What is a Business Audit?
When talking about Auditors in UAE, or precisely about business auditing, it is common to assimilate this procedure to accounting – accounting auditing. However, there are several types of auditing (accounting, financial, legal, etc.), accounting is just one of them.
In the current scenario, for example, it has been noticed that the accounting audit, in isolation, although it is efficient and effective in reducing costs, is not enough to guarantee the sustainability of the business.
In this context, corporate legal auditing has gained recognition as a management tool that helps entrepreneurs to prevent fraud and reduce legal risks.
As we have already discussed in the text “ What can legal auditing do for your company ?”, one of the approaches to legal auditing consists of a “fine comb” in the productive sectors of companies, showing partners and administrators at which points they are most vulnerable. to suffer from lawsuits in the various legal spheres, such as labor, tax, contractual, consumerist and even corporate.
The great differential of legal auditing, then, has been its ability to cover the assessment of several areas of the company, namely: administrative, financial, commercial, operational, regulatory, labor, tax, environmental, among others.
It is also possible to hire a legal business audit for the exclusive purpose of studying procedural assets and liabilities, whether known, by analyzing the set of company processes, or specific processes, whether hidden, through the investigation of losses or gains not yet known by the company, but to which it is legally subject.
In this case, the usefulness of the audit is also linked to the good management of the company and its resources, to the point where it allows the entrepreneur to reserve certain values, planning, and avoiding the need to bear the burden of the process. further ahead may come as a surprise, disrupting your business, or even, in the case of an asset study, planning a future investment, business expansion, etc.
How is a Business Audit performed?
In order to analyze all conduct and documentation relevant to the audited area, the professionals responsible for the work prepare a form with all the questions able to bring knowledge of the studied sphere, also requesting the availability of all documents whose observation they deem important.
With the answers to the questions and the availability of documents, the team will verify if the legislation is being complied with and what are the best strategies that the company should adopt to reduce certain costs and bring greater legal certainty to its business.
At this point, the importance of hiring reliable and experienced professionals is highlighted, given that it is a procedure in which ethics and client-lawyer trust are essential.
How is the Audit result delivered?
In the audit processes the result is delivered in the form of a report/opinion that highlights the objective of the audit, the areas audited, each of the points analyzed, existing and potential risks, any legal irregularities that may exist and recommendations to adjust the faults found.
The entrepreneur is not obliged to follow the recommendations of specialized professionals, however, through such a report, he is aware of the adequacy or not of his company in the analyzed points and knowledge of the actions to be taken for possible corrections.
The report is presented in a meeting with the client, which, due to our service throughout United Arab Emirates, can be in person or by videoconference, where all points and conclusions are explained in detail, at which time the client can also ask for the clarifications you deem relevant.
What is the duration of an audit?
The duration of the audit depends a lot on the number of sectors to be analyzed by the auditors, the size of the company, the number of employees, the number and nature of legal proceedings, etc.
It can be seen, therefore, that the duration of the audit will be defined according to the particularities of each case.
By way of example, however, it is possible that a labor audit, with documentation analysis and addressing all legal requirements, of a medium-sized company, can be completed in 3 (three) months, while the same study in a large company, if it covers other sectors, may extend for periods longer than 6 (six) months.
On the other hand, the study of liabilities, in specific actions, can be done in a much shorter time, such as 1 (one) week.
Why is it important to hire a qualified professional or company to do so?
According to the OAB Statute, the legal business audit is an exclusive activity of lawyers, and cannot be carried out even by law graduates who are not registered with the Bar.
It is interesting to remember that the audit procedure involves the knowledge and study of all information related to your business, requiring the performance of professionals who have excellent technical knowledge and a performance based on ethics and confidentiality.
Thus, it is recommended to hire professionals with extensive and up-to-date knowledge and experience and longevity in the market, which will guarantee the security and confidentiality of all information collected in the process.
If so, can I carry out an audit with professionals from my own company (internal legal)?
The audit can be internal, when performed by members of the company itself, and external, when performed by independent Auditors in Dubai.
With regard to legal auditing, even if the company has an internal legal department, it is recommended to hire an independent team.
In addition, if you want to opt for internal audit, the entrepreneur must make sure that he has in his team professionals with all the technical skills required for the process, ranging from notions of accounting and economics to specialized knowledge in the areas of law involved in the analysis.
What is the relationship between auditing and business management?
As already mentioned, the audit is important to identify irregularities and document all information regarding such results.
In this sense, it is also able to identify improvement actions and corrective measures that, in turn, if implemented, will reduce business risks, proving, for this reason, as a fundamental element in the management of the company.
It is noted, therefore, that the legal business audit carried out by the correct professionals is an excellent source of assistance to the manager in the decision making, indicating how the company should act to comply with legal and ethical diplomas, thus avoiding future sanctions and decreases in your equity.
Situations that point to the need for a Business Audit
1 – Interest in the Purchase and Sale of Companies
One of the most common types of legal audit is the one hired by businessmen interested in selling or buying a company, and is dedicated to investigating or proving the (in)existence of debts or pending issues of tax, tax and labor origin, as well as other uncertainties , also showing whether or not the company complies with all relevant legal provisions.
For the buyer, who seeks to expand the business, merge or change the corporate structure, processes that involve risks of different natures, it is extremely necessary to make decision making clearer and more relaxed.
Therefore, the current situation of the company is revealed, with regard to compliance with legislation, the existence of assets and liabilities and even the understanding of the business (area of operation, scope, stakeholders, among other aspects).
It can be seen, therefore, that the impact of the audit on the process of buying and selling companies has the potential to assess issues beyond the negotiation price, contributing to other issues, such as the establishment and delimitation of the responsibilities of the buyer and the seller.
In turn, for those interested in selling their companies, the legal business audit is extremely useful because, as said, it provides complete knowledge of the company’s situation, enabling the taking of preventive and corrective actions capable of valuing and making the business attractive to potential buyers.
2- Need/Interest in measuring assets and liabilities related to ongoing processes
As already mentioned, one of the objectives for which the audit is provided is the analysis of the company’s assets, which is done taking into account, among other sources, through the survey of all administrative, arbitration and judicial proceedings.
The analysis of these processes consists of studying the possibilities of success (assets) or loss (liabilities), as well as any other expenses of a legal nature, and also unknown risks or advantages – possibilities of loss or gain by legal measures still not taken but possible, such as actions not yet brought against or by the company.
It is therefore very important for the organization and planning of the company’s finances and assets, bringing legal security and financial health to the business.
3- Study of the company’s compliance with the standards applicable to it
Verifying the compliance of company policy, procedures and employee actions with all applicable ethical and legal standards is yet another preventive approach made possible by the audit.
It is known that in United Arab Emirates there are hundreds of legal provisions that must be followed by companies, under penalty of notices, fines and convictions.
However, because they mistakenly understand that the lawyer’s performance is only necessary after the emergence of lawsuits, many entrepreneurs do not have legal advice, delegating all decisions to professionals from other areas, who are not aware of the applicable legal rules.
In this way, an audit, aligned with fixed legal advice , provides legal certainty and is a safe source for decision-making by the manager.
4- Execution of contractual instruments
As said, the audit process is able to evaluate not only the judicial, arbitration and administrative processes, but also the contracts entered into by the company, in order to study the risks and their compatibility with the company’s policies.
Among the benefits of the audit focused on contracts, there are:
– The survey and classification of the entire procedural archive;
-Identification of deadlines for fulfilling or demanding obligations and finalizing the contracts themselves;
– The investigation of errors, fraud and commercial, labor, tax and social security risks arising from contracts;
– The improvement of compromising clauses, mainly involving civil liability and that can generate financial, fiscal, labor, social security consequences, etc.;
– Identification of possible inconsistencies with other contracts, agreements, company policy and procedures, etc.;
– The reduction of costs with future legal discussions.
Surveying, organizing, controlling and gathering information from all contracts entered into by a company is extremely useful because, in larger companies, it is common for some departments to sign certain contracts without the others being aware, not having the entrepreneur , often full knowledge of all active obligations.
Another problem generated by the lack of control and organization of legal instruments is the lack of understanding about the dates of fulfillment of obligations (payments, receipts of values, etc.), and also the lack of knowledge of the expiration date of the contracts.
Such carelessness can, for example, lead to the incidence of interest and fines, in case of late payments, generating an easily avoidable liability, or even the receipt of amounts in arrears without the collection of fines and interest due.
In addition, the audit also identifies the existence of clauses that bring risk to the company, since, as they do not see the need to hire good legal professionals, it is not uncommon for companies to use contract models simply taken from the internet or even accept the contractual instruments made available by the other party without any negotiation or study of their content.
5- Adaptation to labor legislation
As already discussed in the text “ Discover the advantages of the labor audit for the entrepreneur ”, the corporate audit of a labor nature aims to adapt all the guidelines of the legislation to the real context of the company, seeking to create good practices that promote not only compliance, but also the cost reduction with labor liabilities.
It is indicated not only for companies that already have a large number of lawsuits, but also, as a preventive action, for companies that, although they still do not have many labor claims, wish to shield themselves from possible future problems.
Among the most common mistakes that companies make and that can be corrected and avoided based on the information provided by a labor audit are:
– Poorly implemented outsourcing;
– Poor regulation of overtime;
– Problems in the application of penalties;
– Work accidents and occupational diseases;
– Occurrence of moral and sexual harassment;
– Undue or poorly-procedural discounts and benefits.
We tried to demonstrate with this text that the business audit is an excellent tool to assist the manager in decision making, being an opportunity to:
– Institutionalization of good practices;
– Creation of beneficial tools and actions;
– Training of the board and employees on topics that may be strategic for the success of the business;
– Reduction and prevention of the filing of lawsuits;
– Reduction of administrative assessments;
– Improvement of the company’s image to attract customers and investors.
If you still have questions or queries about corporate auditing, contact us right now through “ talk to an expert Auditors in UAE ”.