Role of Audit in Small and Medium Sized Entities

Dubai SME

Small and Medium Enterprises (SMEs) / Dubai SME are the backbone of Dubai’s economy, representing 95% of all establishments in the Emirate. These SME businesses account for 42% of the workforce and contribute around 40% to the total value add generated in Dubai’s economy. The Government has a high focus on enhancing the contribution and performance of the SME sector to make these businesses comparable to their counterparts in other developed and high income nations. Against this backdrop, the initiatives aimed at the development of SMEs and enhancing support for them have to be formulated on detailed research on their current state and development needs.

What is a SME?

The published Cabinet Resolution No. 22 of 2016 (the Resolution) sets out the definition of a SME for the purposes of UAE law. The Resolution expressly refers to the SMEs Law and not to other laws. However, it is stated to be a “unified” definition, so presumably it applies wherever the phrase is used in UAE legislation.

The Resolution distinguishes between enterprises operating in the trading, manufacturing and services sectors as follows:

	Trading Sector	Manufacturing Sector	Service Sector
Micro Enterprise	≤ 5 employees; or≤ AED 3 million annual revenues	≤ 9 employees; or≤ AED 3 million annual revenues	≤ 5 employees; or≤ AED 2 million annual revenues
Small Enterprise	6 – 50 employees; or≤ AED 50 million annual revenues	10 – 100 employees; or≤ AED 50 million annual revenues	6 – 50 employees; or≤ AED 20 million annual revenues
Medium Enterprise	51 – 200 employees; or≤ AED 250 million annual revenues	101 – 250 employees; or≤ AED 250 million annual revenues	51 – 200 employees; or≤ AED 200 million annual revenues

The SMEs Council is to review these thresholds at least once every three years.

Importance of Audits

The importance of audits has increased exponentially over the years. Regardless of the company’s size, the audit tends to be an equally important tool for all companies because of its importance in enabling transparency within these companies.

In the case of Small and Medium Enterprises (SMEs), they need to consider having a holistic idea of their internal operations to evaluate their strategy and possible areas of improvement.

Firstly, it can be seen that these audits greatly help companies to identify the relevant problems in the existing accounting system.

It is helpful for them in that after conducting the audit. They can identify their weaknesses and work towards them to ensure they can get the best possible results.

SMEs cannot always afford costly consultation, and because of this, they are often unaware of the aspects they can work on to extrapolate better results.

Secondly, it can also be seen that SMEs’ audits can help them uncover fraud, including different situations where employees steal money from the company.

Conducting an audit can help SME owners to find out where they are going wrong and what they can potentially do to mitigate the risk of fraud.

Thirdly, audits for Dubai SME can also help companies to improve their accounting practices. When an audit is conducted, it can be seen that companies can properly evaluate the options that they have when it comes to different accounting software.

In most cases, SMEs cannot always afford to have designated accountants or accounting departments figure out this issue.

However, it can be seen that by using audit, they can subsequently get consultation about the different accounting software that is present and how it can be used for accounting software within the company.

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The consultation facility available to SMEs tends to be one of the primitive advantages of the audit process.

In addition to how this can contribute positively towards guiding them about better accounting practices, it also gives them substantial credibility in tax planning.

Lastly, it can facilitate SME owners to get advice about filing their tax returns so that they can decide on this strategy in a better manner.

In the same manner, it can also be seen that if the financial statement is properly audited, it builds up the credibility of the company’s financial records in an impressive manner.

If the financial statements have been audited, the stakeholders tend to believe that the company records are free from any material misstatement.

Hence, this adds a layer of transparency to the company’s records, which considerably builds up credibility in this aspect.

The importance of audit for SMEs tends to stem from the rationale that it is used as a preventive measure to ensure that there are no questionable occurrences within the company. This acts as a confidence booster for lenders and creditors.

Know more about J N J Auditing LLC and how it will help you attaining your financial credibility by getting in touch with us.

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