Internal Audit Services in UAE

An Internal audit is crucial for businesses to ensure that their controls are strong and the management is complying with the processes set out in the internal control policies of the organization. Mistakes can be costly in business. So, internal controls help prevent or reduce the impact of mistakes. A strong internal control system allows you to identify problems early, prevent fraud, and continuously improve your business as your business’s control environment shapes your organization’s future. An internal auditor helps audit the controls, identify gaps, suggest improvements, and strengthen the overall control environment of your organization. The stakeholders of any business always require clarity, reliability, and accuracy in the financial affairs of the business.

KEY POINTS

• Under Federal Decree Law No. 32 of 2021, appointing an internal auditor is not mandatory. But if strengthening your internal controls and identifying the financial health of the company is the aim, then hiring an internal auditor is a smart move.
• Internal audits can be done by an in-house internal auditor or through an outsourced internal audit consultant. With the implementation of UAE Corporate Tax under Federal Decree Law No. 47 of 2022 and ongoing VAT compliance under Federal Decree Law No. 8 of 2017, many UAE businesses appoint internal auditors to review tax-related processes, documentation, and controls.
• The internal auditor should have a bachelor’s degree and international certificates like CIA, CA, ACCA, or CPA in order to conduct a quality internal audit work in accordance with international internal audit standards.
• Always check that the audit firm is MOE-licensed. Vertix Auditing is an MOE-approved audit firm (License No. LC4635-01), and our audit reports fully comply with International Auditing Standards as well as International Financial Reporting Standards.

What Is an Internal Audit?

Internal audit is a review of internal control system of your business. Internal auditors review the internal control manual of your organization which has all the policies and procedures that govern your business, check the implementation of the policies and procedures, identify gaps in the manual as well as in the implementation phase, impact of the policies and procedures, and recommend improvements wherever deemed necessary.

Internal audits can be done by in-house internal audit department or by an independent internal audit firm who can provide an independent opinion on the company’s internal control system.

Types of Internal Audits

There are several types of internal audits. Some of the most important types of internal audits are listed below:

• Compliance Audit: A compliance audit checks if the company is following its own rules, policies, and procedures documented in the internal control policy manual of the company.
• Financial Audit: An internal financial audit requires the auditors to review and assess the use of financial resources of the company. For example, payroll audit, gratuity, marketing spend audit, etc.
• Environmental Audit: This audit assesses how a company’s activities are impacting the environment. Are there any financial or ethical implications and if yes what are those and how can the organization address them? This audit also involves the compliance with company’s ESG policies and procedures.
• IT or Technology Audit: An IT audit reviews the company’s IT systems and infrastructure to find any technical gaps and loopholes and recommends the necessary preventative measures to address those weaknesses.
• Operational Audit: Operational audits examine the processes and procedures of the company, how a company runs its day-to-day operations, and provide recommendations for improvements.
• Performance Audit: A performance audit checks whether the goals set by the management are achieved or not. If the set goals are not achieved, what are the reasons and strategies to overcome those reasons in the upcoming years.

Process of Internal Audit

How an internal audit is conducted? Essentially, there are four main steps of internal auditing:

Planning: This phase is the starting point of internal audit process. This is the time when the audit team defines objectives, audit strategy, criteria, and chooses which areas should be given priority. The auditors spend sufficient time understanding the business, its processes, current control environment, processes owners, and implementation strategies. They also review previous reports (if available), check current policies, and familiarize themselves with the existing procedures and practices. Besides, they may also communicate with employees to know their roles better.

Auditing: In the auditing phase, the audit plan is practically executed based on the audit strategy created in the planning phase. The high risk areas are prioritized and controls implemented on those areas are verified and tested on sample basis. Thereafter, the mid to low risk areas are tested and observations are documented. Audit also involves interviewing the staff and verifying any set of documents that the auditors feel necessary for verification. In case auditors find more than expected flaws or control weaknesses in the initial sample transactions, the sample sized is increased to investigate weak areas in more detail. This allows the auditors to determine high risk to low risk internal control weaknesses and prepare remedial plan to overcome them.

Reporting: After the completion of internal audit, all the findings are documented in an audit report. This reports lists all the control weaknesses, their impact, and recommendations to overcome them.  

A standard audit report usually includes the following sections:

• Executive Summary
• List of audit observations
• Detailed explanation of each observation with impact and recommendation
• Conclusion
• Management Action Plan

Monitoring: This is the final step of the internal auditing process. Here, the auditors carefully verify whether the suggested improvements were actually implemented or not. The auditors or managers monitor the company’s processes to verify if the problems have been fixed and are the new solutions are working well. Thereafter, the audit team updates those charged with governance about their feedback about management’s progress against the internal audit action plan.

What Every Internal Audit Report Needs: 5 Cs

Internal audit reports often use a method called the 5 Cs. It works as:

Criteria	The rules, policies, procedures, or regulations against which the internal audit is performed. It explains what the company is expected to follow and sets the standard used to evaluate controls as well as processes.
Condition	In condition, the actual situation of the company is explained during the internal audit. It shows how things are currently working in the company and highlights all the weaknesses, gaps, or non-compliance.
Consequence	It explains the negative impacts that the business can have if the issues are not fixed. This may include financial losses, regulatory penalties, operational delays, increased risk of fraud, or damage to the company’s reputation.
Cause	This step specifies the main reasons that have caused the occurrence of the internal control issues. This may happen when a company has weak controls, weaknesses in the supervision of processes, inadequate training, system limitations, or perhaps employees are not complying with company policies and‍ procedures.
Corrective Action	This includes steps that the management should take to fix the identified control weaknesses. This phase includes details of recommended actions to improve internal controls, how the errors should be corrected and controlled, and what steps management should take to present the same errors from happening again.

What Is an Internal Auditor (IA)?

An internal auditor may be an in-house employee or an independent professional hired externally. They review internal control manual of the business, financial records, processes, and internal controls to make sure business controls and processes are in line with industry standards. Their job is to spot control issues and problems early and suggest improvements before an external audit is conducted by a licensed audit firm in the UAE. There is a common confusion and a frequently asked question by businesses, is hiring an internal auditor mandatory in UAE? The short answer is NO. It is not mandatory, but many companies choose to appoint so that they can manage risks early and avoid major issues later on.

How an Internal Auditor Helps Businesses?

Now, let’s talk about something many businesses overlook. What is the role of internal auditor? An internal auditor comprehensively looks for control issues within the company and fix them before they are noticed by the external auditor or government authority. For example, regulatory bodies like Federal Tax Authority (FTA), the Securities and Commodities Authority (SCA), the Ministry of Economy (MOE) etc., require companies to maintain accurate and reliable financial information so that stakeholders can make informed decisions. An internal auditor should make sure that systems, controls, and records are strong enough to ensure accuracy of financial information before the business reaches that level of external scrutiny.

Basic Requirements to Work as an Internal Auditor

One important aspect is the qualification of the internal auditor. Firstly, a person should at least have a bachelor’s degree. After that, skills and understanding of business operations is compulsory and at last relevant certifications. The majority of internal auditors in the UAE are graduates holding at least a bachelor’s degree in:

• Accounting
• Finance
• Business Administration
• Economics
• Risk Management
• Information Systems (for IT audit roles)

Below are some of the most respected certificates that are accepted worldwide and truly describes the auditor’s expertise.

• Certified Internal Auditor (CIA)
• Certified Public Accountant (CPA)
• Chartered Accountant (CA)
• Certified Information Systems Auditor (CISA)
• Certified Fraud Examiner (CFE)
• ACCA / CIMA / CMA / CGMA

Internal Auditor vs. External Auditor

Most of the times we confuse internal auditors with external auditors. Internal auditors work inside the company. They help management finding out the core problems and control issues within the company and how to address them. Whereas external auditors are not part of the company. They are hired by the shareholders to independently check and verify whether the company’s financial statements present true and fair view and prepared in accordance with International Financial Reporting Standards. Internal auditors just report to the management, while external auditors report to the shareholders.

How Much Does an Internal Audit Cost in the UAE?

The fee criteria for internal audit vary based on several factors:

• The cost mainly depends on the size and complexity of the business, the scope of the audit, and the risk profile of the company. Businesses with large volume of transactions, several departments, and higher regulatory exposure tend to have higher fees.
• If you consider big four firms, then the cost will be higher whereas if you consider mid-size audit firm, then the cost will be more competitive.
• Audit costs also vary based on the frequency of the engagement i.e. one-time or ongoing audits.

How Vertix Can Help

Vertix Auditing helps businesses achieve financial clarity. Our team of highly trained and qualified professionals delivers premium external and internal audits, AML, tax, and business advisory services across the UAE. We are approved by major regulatory authorities across the country, including UAE free zones. As an ISO-certified audit firm in UAE with international credentials, we strictly follow globally recognized quality standards.

Frequently Asked Questions (FAQs)

When Should a Company Perform an Internal Audit?

Companies should perform internal audits during the periods of growth and before regulatory or external audits. But big organizations normally prefer internal audits after the change of systems or management, or when they want to review and improve internal controls and risk environment of the organization.

Can Internal Audits Be Outsourced?

The short answer is Yes. You can outsource this function to professional audit firms and get access to expertise without having an in-house internal audit team. Refer to our list of the top 10 audit firms who provide external as well as internal audits to UAE companies.

How Long Does an Internal Audit Take?

No timeline is fixed for audits. It depends on both the client and the audit firm itself. The Client is responsible to keep the records ready, organized, and accurate. The audit firm is responsible for assigning experienced internal auditors, apply industry knowledge, and allocate the right resources to complete the audit effectively.

Can Internal Audits Reduce the Chances of Penalties Under UAE Tax Laws?

Yes, internal audits reduce the chances of penalties by identifying compliance issues on time. Timely identification and corrective action not only protects businesses from potential fines, but also help them improve their operational and financial performance.