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A financial audit is an audit of the financial statements conducted by an independent professional. The audit commences after the closure of accounts of the respective financial year. The auditor analyses risks, plans and conducts audit procedures, examines accounts and financial statements, discusses the results with the entity’s management, and prepares an audit report on the basis of his conclusion.
The financial statements are prepared depending on the structure of an entity. These are as follows:
These financial statements are prepared for an entity that is not a parent company. The entity does not hold investments in a subsidiary, associate, or joint venture.
b. Separate Financial Statements
These financial statements are prepared when a parent company finds it appropriate to present its stand-alone financial statements, without combining/consolidating the accounts of its subsidiaries, associates, and joint ventures.
c. Consolidated Financial Statements
Consolidated financial statements are prepared for a group of entities owned by the same parent company. It incorporates the financial statements of all the subsidiaries, associates, and joint ventures in which the parent company has a controlling financial interest.
d. Combined Financial Statements
These financial statements are prepared by combining the financial statements of two or more entities under common management or control into a single set of financial statements.
The following are the purposes of the audited financial statements within the perspective of UAE laws:
Certain regulatory authorities such as government authorities, tax authorities, ministerial offices, etc., require the submission of audited financial statements. Companies registered in most free zones are required to submit an audit report for the renewal of their licence.
Lending institutions such as banks analyse audited financial statements to understand the company’s ability to repay a loan.
The audited financial statements are also required for the submission of the ESR Report filing, Tax Residency Certificate, ICV Certificate, and many other legal compliances.
The audited financial statements with analytical information allow the management/owner to assess the financial position and performance of the company.
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