Internal Audit is a mixture of Assurance & Consulting Services. An assurance service involves examining evidence to express an opinion about an entity’s systems, operations, functions or other matters. The consulting service includes adding value and providing improvement recommendations for internal controls, risk management and entity management.

An internal audit can be performed by an internal audit team (employees of the accounting unit) or an external audit firm. Internal auditors report to the audit committee or the board of directors. Senior management may also initiate an internal audit.

Internal audit is not mandatory in the UAE. However, it is best practice to have an internal audit as it will add value and improve internal controls, processes, risk management and organizational governance. Internal audit will also reduce the risk of fraud through regular reviews and strengthened controls and processes.

An external audit is usually carried out annually. In the case of new entities, the audit period can be extended to 18 months from the date of establishment. At the same time, it must not be shorter than 6 months. The subsequent audit period will be for a period of 12 months and this period may be extended up to 15 months in the case of some free zones. If the company management needs a special audit, it can be carried out for a different period or even several years.

Internal audits are responsible for measuring current performance of business and finding the flaws areas. External audits focus on proving the correctness and truthfulness of the financial statements

The method of appointment, qualification and reporting format of the external auditor is defined by law, which varies from jurisdiction to country.

Auditors must be members of one of the recognized professional accounting bodies. Auditors usually address their reports to the shareholders of a corporation or the owners of a business unit. Auditors are subject to strict rules to maintain their integrity and ensure independence.

Audits have become almost mandatory in the UAE both in free zones and onshore. In free zones, the authorities insist on submitting audit reports as a mandatory requirement for renewing a company’s license. Onshore, an annual audit is required under UAE company law. In addition, wherever the bank has materially financed, they will insist on the submission of an audit report for the continuation of financial instruments. Sometimes suppliers, customers or other interested parties will request a financial audit report from time to time. With the introduction of VAT in the UAE, company management will most likely have an additional responsibility to confirm turnover through an audit report.