Conclusion of yet another audit season and striding forward with great learnings
Last Friday, September 30th, we witnessed conclusion of the yet another audit season where there was a deadline for many entities to file their accounts (either audited or unaudited) for the previous year (i.e December 2021) with regulatory authorities such as ADGM.
We at Crowe, acted as Company Service Provider for many SPV’s where we filed the accounts on behalf of such entities which are audited by another auditor or acted as Statutory auditors providing opinion on the financial statements.
We share herewith few key takeaways from the recently concluded audit season:
Element of effective corporate governance: Preparation of financial statements by the management and getting those audited by an independent auditor to express his opinion on those statements is one of the most important elements of effective corporate governance and control environment.
Though the deadline was 9 months subsequent to year end (in this instance), we found some of the entities faced challenges in having the process completed on time.
Challenges faced by entities : Personally, this is my 20th year of handling the audit season and each year is filled with new challenges and learnings. There is something unique for each year, which could be either internal or external factors, which affects the process of preparation of financial statements by the management. Examples of such external factors are introduction of new accounting standards, regulatory requirements, compliances etc., and internal factors could be change in business model, change in systems and process, change in management etc.,
Entities should carefully assess these factors and build remedial measures to address the risk which affects this vital process of preparation of financial statements with presentation of accurate numbers, transparent and adequate disclosures, thus increasing confidence of stakeholders.
Evolving new business models: UAE is a land of opportunities providing great ecosystems for conducting business and continuously attracts new investors from across the globe. The country also elevated the confidence of these investors with landmark achievements such as, the way covid pandemic situation was handled, introduction of new laws and regulations to promote effective corporate governance, 100% expat ownership in many of the business sectors, better monitoring mechanisms by the regulators etc.,
With the increase in investors’ confidence, we can witness the establishment of large number of new entities with unique business models, service offerings and innovative products. These new age business models bring altogether a new set of risks and challenges which needs to be addressed carefully.
Auditors and consultants are integral part of Entity’s control environment: Professionals, such as Auditors, consultants and business advisors, play a key role in supporting the entity in the effective risk management. They provide their independent view on the management’s risk assessment process with their strong technical knowledge and industry expertise. We as Auditor not only aim at ensuring true and fair presentation financial statement with accurate numbers and adequate disclosures, but also aim towards providing our view to management and those charged with governance on the business risk, controls, systems and process, and the new laws and accounting pronouncements (such as IFRS) which may impact their business and financial reporting process. This may assist the management to implement necessary measure to address these issues.
Financial reporting process on a transparent and timely basis:
Transparent and accurate financial reporting process and conclusion of audit on timely basis is very critical to provide confidence to the stakeholders on the operations of the entity and management needs to establish necessary system to achieve this.
Few of the key factors to be considered by the management in ensuring the timely and effective Financial reporting process are :
- Relook at the monthly / periodical business and financial reporting process to ensure that adequate systems are put in place with better monitoring and review mechanism to record transactions and information in compliance with the relevant standards.
- Promote the culture of transparency and ownership and provide necessary training to those involved in the process to execute their responsibilities with free of errors. Training to cover topics such as the concept of materiality in the preparation of financial statements, adequacy of disclosures (excessive Vs adequate), compliance requirements, knowledge on GAAP, expectation of stakeholders etc.,
- Have the risk management team and auditors / professionals to independently assess the risk for any business ventures on a timely basis.
- Have a continuous dialogue with auditors on the developments in the business and related risks and management’s response to such risks and new accounting pronouncements / regulatory updates.
- Review the previous year audit issues and the control recommendations from the auditors to ensure that these are well addressed.
- Have the auditors to review the areas involving complexities, significant judgements and estimates during the interim audits which can provide management with adequate timelines to address the issues.
- In case of preparation of consolidated financial statements, ensure that effective communication lines are established between the group and component auditors to achieve effective and efficient planning of an audit.
- Have internal audit team to communicate with the external auditor on their findings and their risk assessment on timely basis which can help efficient and effective audit process.
Financial Reporting is not just one-time year-end activity, rather it is a continuous evaluation process throughout the year.
