Annual financial statements that are backed by an auditor's report and attested by it must be submitted when a corporation is registered. According to the Commercial Companies Law, all top audit firms in Dubai are obligated to have an audit of their financial records.
There is a lot of uncertainty each year about How to Audit Income Statements and what are its objectives.
At Farahat & Co, we accompany many UAE companies and encourage them to get their accounts audited as part of financial safety and security. Following are the guidelines set for auditing income statements to help you understand everything you need to know.
What are Audit Procedures?
The processes, strategies, and methodologies used by auditors to determine an audit objective are collectively referred to as the audit procedure. The use of audit procedures enables auditors to accomplish their objectives and provide an unbiased assessment of the company's financials. To ensure that sufficient and relevant audit evidence has been acquired, auditors in Dubai create the audit methods to identify all forms of hazards. Various audits can be performed. Here are a few of them listed below:
- Tax audit
- Financial audit
- Investigative audit
- Operational audit
Read More : The Process of Financial Audit in Dubai
Audit Procedures for Income Statements
Accountants perform financial statement audits as part of their closing procedures. Performing an audit ensures that the calculations and accounting data used to construct the statements are accurate. An income statement audit can assure you that no mathematical errors have been made or help you identify discrepancies in the ledger before you file it at closing.
How to Audit Income Statements
The Audit Procedures for Income Statements can be lengthy and stressful, so it is very important to ensure that they are carried out correctly.
The following are the steps taken to audit the income statement:
1. Statement Calculations
Auditing financial statements begin with verifying the summary calculations. Before moving on to the income section, confirm that the total revenue amount matches the total income amount. Follow the same procedure for the category of expenses. Owner's equity can be calculated manually by calculating the difference between revenue and expenses to determine the equity section of the balance sheet.
2. Income Details
In order to verify the accuracy of the computations on the income statement, you must examine the specifics that contributed to the results. Take a look at the general ledger and extract a summary transaction report for each revenue account. On the summary reports, ensure that the overall data is accurate. Verify the numbers in the summary report by running transaction-level reports for the accounts.
You may see what has been posted to the account in each transaction-level report. Make sure the transactions in the ledger match the documents supporting the journal entries, like invoices or check stubs, to ensure they were properly posted.
3. Expense Review
The ledger should be consulted for information regarding spending activities. Ensure that the expenditure totals appearing on the income statement report are consistent with the ledger activity for each expense account.
The detailed level of individual transactions posted throughout the period should be verified in the ledger. Check the dates on the expense receipts to ensure they pertain to the relevant period and make sure the totals are accurate by adding them up yourself.
4. Paper Audit Sampling
As soon as you have completed your audit of the income statement, select from each pertinent account a few transactions, such as some credits posted to each revenue account and a few payments made from each expense account.
You may request the documentation of the transactions you selected in order to complete a sample audit of the account activity. In this case, the documentation in question would be check stubs, invoices, and other records used to support journal entries. Invoices or payment vouchers should be checked to ensure that the entries in the system correspond to the paperwork and calculations.
What Are the Purposes and Objectives of Financial Statement Audits?
The goal of a financial statement audit is to increase the reliability of a company's reported financial status and performance. All publicly traded companies are required to submit yearly reports to the Securities and Exchange Commission that have been audited. The same is true for lenders who require the firm's books to be audited before they extend credit. In addition, suppliers may require audited financial statements before offering trade credit.
Audit procedures for income statements enable the auditor to provide feedback on the management-prepared financial statements of the organization.
All financial statements must be produced under accepted accounting principles and any applicable legal requirements. The report must make clear all relevant information.