The auditors are the cops, so to speak. How are SMEs preparing for the control of the annual report? How much does this audit cost? And when is a review worthwhile, even if you have the option to give it up? Here are the answers to the 15 most important questions for SMEs about the review.
As you know from direct experience, every time at the beginning of the year the auditors fill you with questions or ask for documents. "The eyes of the accounting control" pass the annual report, scrupulously as much as the testers who analyze the vehicles. Here we have collected a handbook for SME representatives.
1. Obligation to review: who is obliged to undergo a review?
The law imposes the obligation of auditing on companies and groups listed on the stock exchange, anonymous companies, limited guarantee companies cooperatives, associations and foundations while sole proprietorships are exempt , companies in collective or limited partnership.
2. Annual report: what do auditors verify?
The auditors analyze the financial statements, the income statement and the attachment, make sure that the operating data as a whole does not present incorrect "fundamental" information. The auditors keep in mind the always valid definition: "essentially all information contained in the annual account is defined as fundamental which, if incorrectly presented or omitted, can influence the decisions of those who receive the report".
3. How thorough is the audit for SMEs?
In SMEs, the auditors mainly rely mainly on the so-called limited review, a particular Swiss regulation also called "review". The basic idea is to protect SMEs from excessive administrative burdens and to guarantee them financial relief. According to experts, there are about 95,000 Swiss SMEs that use this type of audit. A more detailed and large-scale control is instead directed to companies with a greater "economic weight", ie companies with a balance sheet total of 20 million UAE, a turnover of 40 million UAE and an average of 250 full-time positions. These companies are subject to an ordinary audit.
4. Limited review: how does an auditor work?
In the case of a "reduced audit", the auditor carries out a general audit of the annual accounts. In short: an auditor "makes it plausible". If you observe it while working, you will see that its verification procedures consist of:
- management questions,
- analysis (indicators, trends, changes, deviations from the previous year and to budgets or comparisons with the sector: the so-called analytical verification procedures) and
- Adequate detailed checks (checks of transactions, position certificates and sampling surveys).
5. Guarantee: what is an inspection report?
After the evaluation of the "best case" and "worst case" scenarios, in the case of the limited review, the auditors issue a "negative guarantee" for the General Assembly. The wording is as follows: "In our review, we did not find any facts that led us to believe that the annual financial statements and the request to use the balance sheet profit did not comply with the law or the statutes". Otherwise, in the event of an ordinary audit, the auditors will express their positive opinion as follows: "In our opinion, the annual financial statements comply with Swiss law and the statutes".
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6. Opting out: when can SMEs give up auditing?
Smaller companies have the right to renounce auditing. Such companies are considered to be companies that on average have no more than ten full-time positions. In Switzerland there are over 250,000. A clear majority of start-ups and small companies renounce external auditing. The renunciation in jargon is called "opting out" and must be requested from the commercial register. The auditor will then be removed from the commercial register. Important: all members must agree. Regardless of the statutory requirement, a company must carry out an audit if it is requested by shareholders who collectively hold at least ten percent of the share capital. In addition, companies are free to conduct audits that diverge from legal guidelines.
7. Greater security: when is a review for SMEs worthwhile?
Legally giving up the auditors is tempting ( see question 6 ), yet SMEs have to weigh up the advantages and disadvantages. According to experts, the advantages would be the following.
Higher security: a review reduces the risk for business management thanks to the "double check principle". The revision thus ensures greater security for the Board of Directors too.
Audit body and partner: in the ideal case, external control can be an important element of early detection, for example in case of excessive debt. The auditor also holds the role of interlocutor ("sparring partner"). This promotes a discussion on related issues from an internal and external point of view. It is also helpful for the auditor to refer the board of directors to his duties.
Succession regulation: a verified balance sheet plays a role that should not be underestimated in the succession regulation or in the event of an imminent sale.
Trust / Solvency: An unverified annual account represents an obstacle for finding funds. It is possible that a creditor will insist on requesting a review. An audit can also create trust in tax authorities and social insurance companies. Finally, an external auditing office influences creating trust in the company in potential business partners.
8. Costs: how much does a limited revision cost?
The costs for a "small audit" for an SME are around 3,000 UAE per year for smaller companies and up to a maximum of 25,000 UAE for companies on the threshold of the ordinary audit. An indicative value often referred to is 5,000 UAE. The auditing activity takes place seasonally, with a greater concentration at the beginning of the year, but if you wait until April or June you can probably take advantage of a discount. It is advisable to request multiple quotes. Warning: the law requires that the review be carried out no later than the deadline of June 30th.
9. Checklist: How are SMEs preparing for review?
In practice, checklists are useful for the preparation, containing information on the numbers and data to be verified and showing the necessary information, in the form of a general list. Request a list similar to your auditor to make sure that you run the procedures smoothly.
10. Planning: how does a review take place?
One possible procedure is the following:
- risk analysis, planning in agreement with the management
- detailed management and finance manager question on the annual accounts
- verification of the annual account and of the proposal to use the profit
- selected control of placement certificates / evaluation controls for the main positions
- request to the Board of Directors for a signed "declaration of completeness"
- quality controls by a qualified auditor not involved in the audit ("double check principle")
- exposure of the vulnerabilities found and proposed improvements in the audit in collaboration with sector managers
- oral and written report to management, board of directors and general meeting
- participation in the General Assembly on request
11. Responsibilities: What responsibilities does the supervisory office assume?
The discussions between the SME representatives and the auditors raise the question of the responsibility of the auditors in Dubai. In the report, the auditors protect themselves as follows: "The Board of Directors is responsible for the annual accounts, while our task consists in verifying the same". The control relationship has no relevance even for the management of the Board of Directors. The law says it! Finally, the auditors do not play the role of "consultants" and do not make statements regarding economic efficiency, operational risks or future prospects.
12. What are the infractions that an auditor finds most often?
Based on experience, the most frequently detected infringements are the following. They do not concern the requirements for book keeping and presentation of the accounts.
Loss of capital: the loss of capital represents a form of deficit balance sheet. It occurs when half of the share capital and legal reserves are no longer covered. In this case, remediation measures are indicated.
Prohibition of reimbursement of contributions: the shareholder has no right to recover the amounts paid, in particular the company cannot autonomously (openly or secretly) provide for the return of a deposit.
Call of the General Assembly: it can often also be the non-observance of the term of convocation of the general meeting or of the shareholders, established by law within six months from the end of the financial year.
13. Independence: how independent must the supervisory office be?
The independence of the auditing office from the company that is subject to control is established by law, as well as regulated by the relevant standards of the trade associations. Therefore, the compilation of the annual account would not be compatible with the audit activity. Equity investments, financial relationships and even close links with decision makers are also prohibited; instead, collaboration in accounting and the provision of other services are allowed for the company that must undergo the auditors in UAE. In this regard, the dividing line is always a reason for discussion among experts.
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14. Fraud detection: what is the degree of security after a review?
Even after an audit by a qualified and independent auditor, despite the professionalism and objectivity, absolute safety cannot be guaranteed, therefore there is no guarantee that criminal conduct such as cases of fraud can be identified as part of a review . Furthermore, other offenses relating to taxes or social insurance are also excluded from the audit.
15. Partners: How do SMEs find the "right" auditors?
For approximately ten years, auditors have been registered with the Federal Audit Oversight Authority). This is the fundamental assumption, but it is also important that the auditor knows the sector and that it is not extraneous to its specific particularities. In addition to sympathy and trust, an important role in the choice is played by the following issues.
Is the auditor affiliated to a trade association such as Trustees Suisse or Expert Suisse? This guarantees reliability, periodic continuous training and continuity.
Is there a civil liability insurance? This type of insurance is advantageous in the event of a breach of the due diligence obligation.
