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PHOTO BY FARAHAT & CO/ARCHIVE
DUBAI – Audit assertions are crucial for investors and stockholders in UAE as financial metrics that are utilized in evaluating the stock of companies are computed from figures that are in the financial statements of companies.
If figures are misstated or inaccurate, financial metrics e.g. earnings per share or price-to-book ratios (what investors and analysts utilize in evaluating stocks) would be very misleading.
When the financial statements of a business in UAE are audited, auditors review principal element of reliability of financial statement assertions. Businesses in UAE are required to prepare their financial statements according to GAAP or Generally Accepted Acct Principles.
Financial statement assertions that are attested to with the statement preparer of a business include assertions of completeness, obligations and rights, and existence among others.
Audit asserts may be listed broadly into three categories: account balances, assertions which are pertaining to balance sheet accounts for end of period like liabilities, assets, and equity balances; presentation and disclosure, assertions which are dealing with disclosure and presentation of financial statements’ different accounts; and classes of transactions, assertions which are typically utilized for statements of income.
When the management or administration of a business prepares its financial statements, it makes five asserts on every line within a financial statement. For every line, the objective of the auditor is to make sure that there’s no material misstatement in the assertions. The complete list of assertions are as follows:
1. Obligations and rights
4. Presentation and disclosure
5. Allocation or valuation
Take note: every line that is in a company’s financial statement contains all the above-mentioned assertions. Risk of misstatements for every assertion can vary according to kind of account. Approved auditors in Dubai are concerned regarding higher risk assertions. To give you an example: existence is an issue when assets are audited, completeness is crucial when liabilities are audited, occurrence is an issue when sales are audited, completeness will prove to be of great concern with the audit of expenses. Every single assertion has to be rewritten to be specific objectives.
In order to make sure that there isn’t any material misstatement or inaccuracies, auditors gather evidence. As per auditing standards, there’s two kinds of evidence: underlying accounting data and corroborating information.
Auditing standards are clear on how much evidence is required by an auditor. There must be enough competent evidential matter in order for an opinion to have reasonable basis.
Audits are performed in several phases. With each phase, a certain procedure is often used.
• Obtaining internal control understanding – for every audit that is done according to GAAS, an approved auditor in UAE has to obtain an internal control understanding. Appropriate procedures are making inquiries, observing the client or the business operations, and inspecting manuals and all other relevant paperwork.
• Controls tests – an auditor may decide in testing the controls of the company. When the tests results show that the controls of the business are effective in detecting and preventing misstatements, then the auditor will obtain sufficient evidence that there’s reasonable basis with the issuance of reports and that there’s no misstatement in a company’s financial statements. In order to test controls, auditors perform inquiries, observations, and inspections, and also perform reperformance of the activities of the business.
• Substantive tests – a substantive test is designed in determining whether there is any error with the numbers and disclosures which are in a business’ financial statements. A substantive test is always done as tests for controls aren’t sufficient or enough in providing basis for deriving expert opinion on a company’s financial statements.
If you have questions regarding audit assertions or you want further information, we suggest you speak with seasoned auditors in UAE like Farahat & Co.
Obligations and rights in relation to assertions deal with whether company assets its rights and liabilities are the entity’s obligations on a given date. A company’s account balance doesn’t only have to be measured properly but it also has to be disclosed and described adequately. This can only be done with the help of a qualified and approved auditor from top audit firms in Dubai UAE.
Assertions for presentation and disclosure are the ones that are dealing with particular components being classified, disclosed, and described in financial statements properly.
Assertions on completeness are the ones that deal with transactions and accounts being presented and included in financial statements. In order to provide support for completeness assertions, approved auditors in UAE obtain competent evidence on transactions being recorded. Concept of materiality is the aspect that allows an approved auditor in supporting statements that sufficient number of accounts or transactions were being recorded.
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