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Top 30 Basic Terms Used By External Auditors In Dubai
In Dubai, while engaging to an auditor for the need of your business, you will hear many auditing terminologies frequently and therefore you need to take a look at the meaning of following terminologies to reduce the communication gap.
Adverse opinion: It is the worst scenario for the businesses in Dubai to receive an adverse opinion from the independent auditors. It reflects material misstatement or incompliance of significant regulations in the financial information disclosed by the firms that would lead users of the information to make wrong decisions.
Attestation: Like auditing, attestations are not confined to testing financial statements of business only rather it also includes broader service scope to be performed by the auditors such as- reviewing MD&A, commenting on the relevancy of the estimation for a big project of the firm, etc.
Audit cycle: The consecutive processes through which Dubai’s auditors will assess the financial information, internal system, and accounting system of business are regarded as audit cycle.
Audit documentation: It indicates the pieces of evidence in the form of documents preserved by the external auditors of Dubai to support the conclusion and content of the independent auditors’ report on the financial condition of their client.
Audit engagement: It is a professional letter sent to the client (business organization) by a public accounting firm in Dubai stating their acceptance to render audit services to the firm.
Audit evidence: To give opinions on the compliance of business in preparing financial statements, external auditors of Dubai need to collect substantial proof for the basis of their assurance. The pieces of evidence gathered by them are known as audit evidence.
Audit planning: Before jumping to the testing of a firm’s operational procedures and systems, external auditors develop a plan that outlines the scope of their activities, extent of independence in concluding based on proof, flows and sequences of their works, available resources and time attributed to them by the client, etc. All of this planning fall under the term “audit planning”.
Audit risk: The possibility that auditors will demonstrate unqualified opinions on financial statements that do not provide true information is called audit risk. As auditor’s wrong conclusions contribute to stakeholders’ wrong decisions, auditors in Dubai can be engaged in legal issues.
Audit sampling: Audit sampling is the selection of some accounts or transactions from a specific class by Dubai’s external auditors to conduct testing on them and conclude regarding their fairness. It is conducted when testing all the transactions of a large business seems to be highly inefficient.
Auditee: The business organizations of Dubai that engage a certified public accountant or an audit firm for letting them assess the firms’ financial reports or any other assertions are called auditee.
Certified public accountant: CPA is a license given to auditors in Dubai by dint of which they can play the role of a public accountant. It will give them the ability to audit financial statements and other systems of a business firm.
Control risk: This risk incurs due to the material errors in the financial statements of a business firm caused by the absence or failure of efficient control systems in the organization.
Detection risk: The inability of auditors in Dubai to detect any adverse and influential inconsistency in the system and reported transactions of their client firms despite having material inconsistency in a real scenario, is referred to as detection risk.
Detective controls: These represent the measures taken by a business to identify unexpected events and then take preventive actions to minimize negative consequences.
Due diligence: In auditing service, for the external auditor’s due diligence refers to the conduction of financial records’ assessment by reviewing from the source documents and coming up with a reliable conclusion.
Expectation gap: Users of financial statements expect from the external auditors of Dubai that their unqualified opinions on the fairness of businesses’ public information will be completely reliable while external auditors do not give a guarantee on the accuracy of the audited statements due to time and independency related constraints. The gap between the investors’ expectations of auditors and the auditors’ real work is known as the expectation gap.
External audit: It refers to the supervision and assessment of a public limited company’s financial statements for a particular year to conclude whether these statements are prepared fairly and whether the financial information is reliable for the investors in Dubai. External auditing has been made mandatory by Dubai’s Company Act, 2015.
Inherent risk: The risk of eliminating any substantial items in financial reporting that would influence the firm’s stakeholders in decision-making is regarded as an inherent risk. Higher inherent risk is associated with firms that have complex business nature and lack of skilled internal audit department.
Management representation: Before preparing auditors’ reports for publishing in the annual report, external auditors prepare a letter containing their opinion after the assessment of financial statements. Top executives are required to sign this paper to make it formal and therefore it is called management representation.
Materiality: In an audit, materiality refers to the extent of significance for a particular item. An account of the business is said to be material if it possesses the ability to influence stakeholders’ economic decisions.
Professional skepticism: According to this term, auditors in Dubai should approach and analyze each document and item of their client business organization with a questioning mind to detect whether there lies any possibility of fraud or misstatement.
Qualified opinion: In auditors’ reports, their qualified opinion refers to the fact that there is some discrepancy in the concerned business’s financial statement. Limited or insufficient scope of the external auditors of Dubai to conduct testing on their clients’ reporting fairness can be the reason for a qualified opinion.
Sampling risk: As in the case of audit sampling, external auditors select financial items through random sampling. It may happen that the sampling they used does not represent the actual scenario of the firm. The possibility that auditors will provide the wrong conclusion due to sampling error is regarded as for sampling risk.
Scope limitation: Sometimes external auditors of Dubai may not find enough proof to declare an item to be fairly stated. It confines auditors’ ability to conclude correctly on their client’s financial statement and as a result scope limitation generates.
Short-form report: This report consists of two parts. While the first one describes the activities auditors of Dubai have performed on business and the latter one follows with the conclusions they have made on the reliability of those activities.
Substance over form: This concept refers to the emphasis of external auditors in Dubai on the real financial scenario of their client firms from their financial transactions rather than on the legal impact of the transactions.
Substantive procedures: Tests through which external auditors of Dubai assess whether there is any detection risk in the client’s work environment are altogether regarded as substantive procedures.
Test of control: Under this, the auditors assess the effectiveness of their clients’ internal control systems. They can do it by observing the functionality of the existing control system and by analyzing deeply the accuracy and relevancy of the system in terms of established standards.
Test of details: When auditors in Dubai go to the root of a transaction (source documents) and then track whether the transaction has been recorded accurately, or when they verify ending balances of each item of a financial account by looking for confirmation from the respective concerned parties- all these procedures fall under the test of details.
Unqualified opinion: When every material item of a business firm’s recording is found to comply with established accounting standards, Dubai’s external auditors provide an unqualified opinion.
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