The Federal Tax Authority (FTA) has announced that businesses must complete Corporate Tax registration within 90 days from the Date of Incorporation / MOA.
Companies hire external auditors from reputable audit firms to examine their financial processes. This is often a requirement from funding sources. Alongside the audited financial information, the auditors also provide a Management Letter, which is often referred to informally as a "letter of weakness." This letter, given by the company's official auditor, outlines all the issues they discovered with the company's internal controls while conducting the audit.
When auditors perform audits, their main job is to express an opinion on the fairness of the financial statements. This Opinion does not require the auditor to report every single internal control deficiency in the Audit Report. However, auditors still need to know about these issues when they check the company's internal control system. They do this by using audit steps to look at transactions and balances, or in other ways while they're reviewing the audit.
Why do Auditors create a "Letter of Weakness"?
Auditors' norms want them to write to the management if they find any problems with how a company controls things internally during an audit. Auditors' letter of weakness is like a report card that talks about the problems in how things are controlled inside the company.
Before they start the audit, auditors need to know clearly about these internal controls, but they don't have to check them in every audit. To understand them better, auditors often do something like a step-by-step walk-through to see how things are done. They look at the company's processes and see how they control things. Then they follow these steps to make sure everything is working okay.
After this, they write a letter to the company's bosses and the Board of Directors, and tell them about the problems they found. They also give some ideas on how to fix these problems and make the control system better and safer.
How Does the Auditor Find Weaknesses in Internal Control?
While auditing, the auditor creates a list of issues or weaknesses in how the company controls things. This list is important to catch and fix important errors in the financial statements before it's too late.
How to Prevent Future "Letters of Weakness" from Statutory Auditors?
Ensure that you follow all current internal control procedures and correct all deficiencies identified by the auditor to avoid receiving a letter of weakness. The auditors report a flaw in the internal control only if it exists. Otherwise, a letter is not required.
How Will Funding Sources React to Receiving the Auditor's "Letter of Weakness"?
The auditor makes a letter of weakness for the management, board of directors, and the audit committee. It helps the company improve its control inside and should only be shared with these specific people. The Management Letter can significantly affect the company's funding or financing costs. Banks, investors, and funding sources often request and review this letter as part of their due diligence to assess operational risk before approving loans or investments.
When used correctly, the letter of weakness from the auditor can be very useful. It helps make sure the company's internal control is working well. They can use it to find issues and make things better to stop and fix mistakes that might happen.
External Auditors in the UAE
External auditors in the UAE play a pivotal role in conveying deficiencies discovered during audits to the management, board of directors, and the audit committee. By analyzing audit reports in the UAE, we recognize that the letter of weakness serves as a valuable tool for organizations to rectify internal control issues and ensure financial accuracy. This proactive approach to addressing weaknesses not only strengthens the company's operations but also reaffirms the credibility of statutory auditors in the UAE.
Being a leading provider of external auditing services in Dubai and the UAE, Reyson Badger is committed to assisting companies in fulfilling their rules and making sure stakeholders feel confident. If you are looking for external auditors in the UAE, get in touch with us.
