Doing business anywhere in the world can be hard enough, keeping compliant with all of the various rules and regulations, which impact every industry, but it gets even harder of course, when you start doing business in a different country, with different laws, customs and taxes. This is even more important where finance is concerned, and making sure that your trading activities comply with all of the necessary regulations, because obviously being seen as a trustworthy company is of absolute necessity. When the company books are being prepared and audited, investors want to be comfortable that the results they are reading, are indeed accurate.
Auditing in the UAE
In December of 2014 the UAE began to address some serious misgivings that were present in the market, when just about anybody could set themselves up as an auditor, even using a degree from a totally unrelated industry, with which to do so. Federal Law number 12 of that year, signed by Sheikh Khalifa, President of the UAE, set new and stricter guidelines for licensing of auditing companies and individuals, who subsequently were obliged to hold a minimum of a Bachelor’s degree in accounting, or an equivalent qualification. It was a move which was welcomed by senior accounting and auditing bodies, which was believed would be beneficial for the country’s economic growth. In addition to holding the correct degree, auditors were also required to take ongoing education and training to be able to remain qualified. A further aspect was that publicly listed companies were required by law, to change their auditors every four years, with a view to prevent ongoing fraud and preserve auditors’ independence.
The Importance of Auditing Veracity
A company’s audited finances are right at the centre of the credit assessment undertaken by lending institutions and for loan proposals from the banks, so the need for their genuine accuracy can’t be stressed too highly. Around the world the industry is very heavily regulated, with demanding criteria on the firms who are able to register, and the nature of the companies to whom they can audit. The performance of such firms are regularly and carefully monitored, to ensure their performance and quality of work. Any suggestion or complaint of suspected fraud or malpractice is very seriously investigated and highly professional standards are maintained. This is not to say that fraud has been totally stamped out, as cases do occur continuously, pretty much everywhere.
Licensing and Regulating
While the market in the UAE is licensed, so that only people with the correct financial qualifications are able to register, it is currently unregulated, leaving the auditing industry to self-regulate themselves, which is clearly a less than admirable situation. Self-regulation is all very well for those with a high reputation, who wish to maintain the highest standards and their good name, but it leaves those with lower moral values in a position to essentially do as they please. The quality of audited financial statements is not being questioned, common standards are not being set, or adhered to, and nobody is keeping track of auditors who are regularly found in error. There is no body keeping any control, no discipline is being enforced and punitive options for offenders are non-existent. If we look back to the financial crisis that occurred in the UAE between 2015-17, a fair chunk of the blame can be laid squarely at the door of some poor performances by sub-standard auditors, which unfortunately happened to be a significant majority of them. Obviously it is the owners and financial officers of companies who fabricate their statements who create the initial problem, though whether the auditing on such books is complicit in the fraud, or just simply incompetent, still leaves us in the same position, with lenders finding it very difficult to ascertain who is a safe proposition to lend to and who is not.
Finding a Good Auditor
There are plenty of totally respectable, qualified and professional auditors and accountants in Dubai, who are providing an excellent service for their clients, though they are being undermined somewhat by the growing number of less than reputable firms, who find the licensing criteria too simple and undemanding. Based upon the old tenet that the labourer is worthy of his hire, so too a professional auditing company is going to charge consummate levels of fees. When you combine this with the fact that there is no such thing as a free lunch, if you are offered auditing services for a pittance of what you should expect to be paying, or offering you the finished work in an amazingly short period of time, you probably want to cease considering such a firm immediately. To perform their task correctly, an auditor should not only verify the accounts that they are certifying, but look at the underlying methods which determine how those accounts were actually produced by the client.
Avoiding Conflicts of Interest
Your auditor should be totally above board and beyond reproach, which means there are certain activities which they should not be participating in on your behalf. For example, an auditor who is checking your accounts should never be involved in any way with assistance in finding finance for the company, as it could be construed that they might subsequently produce inaccurate and misleading accounts. It is not possible for your bookkeeper to also be your finance management, while providing audited statements, without having very serious conflicts of interest, a practice seen all too often at the moment.
Industry Regulation is Required
The situation today should probably have seen intervention already by the UAE Banking Federation, or at minimum, seen the banks adopting a unified approach on matters, which has not yet manifested itself. Neither the banks nor anyone else, seems to have any way of rating auditors, or identifying which are reputable and professional and which are a bunch of incompetents or crooks. Bad auditors can just carry on regardless, when they would have been blacklisted in more sophisticated and regulated markets.
It is important for the country as a whole to see this market properly regulated, which will provide much confidence in the market and help to drive further growth. Until such time as it happens though, you should choose your company auditor with the most extreme level of care.