Last Updated on
Your business works on an interplay of a number of factors or operations, regardless of the kind of business it is. Unless all the departments work together and coordinate with each other, it would be difficult for your business to succeed and then grow subsequently. The United Arab Emirates is a very common choice for people (locals or foreign nationals) to set up their businesses because they can more or less be assured of earning large profits or returns, owing to the booming economy. However, how the different departments do their work is not the only important factor in determining how the business is run; you also need to oversee the various operations to make sure that everything is going right and that your company is also following the rules or laws imposed by the government. This is where an internal audit comes into the picture.
What is an Internal Audit and Who Does It?
The word ‘audit’ refers to an independent inspection or checking of a company’s accounts. So, an internal audit is when a process whereby the company’s internal functions, including that of accounting and governance, are evaluated. Such internal audits ensure that the company is, in fact, adhering to the government’s laws and regulations and is paying attention to not only preparing accurate financial reports and collection of necessary information or data but is also doing so on time. Internal audits are important because they let the management know of ways in which the company can improve its overall efficiency after having identified where the problem lies, and also help to correct operations before an external audit is conducted. The main difference between an internal and external audit is that the person performing the former has a sort of responsibility towards the management of the company and is trusted with the task of advising and helping it, whereas the one responsible for an external audit has no responsibility towards the company and is simply responsible for reporting to the shareholders, besides having to ensure that all financial statements are correct and free of errors.
What is the Right Time for Your Business’ Internal Audit in the UAE?
Before you get an external audit, it is always better to get an internal one done before, so that you can find out where things have gone wrong and can have sufficient time to make necessary changes, thus avoiding the external auditors letting the shareholders know of any malfunctions within the company. There are a number of benefits of an internal audit, and here are some situations wherein it is a good idea to get an internal audit for your business in the United Arab Emirates:
- On a Regular Basis: It may seem stupid or a waste of time to regularly get audited internally, but is it actually quite beneficial for your company. Instead of waiting for a problem to arise to get audited, make sure to schedule regular internal audits so that you can get an idea of your company is functioning. It is a great idea since you would be able to detect a problem before it goes out of hand and can correct it and can also pinpoint any smaller discrepancies in the accounts and track the source of the problem. When it comes to a business, for instance, how your finances are dealt with is very important in determining how you go about making future decisions, and thus, by getting an internal audit, you would be able to gauge the situation and would also be able to make any necessary changes.
- When There is a Problem of Money Flow: The flow of money, whether incoming or outgoing, is extremely important for any business. In the event that your company’s profits are declining or that there isn’t enough incoming flow of cash, it is a good idea to get an internal audit done to determine the cause of the problem. Generally, it is the marketing strategy as well as the conditions of the market that determine the amount of cash coming in, which makes the cause of the problem external. However, it is also sometimes an internal problem, perhaps a fraud too. In such situations, to determine where the problem lies, an internal audit is necessary, so the problem can be solved accordingly as well. Even if you realize that the source of the problem is external, an internal audit can help you make changes internally to boost the incoming flow of cash.
- Before An Investment is Made: Investments are constantly being made in businesses of all kinds, but as a business owner, or as the company as a whole, in order to attract investments, you need to be able to assure the investors of the fact that investing in your company would be a good decision, that would benefit both the parties involved. In order to do that, you need to prepare comprehensive reports of your financial data and the situation of your company, so that potential investors know exactly what they are putting their money into and what they can expect out of it. They should not feel that you are hiding something from them, and so, before you present your reports to them, an internal audit would help ensure that you have included all the required information and that there are no errors.
- When There are Discrepancies in Your Accounts: Again, there is a constant flow of money in a business, but this flow does not go undetected or unanalyzed. There is always someone to keep track of all the money that goes out and comes into the company, but there are often numbers that don’t add up. In case you find that there is less or money than you expected there to be, getting an internal audit would allow you to not only verify whether it is simply an error in calculation or whether there actually is an issue with the money. Also, you would be able to trace the source of the problem and see if it is a minor issue or something major.
- When someone Resigns: There are a number of employees in a company, and there are many that resign or leave the company at any given point of time. It is advisable to get an internal audit done before an employee leaves so that you are not left without any knowledge about the area they were working on after they leave. An internal audit, in this case, would not provide information on what kind of work they were doing and what the status of their work was, it would also help you determine if there were any problems in that particular area and if the employee was responsible for an issue or for overlooking a matter. Hence, it is always better to have your employees give you notice of at least a couple of weeks before leaving.
It is highly important to ensure that all the departments are working properly and that there are no issues with their operations, or with the company’s finances. Thus, an internal audit is necessary, perhaps on a periodic basis, to not only oversee all the operations but also to detect any malfunctioning or any discrepancies in the accounts, which could prove to be seriously problematic in the future.