There are many methods that auditors use to detect errors in financial statements. These methods can be used in both Abu Dhabi and Dubai. Some of the common methods are:
Comparison: Auditors compare financial statements with previous industry years’ statements, and budgets to identify any unexplained changes or any unusual industry averages.
Trend Analysis: Auditors examine trends in financial statements data over time to identify any occurring problems.
Ratio Analysis: Auditors use ratios to compare different financial statement items to each or to point out the problems.
Sampling: Auditors select a sample of transactions from the financial records and proofread them to see if they have been recorded correctly.
Inquiry: Auditors ask questions of management and other employees to get their thought into the financial operations of the company.
Analytical Procedures: Auditors use their knowledge of accounting and auditing to highlight potential problems in the financial statements.
The particular methods that auditors use will vary depending on the complexity and size of the company being audited, as well as the auditor’s own expertise and experience. However, all auditors use a combination of these methods to try to ensure that the financial statements are free from material errors.
Types Of Error
Firstly, we will look into different kinds of errors that an auditor in Abu Dhabi, UAE must be aware of:
The error of Principle: This occurs when the entry is not made according to the principles of accounting.
It might be a manipulative or mistaken effort to enhance or ruin financial performance. It includes improper depreciation, wrong accounting of stock, transferring commission to a personal account instead of a business account, machinery, investment, etc.
The Error of Omission: This happens when a transaction is absent from the account books. Other examples include the omission of outstanding or balance amounts. As expected, the detection of such errors is difficult.
The Error of Duplication: This is another error that is difficult to detect. A purchase transaction may get recorded at once. This is only detected after careful verification of all duplicated and original receipts and invoices.
The Error Of Commission: These are errors in misreading similar content such as writing 25,000 as 2500 or credit into the account of BA company in place of AB company.
The Error Of Compensation: This is when the expense of an error is compensated with another error. This does not affect the whole trial balance but affects the specifics.
Procedures For Error Detection
Auditors are expected to perform an audit as per professional guidelines and standards. They cannot guarantee that no fraud exists. However, they can follow these procedures to avoid fraud and increase efficiency.
Brainstorming: an auditing team in UAE can gather its members and clients’ staff to brainstorm regarding fraud and the kinds of errors that may happen. This may give auditors an outlook of what to consider and expect and how the clients can commit fraud or errors.
Brainstorming sessions are very good in the planning of the audit process. Some may have an idea that other members of the auditing team may not have considered. You can increase the effectiveness of brainstorming sessions by considering certain measures like keeping the agenda clear.
Testing: testing journal entries is very crucial. For any error or fraud in the process and protocols of the company, the audit in UAE may choose any entry depending on various factors. Entries made by upper management, entries made late in the accounting period, and any entry appearing suspicious can be verified related to the entry.
Verification: Usual transactions of a company may also be the cause of the error, which is worth verifying. When a company engages in business outside its usual sphere of operations or its domain, or purpose, auditors must examine the causes and motive of the business. Once the management of the company gives an explanation, it should be verified with other documentation for inconsistencies and irregularities.
Estimation: Another source of accounting errors could be accounting estimates. Accounting estimates are the values assigned to items’ purchases or sales, which have no accurate way of determining value. Examples of estimates include estimating bad debts, the useful life of an asset, and depreciation.
Suggestions That Can Be Made
In case of error detection, after the audit completion, the auditor must make suggestions to the client to streamline and improve his operations as an auditor does not have the power to make changes in the business operations. An auditor in Dubai, UAE can ensure that the client follows certain standards and guidelines:
- Suggesting ways of fraud prevention.
- Improvements in the internal control of the business.
- Following the accounting principles actively.
- Suggesting setting up a system of fraud detection.
- Following the provisions of the companies act.
- The loss and profit account and the balance sheet must show a fair and true level of concern.
- Requirements of an auditor
- As an auditor, you also have to follow certain guidelines:
- Any inconsistency must not be overlooked, no matter how minor it appears.
- Errors should be made notice of, and frauds should be entered into the audit report in Abu Dhabi, UAE.
- With the information on your side, you can detect errors in your accounting records and take corrective actions before any damage occurs.
ebs likewise offer services, such as accounting and bookkeeping services, VAT services, Auditing, Due Diligence audit services, and many more.
Feel free to contact us with any additional inquiries or requests for accounting services. A free discussion will be given to you by our specialists, who will answer your request immediately.