of serving people meals that nourish them and giving them an enjoyable dining experience; who missed the creative expression that came with their food industry jobs. Whether it is grabbing an inexpensive meal at a quick-service restaurant or an exquisite dining experience at a fancy restaurant, food safety and the assurance that a consumer will not go home with a COVID-19 infection is of paramount concern to everyone.

For the employers or business owners and their management team, the responsibility for prevention and management of outbreaks rests on their shoulders.

  • Take steps to ensure that staff adhere to existing and additional government regulations to keep the workplace safe while the COVID-19 threat still exists.
  • Conduct a COVID-19 risk assessment of the entire workplace; having a tried and tested business continuity plan in place would also be a big help.
  • Increase visible monitoring and enforcement of control measures including HACCP-based SOPs.
  • Conduct regular reviews, including seeking feedback from staff and customers to identify areas for improvement.

All employees, on the other hand, must be more vigilant, strictly following all processes put in place to ensure food safety. Although it is very unlikely COVID-19 could be transmitted through properly prepared food or food packaging that is properly handled, staff must observe good hygiene practices at all times.

  • Wash hands frequently with soap and water for at least 20 seconds (or sanitise), especially before and after handling food, cleaning cutlery, dishes, glasses, or other items to be used by the customer.
  • Staff that handle dirty or used items, collect used dishes from customer tables, and handle payments should be designated for these activities only, whenever possible.
  • All employees must ensure their thorough understanding of all HACCP principles and:
    • identify any food handling hazard;
    • identify the critical control points (CCPs) to prevent, remove or reduce a hazard;
    • set limits for CCPs;
    • monitor the CCPs;
    • immediately correct any problem with a CCP;
    • put checks in place to make sure the HACCP plan is working; and
    • keep accurate and up-to-date records.

There are other resources available for business owners that could help to further reassure their customers that their establishment is a safe environment for them to be in. The World Travel and Tourism Council (WTTC) has come up with a global safety stamp to recognise establishments around the world who have adopted policies and protocols that ensure the safety of consumers (for more info, click here). Certification agency Bureau Veritas has also launched a Safeguard label for shops, restaurants, and other confined spaces were people gather (for more info, click here or here).

With business owners and their employees clearly understanding how their cooperation will ensure their customers will be safe while in their premises, this will allow for a more comfortable, enjoyable, and most importantly, COVID-19 safe customer experience. If you are in need of help with regards to implementing HACCP or another food safety management system such as ISO 22000 in your establishment, contact Affiniax Partners for a free consultation.

 

UAE Economic Substance Regulation ESR: Major Overhaul

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New ESR law 2020

The United Arab Emirates (“UAE”) Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020 on 10 August, 2020. This resolution replaced the original Cabinet Resolution No.31 of 2019 (the original ESR law) concerning the Economic Substance Regulation (“ESR”). The UAE Ministry of Finance has now also updated its website with further information regarding the changes to the regulation. Since the application of the new resolution is retrospective (i.e. effective 1 January, 2019), all companies are advised to revisit Notifications already submitted.

The most prominent update in Cabinet Resolution No. 57 of 2020 was the appointment of the Federal Tax Authority (“FTA”) as the National Assessing Authority for the assessment and determination of ESR compliance and governance.

Major changes introduced in the ESR legislation include:

  1. The Federal Tax Authority has been appointed as the National Assessing Authority for the enforcement, assessment and determination of compliance with ESR rules by the licensees.
  2. The amended ESR (issued on 10 August, 2020) now covers juridical persons (those with separate legal personality) and unincorporated partnerships, while excluding natural persons – including sole proprietors, trusts and foundations. Also, the licensees that are now exempt include Investment funds, entities being Tax Resident outside the UAE and UAE branches of a foreign company (head office / parent company) whose relevant income is subject to Tax in a foreign country.
  3. As branches do not have separate legal identity from their parent or head office, they are not regarded as “Licensees”.
  4. Distribution & Service Center Business: The new regulation emphasises and clarifies that, for a trading business, there is no requirement to import and stock goods in the UAE in order to be considered as a Distribution and Service Center Business. Further, the law also clarifies that any services provided to foreign connected persons shall be considered a relevant activity (previously it stated that such services are only considered a relevant activity if they are “in connection with a business outside the State”).
  5. A Connected person shall be any entity that is part of the same group as a Licensee. Groups are defined as “two or more entities related through ownership or control such that they are required to prepare consolidated financial statements for financial reporting purposes under the accounting standards applicable thereto”.
  6. High Risk Intellectual Property Licensee The definition of a High-Risk Intellectual Property Licensee has been limited to an Intellectual Property Business that meets all of the following conditions:
    a) Licensee did not create the IP asset;
    b) Licensee acquired the IP asset from a connected person or in consideration for funding, research and development by another person situated in a foreign jurisdiction, and
    c) The Licensee has sold the intellectual property asset to a connected person or earns separately identifiable income from a foreign connected person in respect of the use or exploitation of the intellectual property asset.
  7. As the application of the amended ESR law is retrospective (i.e. effective 1 January, 2019), companies that have already submitted the ESR notifications based on the previously issued Cabinet Resolution No.31 of 2019 will need to re-submit the notification based on the new law for ESR i.e. Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020. Further guidance on this matter is yet to be announced by the Ministry of Finance.
  8. The deadline for the annual ESR Notification is within 6 Months from the end of the Licensee’s financial year.
  9. The deadline for the annual ESR Report is within 12 months from the end of the financial year, same as before.
  10. The Penalty for non-submission of the ESR Notification by a licensee is now increased to AED 20,000 while the penalty for non-submission of the Annual report is now AED 50,000.

Given the above updates, and in particular the appointment of the FTA, the scope of ESR is increasing and demonstrates the UAE’s increased commitment towards international tax and reporting compliance. Also, the appointment of the FTA means that there shall now be a bridge between License issuing Authorities and the Federal Tax Authority. As observed in the enforcement of VAT laws in UAE, the FTA shall be thoroughly assessing the information being submitted under the ESR Notification and Annual Report.

It is strongly recommended that all Licensees re-assess and re-evaluate the already submitted ESR notification to ensure that they are in compliance with the updated regulation. Licensees that did not submit a Notification on the basis that the original ESR law did not apply to them may need to re-evaluate their position under the amended ESR law.

To understand more about how the above changes in ESR affect your business, please reach out to us on mail@Affiniax.com.

ESR Filing Deadlines

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ESR Filing requirement, ESR deadline

For ease of reference we have set out below details of the requirements to notify as communicated by the selected regulatory authorities, together with the deadline:

Regulatory Authority Who is required to file Deadline
ADGM Only entities/ licensees that are carrying out relevant activity By 30 June 2020
DAFZ All entities/ licensees, including those who do not undertake relevant activity By 15 June 2020 (extended from 31 May 2020)
DMCC All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
RAK ICC All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
Securities and Commodities Authority (SCA) SCA have contacted via email all Investment Management Firms, Management Company Firms regulated by SCA requesting submission of the notification form By 30 June 2020 (extended from 31 March 2020)
AJMAN FZ All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
RAK EZ All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
Dubai World Trade Centre Only entities/ licensees that are carrying out relevant activity By 30 June 2020
Dubai Aviation City Corporation All entities/ licensees, including those who do not undertake relevant activity By 23 June 2020 (extended from 7 June 2020)
Dubai Healthcare City (DHCC) Only entities/ licensees that are carrying out relevant activity By 7 June 2020 (extended form 31 May 2020)
Ministry of Economy Only entities/ licensees that are carrying out relevant activity By 30 June 2020
Hamriyah Free Zone Authority (HFZA) Only entities/ licensees that are carrying out relevant activity By 30 June 2020
Sharjah Airport International Free Zone (SAIF) Only entities/ licensees that are carrying out relevant activity By 30 June 2020
International Free Zone Authorities (IFZA) Only entities/ licensees that are carrying out relevant activity By 30 June 2020
Dubai Silicon Oasis (DSO) All entities/ licensees, including those who do not undertake relevant activity By 9 June 2020 (extended from 31 May 2020)
Dubai Development Authority (DDA) Only entities/ licensees that are carrying out relevant activity By 25 June 2020
Abu Dhabi Media Zone Authority All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
Umm Al Quwain Free Trade Zone (UAQ) All entities/ licensees, including those who do not undertake relevant activity By 30 June 2020
Fujairah Freezone All entities/ licensees, including those who do not undertake relevant activity By 15 June 2020
KIZAD All entities/ licensees, including those who do not undertake relevant activity By 20 June 2020
Jebel Ali Freezone (JAFZA) Only entities/ licensees that are carrying out relevant activity By 30 June 2020

Please contact Tanmay@affiniax.com if you wish to find out more or require assistance with your notification requirements.

GUIDELINES FOR DMCC MEMBER ENTITY OFFICES AS PER COMPANY REGULATIONS 2020

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Corporate Services Provider Dubai, HR Consultancy in Dubai -Guidelines for DMCC Member Entity Offices as per Company Regulations 2020

In line with the new rules and regulations set out on 2nd January 2020, DMCC has introduced guidelines to define the roles and responsibilities of DMCC member entities, who are required to comply with the following changes.

Officer Designation Applicable Rules
Director
  • Appointment of a Director is mandatory for all Companies except Branches entities.
  • There is no maximum limit to the number of Directors that a DMCC Company can appoint, but a minimum of one Director is required.
Manager
  • Appointment of a Manager is mandatory for DMCC member entities
Secretary
  • Appointment of a Secretary is now mandatory for all DMCC Member Entities except Branches. Branches have the option of appointing a Secretary if they wish to do so
  • Only one Secretary is allowed per DMCC Member entity.
Legal Representative
  • Appointment of a Legal Representative is no longer allowed for any DMCC member entity, but an Authorised Representative of the Company can be appointed with duly issued Power of Attorney.

DMCC Companies registered and licensed prior to the introduction of Company Regulations 2020, which has appointed a Legal Representative and has not appointed a Company Secretary, will have a maximum of twenty-four months to comply with the new rules.

The registered Legal Representative will have to resign, and if the Company wishes, it can issue a Power of Attorney to the Legal Representative in order to make him/her an Authorized Representative. A Company Secretary must be appointed in line with the new rules.

Branches established prior to the introduction of the new Company Regulations 2020, which have appointed a Director and Legal Representatives, will have to arrange for the removal of such Directors and Legal Representatives.

To know more about this, feel free to get in touch with one of our team members at mail@affiniax.com or call us at +971 4 425 6616.

Economic Substance Regulations – Deadlines Announced so far

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Accounting Services Dubai, Accountants in Dubai, Audit services in Dubai, Top Audit Firms in Dubai

The UAE Economic Substance Regulations (ES Regulations) require all UAE entities that fall within the scope of the regulations by carrying on a “relevant activity” as defined by the ES Regulations to comply with annual reporting obligations.

Due to the current pandemic and subsequent lockdown, several Free Zone Regulatory Authorities have extended the last date for making filings in compliance with the ES Regulations. The Free Zone Regulatory authorities that have extended the filing dates are as follows:

  • Abu Dhabi Global Market (ADGM): The 31st March 2020 notification deadline is no longer applicable and the new deadline is 30th June, 2020. Guidance on the filing process is available on the ADGM website.
  • Dubai Airport Freezone Authority (DAFZA): The notification deadline of 3rd May 2020 was extended to 31st May, 2020. Guidance on the filing process has been shared with DAFZA licensees via email.
  • Dubai International Financial Centre (DIFC): The 31st March 2020 notification deadline is no longer applicable and the new deadline is 12th June, 2020. Guidance on the filing process is available on the DIFC website.
  • Dubai Multi Commodities Centre (DMCC): The notification deadline is 30th June 2020. Guidance on the filing process is available on the DMCC website.
  • Dubai Silicon Oasis Authority (DSOA): The notification deadline was 31st March 2020. Guidance on the filing process has been shared with DSOA licensees via email.
  • Ras Al Khaimah International Corporate Centre (RAKICC): The notification deadline is 30th June 2020. Guidance on the filing process has been shared with RAKICC licensees via email.
  • Hamriyah Free Zone Authority (HFZA): Entities that are governed by the Regulations will need to submit a notification by 30th June 2020, and where required prepare and submit to HFZA an economic substance declaration within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019.)
  • Sharjah International Airport Free Zone (SAIF): Entities incorporated under the jurisdiction of the SAIF ZONE Authority will need to submit a notification by 30 June 2020.
  • Ajman Free Zone (AJMAN FZ): All entities/licensees, including those who do not undertake relevant activity are required to file by 30th June, 2020.
  • Dubai World Trade Centre: Only entities/licensees that are carrying out relevant activity are required to file by 30th June, 2020.
  • Securities & Commodities Authority (SCA): Investment Management Firms, Management Company Firms regulated by SCA were emailed requesting submission of the notification form by 31st March, 2020.
  • Dubai Aviation City Corporation: All entities/licensees, including those who do not undertake relevant activity are required to file the notification by 7th June, 2020.
  • Dubai Healthcare City (DHCC): Only entities/licensees that are carrying out relevant activity are required to file by 6th June, 2020.
  • Ministry of Economy (DED): Only entities/licensees that are carrying out relevant activities are required to file by 30th June, 2020.
  • Jebel Ali Free Zone Authority (JAFZA): Entities carrying out relevant activities must file by the 30th of June, 2020.

In case you have any questions regarding your organisation’s reporting obligations or the deadline for your organisation, please contact us at mail@affiniax.com.

What is an IT Audit?

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An information technology audit, or information systems audit, is an examination of the management controls within an Information Technology (IT) infrastructure. The evaluation of obtained evidence determines if the information systems are safeguarding assets, maintaining data integrity, and operating effectively to achieve the organisation’s goals or objectives. These reviews may be performed in conjunction with a financial statement audit, internal audit, or other form of attestation engagement. IT audits are also known as “automated data processing (ADP) audits” and “computer audits”. They were formerly called “electronic data processing (EDP) audits”. An IT audit is different from a financial statement audit. While a financial audit’s purpose is to evaluate whether an organization is adhering to standard accounting practices, the purpose of an IT audit is to evaluate the system’s internal control design and effectiveness. This includes, but is not limited to, efficiency and security protocols, development processes, and IT governance or oversight. Installing controls are necessary but not sufficient to provide adequate security. People responsible for security must consider if the controls are installed as intended, if they are effective in case any breach in security has occurred and, if so, what actions can be done to prevent future breaches. These enquiries must be answered by independent and unbiased observers. These observers are performing the task of information systems auditing. In an Information Systems (IS) environment, an audit is an examination of information systems, their inputs, outputs, and processing. The primary function of an IT audit is to evaluate the systems that are in place to guard an organization’s information. Specifically, information technology audits are used to evaluate the organization’s ability to protect its information assets and properly dispense information to authorized parties.

Why Internal Audit? Is It Worth an Additional Cost to Your Company?

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Why Internal Audit? Evaluating the Value for Your Company

In order to understand the term ‘Internal Audit’, let’s first understand what an “Internal control system” is. Internal control system means the policies and procedures adopted by the management of an entity to assist in achieving management’s objective of ensuring orderly and efficient conduct of its business. It includes the reliability of management policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

Internal audit is a function that constitutes a component of internal control with the objective of determining whether the internal controls are designed, managed, and operated in the best possible manner.

Assessing and managing enterprise risks have become a primary concern for CFOs, Directors, and audit committees. Stakeholders are increasingly demanding a higher degree of transparency and ethical behavior. In today’s global economy, organisations must be able to demonstrate that they have adequate controls and safeguards in place.

Consequently, organisations are introducing risk-based internal audit plans, which are designed to focus on critical areas. Managing loss potential while consciously taking acceptable risks directly enables the management to provide fair returns on investment.

As chartered accountants, we are no longer expected and are limited for hazard avoidance or compliance with Companies’ policies. There is a need to demonstrate knowledge of risk management and business process improvement, which is a characteristic of a consultant rather than a classical internal auditor. We need to provide value-added support to management across all areas of operation, such as the Purchase-to-Pay process, possibilities and limitations of the IT system being used, regulatory compliance, etc.

Potential benefits of Internal Audit include:

  • Gaining access and knowledge of highly skilled and experienced professionals within the relevant field
  • Timely and effective management of risk and hazards
  • Managing Risk with a fresh perspective
  • Added level of scrutiny and caution in the organisation
  • Cost-benefit approach by reducing cost/overheads and managing the key ratios effectively
  • Reducing procedural complexity and participation in developing strategies and governance process

Internal Audit is no longer considered an additional cost to organisations. In fact, due to the ease of business operations in UAE, it is crucial for the management to understand the risks and possible hazards, which are looking for an opportunity to pierce the shield of internal controls and paralyze the growth of any organisation. Stakeholders prefer to have a transparent approach by reviewing the internal audit reports submitted by experienced professionals.

Written by Nihar Kothari, Partner, Affiniax Partners

E-mail: nihar@affiniax.com

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