How to Prepare for an Year-End Audit in Dubai, UAE?

Essential Year-End Audit Tasks for UAE Businesses

As the year-end approaches, the businesses in the UAE must get ready to finalize and prepare a smooth transition to the new year. Year-end accounting aids in smooth audit functioning, compliance with UAE laws, and provides the management with a clear picture of the performance of the business.

Here is a complete checklist of the year-end tasks:

1. Review of financial statements:

Start by reviewing all financial statements, especially the below points, to identify inconsistencies and errors that require to be rectified before finalizing the financial statements.

• Validate the revenue recorded, expenses incurred, and net profit.
• Verify the fixed assets, other assets, and liabilities.
• Ensure equity is recorded as per the memorandum/article of association shared with the regulatory authorities.

2. Reconciliation of Accounts:

Reconciliation is critical for verifying the accuracy of the books of accounts. Important areas include:

• Bank accounts: Ensure that all transactions, especially the ones made on the brink of year-end, are recorded. For example, the checks issued or received on the closing date of the financials must be recorded; however, this will not appear in the bank statement as the time taken to deposit and realize falls after the due date. In such a scenario, reconciliation between the bank statements and bank account as per the books of accounts.
• Accounts payable: It is important to match the balance to be paid for each of the vendors matches the records with the vendor. Any due obligations must be accounted for on the accrual concept.
• Accounts receivable: Verifying outstanding invoices and ensuring these are collected in the future is critical for any business, which will avoid understatement or overstatement of revenue.

3. Inventory management and physical asset monitoring:

The physical assets or inventory are more susceptible to damages and loss. Therefore, it is important to track and record the loss or damages.

• Cross-check physical stock with inventory records.
• Adjust records for any discrepancies, damaged goods, or losses.
• Use the most appropriate valuation method (e.g., FIFO or weighted average) per UAE standards and IFRS compliance.
• Use a tagging system for the physical assets.
• Maintain the asset register matching with the tags installed.

4. Expense review and accruals:

Any expenses that are unpaid or any income that is yet to be realized must be recorded as per the accrual system. Further,

• Prepaid Expenses: Adjust for items paid in advance but applicable to the coming year.
• Accrued liabilities: record expenses incurred but unpaid.
• Depreciation and amortization: Update depreciation on assets and amortization of intangible assets.

5. VAT returns VS Books:

It is crucial that the business matches the recorded VAT liabilities and inputs with the VAT returns filed every quarter. Ensure that the business has timely submitted all returns for the year. Review and retain VAT invoices, receipts, and records as required by the UAE’s Federal Tax Authority (FTA).

Accurate VAT return filing is essential for compliance. Avoid common VAT filing mistakes by reviewing our guide on filing VAT returns in UAE.

6. Payroll reconciliation and End of Service Benefits:

UAE law requires calculating end-of-service gratuities and other payroll expenses accurately:

• Ensure all salaries, allowances, and bonuses are reflected in the accounts and are matching with the SIF submitted.
• Calculate and record the gratuity provisions as per UAE labour law.
• Adjust for any accrued but unused leave benefits.

Reconciliation is crucial to accurate records. Discover common accounting mistakes to avoid for error-free financial statements.

7. Cut off procedures:

• Check if the revenue is recorded on accruals. For example, a company follows a calendar year as their financial year. The invoice towards service provided for the month of December is recorded in the month of February of the next year. In this scenario, the revenue pertaining to December must be accrued as unearned revenue. The invoice raised but payment not received will be tracked by reconciling the accounts receivable. However, this procedure ensures that the revenue pertaining to each month is recorded even if the invoice is not raised.
• Similarly, expenses that are foreseeable in the future but pertain to the current financial year must be recorded. For example, though an audit is performed consequently to the end of the financial year, the provision for these liabilities must be recorded in the year to which it pertains.

8. Review agreements:

Cross-check if the licenses, customer agreements, vendor agreements, and rental agreements are renewed and validated every financial year.

9. Finalize the financials:

Correct and pass rectification entries in the books of accounts for the errors found in the earlier steps and update the financial statements. Ensure that financial records are securely stored and backed up.

10. Check the key ratios:

Assess gross, operating, and net profit margins for profitability insights. Measure the business’s ability to meet short-term obligations. Evaluate the balance between debt and equity.

Finally, check the requirement of auditing the books with the regulatory authority and get prepared for the audit procedures.

Bottom-line:

We, at BCL Globiz, provide accounting services at affordable prices. We acknowledge that management’s time is best utilized for core business functions. To support this, we collaborate with auditors by: Providing the necessary accounting documents and supporting calculations; Resolving any questions or misunderstandings that may arise; Facilitating direct communication between the auditors and management to discuss significant issues as needed. This approach ensures that management’s time is preserved while focusing their involvement on key matters that require their attention.

For businesses seeking to streamline year-end processes, outsourcing accounting services can offer valuable support. Learn more about the benefits of outsourcing accounting services in Dubai, UAE.

You can contact our experts at punith@bclglobiz.com.