Audit Of Current Assets Procedures, Types, Factors and Benefits

UAE corporations must avail the services of approved auditors in the UAE to ensure that finances and assets are properly audited and monitored. UAE audit firms conduct audit procedures compliant with international accounting standards.

What Are Current Assets?

Current assets are those that are supposed to be changed over into cash in one year or less. They include cash and cash equivalents, accounts receivable, inventory, and short-term investments. UAE-approved auditor tests the client's internal controls over these assets and then performs substantive tests to determine whether the reported balances are correct.

Auditing Procedures for Current Assets

Audit procedures for current assets generally fall into one of the following three categories: confirmation, observation, and analytical review.

Confirmation Category

Confirmation is the process of obtaining and evaluating evidence about a current asset account balance or transaction. Confirmation can be performed through direct communication with the company’s bank or other creditors, or by reviewing documents such as canceled checks, bank statements, and invoices.

Observation Category

Observation is the process of examining physical evidence related to a current asset. Observation might involve counting inventory, observing cash on hand, or inspecting equipment.

Analytical Category

Analytical review is the process of using auditing techniques to test whether the recorded balances of current assets are reasonable. This might involve comparing actual results to budgeted amounts, studying trends over time, or using statistical sampling techniques.

Read more: Audit Firms in Dubai presentation of Contract Assets as per IFRS 9

Types of Current Assets

There are two types of current assets: operating and non-operating.

Operating Current Assets

Operating current assets are those that are used in the day-to-day operation of the business. This includes items such as cash, accounts receivable, inventory, and prepaid expenses.

Non-operating Current Assets

Non-operating current assets are those that are not directly used in the operation of the business but still have value. This includes items such as investments, short-term loans, and other miscellaneous items.

Difference Between External and Internal Auditors

External and internal auditors both play important roles in ensuring the accuracy of an organization's financial statements. However, there are some key differences between the two types of auditors.

External Auditors

External auditors are independent of the organization they are auditing. They are hired by the organization's board of directors or shareholders and their primary purpose is to provide an objective opinion on the financial statements.

Internal Auditors

Internal auditors, on the other hand, are employees of the organization that undergoes auditing. Their primary purpose is to improve organizational efficiency and effectiveness. One key difference between external and internal audit procedures is that external audits are required by law in many jurisdictions, while internal audits are often voluntary.

Benefits of Performing Audit Procedures for Current Assets

There are many benefits of performing (audit procedures) for current assets.

• First, it allows the auditor to obtain an understanding of the client's business and its internal controls over financial reporting.
• Second, it helps the auditor assess the risk of material misstatement in the financial statements.
• Third, it provides evidence about the completeness and accuracy of the client's current assets. Further, it helps the auditor form an opinion on the financial statements as a whole.

Factors Affecting Audit Procedures for Current Assets

Several factors affect audit procedures for current assets. The auditor needs to consider all of these ³factors when designing the audit plan.

Type of Business

The type of business is a key factor in determining the audit procedures for current assets. For example, a manufacturing company will have different procedures than a service company. The auditor will need to understand the client's business before planning the audit.

Size of the Company

A small company will have a different set of procedures than a large company. The auditor will need to consider the number of employees, locations, and departments when planning the audit.

Nature of the Transactions

The nature of the transactions is also a key factor in determining audit procedures for current assets. For example, companies that use cash-based accounting will have different procedures than companies that use accrual-based accounting. The auditor will need to understand how the client records transactions before planning the audit.

Internal Controls

Internal controls are also a key consideration when designing audit procedures for current assets. The auditor will need to assess whether internal controls are adequate and whether any significant weaknesses could impact the accuracy of financial statements.

The Role of Audit Firms in Dubai for Current Assets

The role of Audit firms in Dubai for current assets is to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. An audit firm will obtain an understanding of an entity's internal controls over financial reporting and tests of transactions for compliance with management's general control objectives.

AFD are required to follow International Standards on Auditing (ISAs) when conducting audits of historical financial statements. To achieve the objective, the auditor has to gather evidence about the amounts and disclosures in the financial statements. The auditor will then assess whether the evidence gathered provides a reasonable basis for forming an opinion on whether the financial statements are free from material misstatement.

UAE businesses need to avail the services of approved auditors in the UAE to ensure efficiency upon auditing and to stay compliant with auditing regulations and standards. Thus, contact us and we shall be happy to assist you.