Getting audited is unavoidable for most businesses in the UAE. Certain jurisdictions require yearly audit statements as part of the trade license renewal process. So having clean financial statements is an easy way to make sure that your audit process is as smooth as possible. These are some expense audit red flags you want to avoid.
1. Declining Profitability Despite Revenue Growth
Falling profits despite rising revenue is a major red flag for auditors. It could mean that you are overspending.
- To fix this, you need to deep dive into your spending trends.
- You will also need to establish a strong expense management strategy.
- Audit services in Dubai often advise comparing rising costs to income trends to pinpoint where you’re losing money.
2. Issues with Tax Compliance
- Errors on your tax submissions are a major red flag for auditors. Mistakes on your VAT returns or corporate tax filings can trigger a deeper expense audit.
- One way to avoid any compliance issues is to work with a tax consultant in Dubai, which is considered an expense management best practice.
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3. Lack of Financial Controls and Clear Records
- Weak financial controls and missing documents are also a major red flag for auditors.
- Without a solid system to track expenses, you won’t get a true financial picture, which can trigger a deeper audit and fines.
- To avoid this, you need to have a strong system for managing your finances.
- This means consistently recording and approving every transaction. Simply saving receipts isn’t enough; you need a clear paper trail for every expense.
4. Unusual Fluctuations in Financial Accounts
- Unusual spikes or dips in your business account balances is a major expense audit red flag.
- Sudden changes without a clear reason could tell auditors that your business has a lack of proper spending control.
- You should explain all fluctuations with clear notes and supporting documents to avoid this.
5. Questionable Related-Party Transactions
- Related-party transactions (making deals with someone you know, like family members or another business you own) get extra attention from auditors.
- Auditors want to make sure these deals are fair and have a real business purpose.
- Any transaction that seems designed to move money without a good reason is a major red flag.
- You can avoid this by working with a chartered accountant in Dubai who can keep your books in good shape.
6. Frequently Changing Auditors
- Changing auditors often is a major red flag for investors and regulators.
- It can suggest that your company is “auditor shopping”, which means you’re looking for a firm that will overlook your problems.
- Auditors need time to understand a company’s finances and internal systems. Changing auditors frequently can make this difficult and raise doubts about the accuracy of your financial statements.
- If you invest in building a long-term relationship with an auditor, it shows that you are committed to maintaining financial integrity and transparency.
7. Excessive Debt and Poor Liquidity
- Too much debt and not enough cash to pay bills are big red flags for auditors.
- Auditing firms generally want to see that a business can pay its short-term debts without selling off its assets.
- When a company has high debt and low cash, it looks like it’s in a risky financial position and might struggle to keep operations running smoothly.
- A company that’s constantly in the red raises questions about its business model and long-term survival.
Get Expert Auditing Services From A&A Associate
Want a partner that has deep UAE experience, and can help you avoid expense audit red flags? A&A Associate offers expert internal and external auditing services to help you build proper internal controls, address unusual transactions, stay tax compliant, and maintain clear financial records. Get in touch for a free consultation today!
