Sales Certificate Audit

In UAE, businesses usually rent commercial spaces in prime locations such as shopping malls, commercial buildings, hotels, and other business premises. Many lease agreements, especially in shopping malls, include a percentage rent clause. Under this arrangement, the lessee pays a base rent or a percentage of their gross sales (turnover rent), whichever amount is higher. For authenticity, the landlord may require verification. For this purpose, a Sales Certificate is provided by a mall approved licensed auditor appointed by the lessee to verify the sales figures declared to the mall management.

Client Background

ABC Mobile Phone Trading Company LLC specializes in retail and trading of electronic devices and mobile phone repair services. It has two branches. One of the company’s branches is currently renting out space in one of the malls in Dubai. 

As stated in the agreement, ABC Mobile Trading Company LLC agreed to pay the mall with annual base rent or turnover rent, whichever is higher. To comply with the lease agreement, the lessee must submit Annual Audited Sales Report to the mall. So, at this point, the company reached out to Vertix Auditing and appointed us to perform the Sales Audit.

Challenges Faced in Sales Audit

The client approached us on an urgent basis, as the deadline for submitting the Annual Audited Sales Report was only two days after the engagement was confirmed. While performing the audit we noticed the following:

• The client did not maintain proper accounting records.
• The client had some difficulty gathering the required documents within the short timeframe. Some important audit documents were submitted on the same day the Sales Certificate Report was due.
• One of the requirements of the mall in conducting the Audit was to verify that the VAT return filed by the client was matching with their invoice-wise sales report. The client has two branches but files VAT returns under one TRN. One of the two branches is a store and the other is a kiosk. However, the sales certificate was required only for the store, as confirmed by the Mall. So we had to remove the impact of the kiosk figures from overall revenue and VAT filings to be able to reconcile the data for the store.

Our Solution to Perform the Sales Audit

• Time was definitely a challenge in this engagement. However, we did not compromise on the quality and credibility of the report. We carefully planned and carried out the necessary audit procedures to ensure the work was completed accurately.
• We followed the requirement list provided by the mall to ensure compliance with the mall’s reporting standards.
• Scheduled a call with the client to understand their process for recording sales in the POS, accounting processes, and reporting VAT to FTA.
• Since the client did not maintain proper accounting records, we had to extract data based on the provided documents and verify its accuracy with the supporting documents.
• We verified a good number of sample sales invoices and sales returns and verified them from the Point of Sales system. We then traced the receipt of those sales in the Network International (NI) statements, and thereafter company’s bank statements after Network International remitted those sales to the client’s bank account.
• In the VAT returns, both branches (store and kiosk) are reported under a single tax return. So the revenue figure in the VAT returns was for both branches. The mall’s requirement was to reconcile the store’s revenue (not kiosk) as per POS, with the store’s revenue as per the VAT returns. We extracted kiosk’s revenue from the Point of Sales system, removed it from the total sales reported in the VAT returns to get store’s revenue figure. We then compared the resulting store revenue as per VAT returns with the revenue as per Point of Sales system. We repeated this exercise for every quarter. Only minor differences were noted and we successfully reconciled full year revenue between POS and the VAT returns.
• Even with a limited timeframe, we didn’t compromise our work ethics. We ensured that we conducted the Audit in a careful manner. We reported all the irregularities and observations so that client can address them for future audits.
• Client was also making several compliance mistakes in the VAT reporting. We helped and resolved many common VAT misconceptions they had and enabled them better understand how VAT impacts their business.

Results and Client Feedback

The mall accepted our report and the client was completely satisfied with our service. The Sales Audit was completed successfully, and the Sales Certificate was issued on time, which helped client to renew their tenancy contract with the mall. We also gave them suggestions on how they should maintain proper accounting records and proper document keeping.