Audit refers to the official inspection of a firm’s accounts by a third party. In contrast, Lease Auditors in UAE and worldwide is also known as Rent Audit, CAM audit, or Escalation Expense Audit. Lease Audit in UAE must be carried out as per the “UAE Federal Law No.8 of 2018 on Finance Lease”. This law became effective from 1st January 2019 and applied to all the companies operating in the mainland and free zones. Audit firms in UAE perform Lease Audits, ensuring that the Laws laid down in the UAE Federal Law N0.8 are being followed in their true spirit.
Scope and Application of Lease Audit in UAE
Lease Auditors in UAE is mandatory for all the companies involved in the Finance Leasing of any movable and immovable assets, including real estate, aircraft, vessels, plant and machinery, vehicles, etc.
How Audit Firms in UAE Perform Lease Audit
Audit firms in UAE carry out Lease Audits by thoroughly going through the invoices, account statements, amendments, etc., related to the lease of any of the items stated above. The audit firms in the UAE are usually expected to be proficient in audit; law accounts, real estate, and consumer-related items such as property and vehicles.
The lease auditors thoroughly reviews the lease agreements and scrutinizes all the available documents, such as formal lease agreements, terms and conditions, and any amendments.
The lease Audit Process in UAE comprises 5 steps.
1. Preparation of Documents for Lease Audit in UAE
After a formal audit contract between the client and Lease Audit in UAE, the lease auditing firm provides the client to be audited with a checklist of resources and documents required to commence the audit. These documents can include previous audit reports, financial statements, ledgers, bank statements, receipts, etc. Additional documents such as company regulations and business areas can also be called for.
2. Preparation for Lease Audit in UAE
The company responsible for Lease Audit in UAE will designate the number of auditors and their areas of audit, i.e., Land and Building, PPE, and Vehicles, depending on the company’s nature being audited.
The company to be audited will ensure that the required documents are ready as per the checklist provided by the Lease Audit company and will also designate a team of its employees who will be responsible for carrying out the audit process.
3. Commencement of Audit
A lease audit in UAE is a tedious procedure. The company under audit is under extreme pressure; the lease audit team carries out the audit as per agreed-on guidelines but can also ask for additional related documents.
The company’s employees being audited must provide the lease audit team with all the records and resources required during the audit.
4. Report preparation for the Lease Audit in UAE
The audit usually ends as per the time frame given by the Lease Audit firm in UAE; once complete, the auditing team compiles and detailed report of their findings highlighting the anomalies and discrepancies, suggests solutions, and highlights areas of improvements for the firm audited.
5. Closing Meeting
A meeting between the company management being audited and Lease audit firms are arranged, the audit outcome is discussed, and suggestions made by the auditors are presented along with a formal audit report.
Lease Audit in UAE (Land & Building)
A leasehold property is a piece of land or building acquired for a fixed duration of time on the lease; the amount of premium and money spent on improving land or building is written off throughout the lease. The royalty paid yearly is treated as an expenditure and is debited to the profit and loss statement. The auditor should study the Lease agreement thoroughly to determine the value of the property and duration of the lease; a Lease Agreement must adhere to the guidelines laid down in the UAE Federal Law No.8. on Finance Lease. The auditor also must verify that all the terms and conditions mentioned in the agreement are adhered to by both parties involved. The lease auditor should make sure that the depreciation is calculated by dividing the total expenditures by the duration of the lease and should also make sure that the amount written off covers the depreciation at the end of the lease term. If the property is Sub-Let (i.e., the leased property is further leased or rented out by the lease), the auditor should also examine that agreement and highlight any anomalies. If the leased asset is a building, taxes and repair costs must be treated as operational expenses if the auditor must ensure that they are treated as operating expenses.
Lease Audit in UAE (Property, Plant and Equipment)
Property, Plant, and equipment are also referred to as “PPE”. The auditor must make sure that the PPE mentioned under the “Leased PPE” does exist. Any addition and deletion made in the period are audited properly and highlighted in the books. The repair and maintenance costs are accounted for and are distinguishable in the books. Disposal and retirement for PPE and sales proceeds are recorded as they should be recorded; depreciation expense of PPE is properly recognized and recorded individually and is calculated as it should be. PPE auditing is a sensitive area, and the auditor should pay special attention to the processes followed in recording leased PPE in the books of accounts.
Lease Audit in UAE (Vehicles)
The process for Lease audit of vehicles in UAE is similar to that of the PPE; it is not possible for the auditor to physically verify all the vehicles, but the auditor must ensure that all the vehicles mentioned are backed by the respective proofs that they exist. Vehicle-related costs such as insurances, fuel expenses, maintenance, and repairs are recorded against the vehicles’ engine and chassis numbers. The deprecation of vehicles is to be verified similarly to the PPE. Being a crucial and rather difficult area to audit, the lease auditor must check that the Lease Agreements for Vehicles are in place for individual vehicles and all the related expenses and depreciation are recorded properly and individually.
Conclusion
Lease Audits are a very technical process involving several steps. Their importance for businesses and companies cannot be ignored. Certified and approved audit firms in UAE can perform these procedures with efficiency and proficiency.
BS Auditing of Accounts has a team of expert auditors proficient at audits of all types and levels.
Feel free to contact us:
• Office # 0641, Tamani Arts Offices, Business Bay, P.O. Box 111390, Dubai, UAE
• +971 4 570 7357
• +971 58 108 5690
