UAE EXPERTISE · US-OWNED BUSINESSES
Running a business in the United Arab Emirates (UAE) as a US owner can be exciting, but financial controls, UAE compliance, risks, and reporting in two jurisdictions can become overwhelming. Internal audit services in Dubai can help business owners identify what works and what doesn’t. An audit can also help meet the reporting requirements of the parent company in the United States.
Internal auditors can review the processes, check controls, conduct transaction tests, and recommend improvements to management. For American business owners, an internal audit can serve as a useful link between the operations of the business in the UAE and the reporting requirements of the parent company. It can fulfil the requirements set by the parent organisation while also identifying operational weaknesses that need to be addressed to improve performance.
Flyingcolour Tax Consultant offers accounting, tax, audit, and compliance services in Dubai, including internal and external audit services. The firm has developed a US-focused advisory service to assist American business owners in the UAE.
Discuss your requirementsInternal audit is an independent and objective analysis of the governance, risk management, and control activities in a firm that are intended to provide management with information needed to identify problem areas before they become serious.
The IIA defines internal auditing as an independent and objective assurance and consulting activity designed to add value and improve an organisation by helping it evaluate its risk management, control, and governance processes.
In other words, internal audit is a review process in which auditors ask the following questions:
The purpose of an internal audit is not just to detect problems but also to help management understand why, what, and how things go wrong and how to prevent them. It aims to help management consider what risks are present, what controls are needed to deal with them, and what specific control procedures should be applied.
US business owners in Dubai can have to deal with a UAE entity while also reporting to owners, investors, management teams, or parent companies in the United States.
This adds another layer of complexity to financial reporting, approvals, documentation, tax compliance, cyber-security, banking, employee access, and cross-border processes.
Internal audit provides an independent review of the UAE operation without having to wait for a crisis to develop.
The IIA also points out that internal audit contributes to the organisation by providing assurance and advisory services over governance and management, risk, and control.
For a US-owned Dubai business, the audit scope could include:
The exact scope should be decided based on the size of the company, the sector in which it operates, its legal structure, level of risk, and reporting requirements.
Internal audit provides a US business owner with an independent view on the internal controls over the UAE operation, which may be particularly valuable if the owner is physically located in the US and the operational management is based in Dubai.
A business owner located thousands of miles away cannot review each purchase order, bank transfer, employee reimbursement, or accounting entry. An internal audit helps establish a framework of tests about the controls over these processes.
An internal audit can highlight areas where controls are lacking, approvals are missing, excessive, or ineffective, documentation is inadequate, there are reconciliation and segregation of duties issues, and other concerns.
Correcting these deficiencies can oftentimes be a far simpler solution to a problem than trying to resolve an identified issue.
Risk management and internal audit in Dubai are closely related but fundamentally different functions.
Management owns and is responsible for managing risk while internal audit provides independent assurance on the risk management and control governance, processes, and their effectiveness.
The IIA’s Three Lines Model offers one way to think about how internal audit (as the third line) provides independent oversight and assurance about an organisation’s governance, risk management, and control.
An internal audit can assess the adequacy of documentation supporting financial statement information and the effectiveness of controls over financial reporting.
It is often important for management and group reporting in the US to understand how financial information from the UAE is gathered, reported, and supported by documentation.
Accountability and clear assignment of responsibility enhance the effectiveness of internal controls.
For instance, the person approving a payment should not also originate, record, or release the payment.
Segregation of duties is an important control to prevent inadvertent or fraudulent misuse of an organisation’s resources.
An internal audit company in Dubai can either target one business process or perform a wider internal audit of a company.
The project can be designed based on areas of concern to a client rather than using the same checklist for all clients.
Financial controls audit is a key component of any Internal Audit engagement since it evaluates if transactions are adequately recorded, reviewed, approved, and reconciled.
Common financial control procedures may involve testing of:
The procurement process is another significant source of financial leaks as unauthorised purchases or inappropriate vendor management can lead to theft of organisational assets.
An internal audit company in Dubai can check if all vendors are properly approved, purchase orders are authorised and matched with invoices and if payments are made only for approved purchases.
A payroll control audit may involve checking employee master data, salary approvals, access rights, overtime, commissions, leaves, and payment authorisations.
Internal audit can cover IT control processes within an organisation, evaluating who has access to what systems. For example, an internal audit company in Dubai can check if only authorised personnel can operate accounting software, banking and payroll systems, access and make changes to sensitive information in ERP systems and others.
The internal audit company in Dubai can also ensure that relevant compliance processes have been designed, documented, and followed for the UAE regulatory environment.
Choosing an internal audit firm in the UAE involves more than just comparing costs
The auditor should be able to understand the company's business model, risk profile, reporting structure and applicable regulatory requirements
Consider the following factors:
Internal audit should be independent to provide objective assurance. The IIA stresses the importance of independence and objectivity in carrying out an effective internal audit.
A risk-based audit places more emphasis on areas that have the potential to impact the company the most.
For example, a company processing a large number of international payments would require more emphasis on controls in the areas of banking, authorisations, sanctions and transaction monitoring than a small consultancy with no significant payment activity.
A US owner will need an auditor that has the required background knowledge of the UAE operating environment, including relevant tax, accounting, regulatory and corporate requirements.
In the situation where the UAE company is part of a larger US group, the auditor will also need to be sensitive to any reporting requirements specific to the group.
This is especially the case where the parent company has specific documentation and control testing requirements.
It should go without saying that an audit report should not simply state "problem identified". Management will need to understand what was tested, what was found, why it is important, what caused it, what is recommended, who should be responsible and whether the issue has been resolved.
Yes, outsourcing internal audit can be beneficial for companies that lack a dedicated internal audit department, allowing the management to rely on highly qualified experts while reducing costs.
This option is especially attractive to start-ups, SMEs, subsidiaries, and growing UAE platforms managed by US entrepreneurs.
Instead of spending money on a permanent department, such businesses can outsource internal audit services to an external provider and benefit from their expertise in:
Depending on the scope of services, the frequency of reviews, and the depth of controls testing, a company can design an effective audit schedule that would meet all its compliance needs.
However, even when outsourcing internal audit, a company’s management remains responsible for the controls’ execution and should address all deficiencies detected by the external auditors.
Internal audit and external audit have different purposes. Internal audit primarily helps management and the board evaluate and improve governance, risk management, and controls, while an external financial statement audit provides an independent opinion on financial statements where an audit is required or engaged.
| Internal Audit | External Audit |
|---|---|
| Focuses on risk, controls, governance, and operations | Primarily focuses on financial statements |
| Usually supports management and the board | Primarily provides assurance to shareholders and other external users |
| Can review operational processes | Examines financial statements and related evidence |
| May be performed throughout the year | Usually follows an annual audit cycle |
| Can provide advisory recommendations | Provides an audit opinion under the applicable audit framework |
| Scope can be tailored to business risks | Scope is determined by applicable auditing requirements |
The two functions can complement each other.
For example, internal audit may identify weaknesses in revenue controls during the year, allowing management to correct them before the external audit.
The IIA states that internal auditing focuses on improving governance, risk management, and control processes.
A US-owned UAE business should not presume that 'being American' creates one universal internal audit requirement.
Requirements are dependent upon the UAE entity's activity, regulator, legal structure and those requirements which would be applicable to the US parent or group.
The IIA highlights that internal auditing is not universally mandatory for all organisations; regulatory requirements may dictate that an internal audit function becomes necessary for particular sectors or entities.
Particularly for regulated financial institutions, requirements can be far more specific.
For example, the UAE Central Bank's rules require relevant regulated companies to maintain an effective internal audit function providing independent evaluation and assurance over internal controls, risk management, compliance and corporate governance.
Therefore, a US entrepreneur should first establish:
Thereby preventing the classic 'one size fits all' audit approach.
Not all US-owned Dubai companies are necessarily subject to the requirements of Sarbanes-Oxley. It depends on their reporting and regulatory status in the US.
For instance, based on SOX section 404, companies that are required to report to the SEC according to specific instructions prepare reports on internal control over financial reporting by management.
Therefore, a private owner in the US who has a subsidiary in the UAE should not presume that because he is American, his company falls under the jurisdiction of SOX.
On the contrary, a public company or reporting group in the US may have internal-control requirements that could trickle down to the Dubai office.
A trial audit can help test the processes in the UAE against those of the parent company's control framework, but the precise requirements to which the US company is subject should be determined by its legal, accounting, and audit advisers in the US.
Start by understanding the company's risks, and then build controls around its critical processes. The controls should be simple enough to allow employees to follow them consistently.
The basic process control documentation may involve the following steps.
Describe the flow of money, information, goods, services, approvals, and other critical procedures in the organisation.
Purchase – purchase order – approval – receipt of good/service – invoice – verification – payment
This way, it will be easier to spot weaknesses and risks.
It is critical to state who is responsible for what. For example, who has the authority to:
Wherever possible, companies should try not to give one employee exclusive control over a particular process or transaction. For example, the person who creates a new vendor cannot have unlimited power to approve and pay invoices to this vendor.
The process should have approval authority limits. For example, a manager may be able to approve payments, but a significant sum of money may require the explicit authorisation of the board of directors or senior management.
Bank accounts, receivables, payables, inventories, and other critical accounts should be reconciled on a regular basis, depending on an organization's risk and reporting needs.
Users should only have access to the information, applications, and tools required to perform their duties. In addition, any changes in staff should be reflected in the access rights of the employees (e.g., when a worker leaves the company).
The controls described above must not be stored in a drawer and become forgotten procedures. Management must constantly monitor and check that employees follow the processes and that the controls are actually working. A critical aspect of monitoring is ensuring that the segregation of duties is effective. For example, does an employee who creates a new vendor have unlimited authority to pay this supplier?
UAE Central Bank regulations specifically emphasize the need for documented controls, segregation of duties, monitoring, and evaluation of processes and controls for regulated entities.
Risk management and internal audit are closely connected, but they have different responsibilities.
Risk management identifies and manages risks; internal audit independently evaluates whether governance, risk management, and controls are effective.
Common risks for a US-owned Dubai business may include:
A risk-based internal audit can prioritise the areas where weaknesses could cause the greatest financial, operational, regulatory, or reputational impact.
The UAE Central Bank's internal-control framework similarly emphasises risk assessment, control activities, monitoring, information, and communication.
Internal audit cannot replace tax compliance, but it can be used to test if tax-related processes are controlled adequately.
For UAE Corporate Tax purposes, the Federal Tax Authority requires that relevant records and documents be retained for at least 7 years following the end of the relevant Tax Period.
A company's internal audit can be used to assess if the business has adequate processes for:
This is particularly relevant for US owners who may not be actively involved in the day-to-day accounting of the UAE entity.
A useful internal audit report is one that turns audit findings into actionable management directives. Depending on the nature of the engagement, an internal audit report may contain the following sections.
This part provides a brief summary of the audit’s objectives, scope, and significant findings.
This paragraph describes the processes, locations, systems, transactions, or time periods that were reviewed.
This paragraph describes the issues discovered during the audit. Each issue should be accompanied by the evidence that substantiates it.
This section describes the significance of the identified issues.
The recommendation should indicate the necessary management action rather than simply stating what should be done.
This section contains the explanation of how and when the issues will be resolved.
The action plan should specify the responsible parties and the target completion dates.
A subsequent audit can confirm that management has completed all necessary corrective procedures.
The management of a bank organised under the UAE Central Bank’s supervision is expected to report all material audit findings and provide evidence of management’s compliance with the recommended corrective measures.
Flyingcolour Tax Consultant could help US business owners in Dubai by providing coordinated accounting, audit, tax, and compliance services. Its website highlights services for American entrepreneurs and the range of support covering accounting, tax, audit, and compliance.
Flyingcolour's audit service includes internal and external audit services, while its wider UAE services offer accounting, Corporate Tax, VAT, compliance, and CFO support.
For a US-owned Dubai business, the support could include:
Reviewing existing controls and identifying areas that could need improvement.
Designing audit procedures based on the company's key financial and operational risks.
Testing areas such as reconciliations, approvals, payables and receivables, and reporting processes.
Helping management understand the extent to which relevant UAE accounting, tax, and compliance processes are documented and controlled.
For American business owners, the engagement could be structured around the UAE operation while considering the reporting information required by the US owner or group.
Where appropriate, internal audit findings could be used to help management address control weaknesses prior to an external audit.
Flyingcolour states that its UAE team delivers accounting, tax, audit, and compliance services and has a dedicated offering for US business owners.
Outsourcing can help a growing organisation meet its specialist audit needs without establishing a full-time permanent internal audit department.
It can also be a practical solution for US-based entrepreneurs who are not resident in the UAE.
The main benefits of an outsourced audit service include:
Independent review of controls
However, these benefits depend on the organization's existing processes and the scope of the engagement.
The exact benefits depend on the company's existing processes and the scope of the engagement.
There is no universal schedule that fits every business. Audit frequency should reflect the organization's risk profile, regulatory requirements, size, complexity, and changes in the business.
An internal audit may be especially useful when:
A risk-based audit plan is generally more useful than auditing everything with exactly the same level of attention.
The UAE Central Bank's applicable internal-audit framework, for regulated companies, specifically calls for risk-based audit planning and consideration of the organization's complete governance system.
Internal audit services comprise an independent examination of an organization’s governance, risk management, internal controls, processes, and selected transactions to identify areas for improvement and recommend opportunities that enhance business.
Not necessarily. It depends on the company’s line of business, regulator, legal status, and group or US reporting requirements.
Internal audit focuses on evaluating governance, risk management, and internal control, while an external audit is an independent opinion about the financial statements according to the relevant auditing standards.
Yes. An organisation can outsource internal audit services to an external party. This option is common for small and medium-sized enterprises and companies without a dedicated internal audit function.
Yes. An internal audit can test controls in the UAE subsidiary and report findings to the relevant management or group in accordance with the appropriate internal-control framework and reporting requirements.
Not necessarily. The application of SOX rules depends on the relevant US company’s reporting and regulatory requirements. In particular, Section 404 of the Sarbanes-Oxley Act applies to companies within the reporting framework of the SEC, so ownership by a US person is not sufficient for SOX applicability.
An internal audit can cover accounting controls, payments, procurement, payroll, revenue, inventory, fixed assets, IT access and systems, reconciliations, compliance, fraud detection, and other relevant areas in accordance with the risk assessment.
There is no universal answer. The frequency depends on the company’s risk profile, size and complexity of operations, industry-specific factors, and regulatory requirements.
Internal audit can evaluate controls designed to prevent and detect fraud and may highlight instances of fraud or control deficiencies. However, an internal audit is not necessarily a forensic investigation, and the discovery of a fraud case may require a separate purpose-designed engagement.
Not necessarily. Certain regulated entities and sectors have specific requirements, but there is no universal obligation for every business in the UAE to perform an internal audit. In particular, the UAE Central Bank rules contain specific internal-audit requirements for regulated companies.
Internal controls comprise policies, procedures, approvals, checks and balances, reconciliations, access controls, and segregation of duties designed to manage business risks and protect the company’s assets and information.
Yes. An internal audit can review controls over accounting records, tax documents, accounting processes, and tax-return preparation in accordance with the relevant tax rules. In particular, UAE Corporate Tax rules require that relevant accounting records and tax documents be retained for at least seven years after the end of the relevant Tax Period.
The most important factors are the UAE-specific experience and skills of the team, professional competence, independence, risk-based approach, reporting transparency, and understanding of the owner’s group and industry-specific requirements.
Yes. An internal audit can help identify control weaknesses and documentation gaps ahead of an external audit engagement. In particular, management can use the internal audit findings to address the relevant weaknesses before they are discovered by an external auditor.
Flyingcolour offers accounting, tax, audit, and compliance services in Dubai and has a dedicated service offering for American business owners who seek assistance with internal and external audit services.
A strong internal control system does not necessarily mean a mountain of documentation. It means that the right person does the right thing, approves the right items, and provides the right information to the manager at the right time.
Internal audit services in Dubai can give US business owners an independent perspective on finance, control, risk management, and governance in their operations based in the Middle East region. Whether you need internal control review services or want to outsource internal audit services in Dubai on a risk-based or continual basis, the scope should be established according to the specific requirements and risks of your organisation.
Flyingcolour Tax Consultant helps companies in Dubai with accounting, tax, audit, and compliance services. We offer professional services to US-based company owners looking to manage their finances and fulfil their tax obligations in the UAE. Contact our audit experts to learn more about our internal audit services in Dubai and schedule a consultation about your needs and business in the United Arab Emirates.
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