Standard Auditing Process

audit firms in dubai

Auditing Process 

Auditors have a very important job. They help firms assess internal guidelines and policies, evaluate operating performance, and determine whether the policies are in line with the regulatory procedures and requirements. Aside from that, they also evaluate financial reporting process and accounting tools and systems as a way to determine whether the financial statements are accurate or not. 

With that, certain auditing processes should be taken into consideration. These are:

* Review the operating environment

* Internal controls testing

* Account testing and detailed balance

* Analytical procedures

* Risk assessment

Review the Operating Environment

An auditor’s job is to evaluate the business entity’s operating environment. This would allow him to determine the crucial factors that affect the operations. This could range from internal to external, and short to long-term factors. Likewise, an audit specialist should also review the organization’s activities and ensure that most of these are legal and comply with the regulatory rules set by the government. For external factors, this could be comprised of the governmental mandates, business practices, industry trends, as well as economic sector outlooks. On the other hand, internal elements that could have an impact on the company’s activities could be senior management’s leadership ethics, style, human resource procedures, and safety policies or occupational health.

Internal Controls Testing

Auditors should also review the firm’s policies, procedures, and internal control. Aside from that, they should also evaluate the operating performance, detect risk trends, and determine the human resource guideline. They must use the operational knowledge in order to evaluate the efficiency and the control designs. Controls are specifically and adequately designed if goals, decision-making processes, and step-by-step procedures are clearly presented. This is considered to be very important, because effective controls could prevent the occurrence of mistakes and flaws for which they are designed. With that, auditors are tasked to focus on controls in “high-risk” areas and cooperate with segment managers as a way to correct the deficiencies detected. For example, an auditor could review the plant’s safety handbook, assess detailed step-by-step procedures and give an advice to the management, asking him to modify the procedures, because they don’t follow the regulatory guidelines one must comply with.

Account Testing and Detailed Balance

An auditor’s job is to give extra attention to detail on balances and accounts. They should monitor if the operating procedures and controls are either weak or high. Whatever the findings may be, they should report these financial statements, especially if it seems to be inaccurate. Aside from that, they could also focus on the income statement key accounts or balance sheet instead. This could be expenses, sales, accounts receivable, accounts payable, and cash. The balance sheet is a type of financial statement that presents the firm’s debts, assets, and owner’s equity at the end of each quarter. Furthermore, the income statement should also present the firm’s revenues and loses periodically. For instance, an auditor should review the details of a firm’s revenue account in order to verify if the sales and customer discounts are accurately recorded, without any discrepancies.

Analytical Procedures

Analytical procedures help the auditors in determining and confirming the relationship between balances or financial statement accounts, compare current and historical data, assess key operating trends, and assess accuracy in financial reporting. Additionally, auditors should also ensure that the financial information is thoroughly prepared and reported professionally in accordance with accounting principles, as well as regulatory guidelines generally accepted in industries in which the organization is currently operating. For instance, an auditor should know that receivables, sales, and non-collectable accounts in the balance sheet are linked to each other. Then, he should verify whether these sales revenues, excluding the discounts, are really consistent with the non-collectable amounts as well as the customer receivables.

Risk Assessment

Auditors evaluate if the business is at risk, through reviewing the internal controls, guidelines, internal policies, and deter risk trends in a firm’s segment. They’re tasked to work in accounting, risk management, and even in the corporate finance departments in order to evaluate the risks and exposures across activities and business lines like operational and financial risks. Keep in mind, the financial risks are always market-and credit-related. This risk is associated to losses incurred because of price fluctuations in securities markets, and business partners because of bankruptcies. On the other hand, operational risk is comprised of information systems, reputation, regulatory and legal risks. The auditor should evaluate the firm’s risk profiles and delegate “low,” “medium,” and “high” ratings of areas evaluated and designate testing resources.

Looking For The Top Auditors in Dubai ?

Alya Auditors provides all kinds of Auditing including Forensic Auditing & Accounting,Due Diligence Auditing ,Statutory Auditing & Concurrent Auditing. Alya Auditors provide all services for clients in DMCC and all other free zones. Alya also combines the use of advanced software with the guidance of accounting professionals. We provide professional services in the field of Auditing, Accounting, Company Formation & VAT Consultation etc.Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.

Our powerful software integrates with a variety of accounting software partners, such as  Xero,Tally and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.

When you are ready to hand off the chore of accounting and focus on the business you love, Alya is your financial headquarters. We have powerful software that can save you time and money to get started today.

Benefits of Due Diligence

Due Diligence Audit in UAE ,Dubai

THE BENEFITS OF DUE DILIGENCE FOR UAE COMPANIES

Due to the increased risk of corruption internationally, it’s important to conduct due diligence checks on a global scale.

As a result of due diligence, UAE companies can:

  • gain insight into customers, employees and vendors
  • minimise the exposure to reputational, financial and regulatory risks
  • increase productivity and profitability
  • improve decision-making

THE DUE DILIGENCE PROCESSES

Although the due diligence process will vary from industry to industry, in the event of a potential sale, acquisition or new trading partner, documentation and information will be requested for verification and assessment.

Typical due diligence checks include:

  • Legal due diligence

This assesses the potential legal risks of a business transaction and involves the review of any contracts, loans, securities, intellectual property, and pending litigation involved in the transaction. It also includes an analysis and assessment of the potential exposure of the company to corruption, legal and regulatory risk.

  • Operational due diligence

This considers the operations of the company in order to assess the risks and benefits. It will also assess the viability of any business plans and any associated risks involved, taking into consideration the positioning of the company within the market place.

  • Financial due diligence

In this the financial information and trading performance is assessed. This includes an assessment of earnings, assets, liabilities, cash flow, debt and management, both historically and based on future forecasts.

  • Market due diligence

This involves an evaluation of the current and future potential of the company/trading partner by means of third party information.

  • IT due diligence

This considers whether the IT systems are efficient, cost-effective and secure enough to support an organisation’s growth.

  • Intellectual due diligence

This focuses on the intellectual capital of a company and includes the advantage a company has over its competitors.

  • Human due diligence

This considers the value of a company’s employees in terms of skills, education, experience, creativity, and other social attributes such as willingness to co-operate.

OUTSOURCING DUE DILIGENCE

Given the complex nature of international trading, outsourcing due diligence can be an attractive option for UK companies, especially as they may not have the necessary expertise and resources to conduct it themselves or in-house.

The benefit of outsourcing due diligence is that it can offer access to enhanced global due diligence checks and global compliance monitoring services. It allows individuals and companies to be screened without diverting resources from other areas of the business.

Due diligence is the first opportunity investors have to do a deep dive into a potential merger or acquisition of a target business.

Who Performs Due Diligence Assessments?

Most investors have a competent attorney and CA to perform their legal and financial due diligence. These are assessments of the current legal and financial status of the target and have the principles of law and accounting to guide them. During the legal assessment, a buyer’s attorney will collect all of the outstanding contracts and agreements as well as any outstanding, pending or potential litigation along with all documents that constrain the business. For the financial assessment, the buyer’s accountant will look at the income statement, cash flows and other financial reports in order to verify its past performance. The accountants will look at the financial data for the last 3 to 5 years, depending how diligent the investor is. They’ll commonly ask for independent third-party audits of the target’s financial reports.

Looking For The Top Auditors in Dubai ?

Alya Auditors provides all kinds of Auditing including Forensic Auditing & Accounting,Due Diligence Auditing ,Statutory Auditing & Concurrent Auditing. Alya Auditors provide all services for clients in DMCC and all other free zones. Alya also combines the use of advanced software with the guidance of accounting professionals. We provide professional services in the field of Auditing, Accounting, Company Formation & VAT Consultation etc.Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.

Our powerful software integrates with a variety of accounting software partners, such as  Xero,Tally and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.

When you are ready to hand off the chore of accounting and focus on the business you love, Alya is your financial headquarters. We have powerful software that can save you time and money to get started today.

Steps For a Successful Audit

Steps For a Successful Audit in Companies

Steps For a Successful Audit in Companies

An audit is the examination of the financial report of an organisation – as presented in the annual report – by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.

If preparing for your upcoming audit seems daunting, you’re not alone. Many of us feel a sense of dread at fiscal year-end. We’ve compiled our best tips to help you have a smooth audit: 

1. Plan ahead.

Devote additional time both prior to and in connection with year-end close to adequately prepare for the audit, to be available during audit fieldwork, and to communicate with those involved in the audit process. Proper planning and clear expectations will help minimize anxiety and frustration. To be ahead of the curve, treat audit preparation as a year-long process. By keeping schedules and reconciliations up-to-date throughout the year, you can reduce the time it takes to prepare for the audit at the end of the year. Also, maintain an open line of communication between the organization and the external auditors during the year rather than waiting until the audit to discuss new or unusual transactions. This will minimize surprises and allow the organization to make appropriate plans or necessary changes. 

2. Stay up-to-date on accounting standards.

New accounting pronouncements may affect your organization’s audit. You will want to stay up-to-date because you may need to manage or track data in a different way (for example, by updating documentation or reorganizing the chart of accounts) in order to implement new standards. Also, be sure to assess whether accounting personnel require any additional training or information in order to implement the new requirements. To go straight to the source, refer to the Financial Accounting Standards Board’s website, fasb.org, to determine which new accounting pronouncements are effective for the year under audit.

3. Assess changes in activities.

Did the organization start a new program or receive a new grant?  Are there any new reporting requirements? Were any activities discontinued, or were there any impairments?  Were there significant changes in internal control systems? Such changes in activities may trigger accounting and reporting considerations that should be communicated to the auditor during the planning process. 

4. Learn from the past.

Take stock of any prior year audit adjustments, internal control recommendations, or struggles encountered during prior audits. These can be a starting point for self-review and a memory-jogger to insure these issues are not repeated. During the planning meeting with the auditors, discuss what went well during last year’s audit and where there may be opportunities for improvement or more effective communication between the organization and the auditors. 

5. Develop timeline and assign responsibility.

Review the list of workpapers and schedules requested by the auditors, making sure to obtain clarification of requested information when necessary. Assign each item from the list to a responsible person and include a due date. Make sure to allow adequate time for review and correction of schedules if necessary.  Tackle the most difficult, complex, or time-consuming areas first when possible. The drafts of the financial statements, schedules, workpapers or other items requested by the auditor should be available on or before the first day of audit fieldwork. 

6. Organize data.

Create a repository of audit schedules that can be accessed in future years by the appropriate personnel.  Consider creating subfolders for significant transaction cycles or categories, such as cash, revenue and receivables, expenses and payables, investments, fixed assets, debt, etc. to make it easier to manage and retrieve schedules. Schedules and workpapers containing sensitive information, such as payroll, may need to be password-protected or maintained in an appropriately restricted network location. 

7. Ask questions.

If an item requested by the auditor is unclear, ask for clarification prior to the start of fieldwork to avoid potential delays. Auditors are generally happy to answer accounting questions regarding unusual or infrequent transactions the organization may need assistance in accounting for. Also, ask questions of those within the organization to obtain information necessary to prepare required footnote disclosures.  Such discussions could include significant accounting estimates, pending or threatened litigation, related party transactions, commitments and contingencies, and other topics necessary to prepare required footnote disclosures. 

8. Perform a self-review.

Once all year-end closing entries are made, review schedules and workpapers to ensure amounts agree or reconcile to the trial balance. Take a step back and assess the overall financial statements for reasonableness. Also read and update the notes to your financial statements, and refer to a disclosure checklist to make sure you have included all the required information. Be prepared to explain financial statement line item variances from year to year or from budget to actual. 

9. Be available during fieldwork.

Avoid key personnel scheduling time off during the audit, and consider rescheduling or postponing non-critical meetings for finance and accounting staff heavily involved with the audit. Although most of the schedules and workpapers will have been requested by the auditors prior to the start of audit fieldwork, understand that the auditors will be asking for additional information, including supporting documents and explanations, throughout fieldwork. Consider having brief status meetings or obtaining an open items list from the auditors at logical intervals during the engagement to track progress. 

10. Evaluate results.

Maintain communication with the auditors during the time between fieldwork and the issuance of the audit report. If there are any open items at the end of fieldwork, establish agreed upon dates for the information to be provided to the auditors whenever possible. If the auditor is to attend meetings  with the audit or finance committee and/or board of directors, confirm that the auditor has the date, time, meeting location and other pertinent details of the meeting. Consider holding a post-audit closing meeting with employees involved in the audit to communicate results and solicit feedback. 

Looking For The Top Auditors in Dubai ?

Alya Auditors provides all kinds of Auditing including Forensic Auditing & Accounting,Due Diligence Auditing ,Statutory Auditing & Concurrent Auditing. Alya Auditors provide all services for clients in DMCC and all other free zones. Alya also combines the use of advanced software with the guidance of accounting professionals. We provide professional services in the field of Auditing, Accounting, Company Formation & VAT Consultation etc.Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.

Our powerful software integrates with a variety of accounting software partners, such as  Xero,Tally and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.

When you are ready to hand off the chore of accounting and focus on the business you love, Alya is your financial headquarters. We have powerful software that can save you time and money to get started today.

Benefits of Statutory Auditing For Companies in UAE

Statutory Auditors in Dubai,UAE

Statutory Audit Benefits For Companies in UAE

Statutory audit, also known as financial audit, is one of the main types of audit which is to be done as per the statutes applicable to the entity and its primary purpose is to gather all relevant information so that the auditor can give his opinion on the true and fair view of the company’s financial position as on the balance sheet date.

  • The purpose of the statutory audit is to Auditor has to give his view independently without being influenced in any manner. He will check the financial records and will give his opinion thereon in the audit report.
  • The statutory audit will help the stakeholders to rely on financial statements. Stakeholders other than shareholders also get benefited from the statutory audit as they can take their call based on the accounts as they are audited and authentic.

Advantages of Statutory Audit

  1. It increases the authenticity and credibility of financial statements as the financial statements of the company are being verified by an independent party i.e., the auditor.
  2. It confirms that management has taken due care while delivering their responsibilities.
  3. It also states regarding the compliance with the non-statutory requirements like corporate governance etc.
  4. The auditor also comments upon the strength of internal control within the organization along with internal checks among the departments or segments. He also suggests the area where internal control is weak and prone to risk. It helps the company to mitigate the risk and results in improvement of the performance of the company.
  5. The financial statement of the small company for whom audit might not be applicable get more values if it is audited one because with the help of the audited financial statements it becomes easier for the companies to get banking loan and other types of facilities on producing of financial statements which are audited by an independent auditor as the audited statements are more reliable and authentic.

Looking For Approved Auditors in Dubai ?

Alya Auditors provide all services for clients in DMCC and all other free zones. We provide all kinds of Auditing including Forensic Auditing & Accounting,Due Diligence Auditing ,Statutory Auditing & Concurrent Auditing. Alya also combines the use of advanced software with the guidance of accounting professionals. We provide professional services in the field of Auditing, Accounting, Company Formation & VAT Consultation etc.Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.

Our powerful software integrates with a variety of accounting software partners, such as  Xero,Tally and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.

When you are ready to hand off the chore of accounting and focus on the business you love, Alya is your financial headquarters. We have powerful software that can save you time and money to get started today.

Things To Be Done Before An Audit

Things To Do Before An Audit in UAE,DMCC

Documents Needed For An Audit

statutory audit is an examination of an entity’s financial records in accordance with the requirements of a government agency. A number of organizations must undergo statutory audits, including the following: Banks. Brokerage firms.

Before planning for statutory audit, we need to keep ready important document for audit. Here is list of important documents.What documents required by auditor at the time of audit?

SR NODOCUMENTATION
1AUDIT ENGAGEMENT LETTER
2OPENING TRAIL BALANCE 
3LAST YEAR SIGNED FINANCIAL STATEMENT
4COPY OF CAMPUTATION OF INCOME OF LAST YEAR
5SHAREHOLDING PATTERN
6LIST OF DIRECTORS
7LIST OF KMPs
8REGISTER 301 EXTRACTS
9MINUTES OF MEETING
10FORM 26AS
11FIXED ASSETS REGISTER
12INVOICE OF ADDITION TO FIXED ASSETS
13INVOICE OF SALE OF FIXED ASSETS
14TDS PAYMENTS CHALLANS
15PF/PT/ESIC/MLWF(WHICHEVER APPLICABLE) PAYMENT CHALLANS
16ADVANCE TAX PAYMENTS CHALLANS
17RETURNS COPY 
18LOAN PAYMENT SCH. & LOAN CONFIRMATION LETTER
19CASH BALANCE CONFIRMATION LETTER ALONG WITH DENOMINATION
20BANK BALANCE CONFIRMATION
21OUTSTANDING ENTRY PASSED:PROVIDE SUPPORTING XEROX COPY
22LIST OF RELATED PARTY AS PER AS18
23LEDGER OF RELATED PARTY FROM TALLY HAVING TRANSACTION
24CALCULATION OF FOREIGN EXCHANGE PROFIT/LOSS
25CASH LEDGER WITH TRANSACTION MORE THAN Rs. 20000/- 
26SECTION 274(1)(g) OF CO. ACT: REPRESENTATION FROM DIRECTOR FOR QUALIFICATION
27STATUS OF PENDING INCOME TAX ASSESSEMENT
28DRAFT FINANCIAL STATEMENT
29MANAGEMENT REPRESENTATION LETTER
30ANY CHANGE IN MOA/AOA
31CERTIFICATE UNDER SEC. 40(A)(3) & 269SS & 269T OF INCOME TAX 
32COPY OF ANNUAL RETURN FILLED WITH MCA
33CALCULATION OF DIRECTOR REMUNERATION AS PER COMPANIES ACT
34SECTION 383A: SECRETARIAL COMPLIANCE CERTIFICATE
35SHARE APPLICATION PENDING REFUND

Looking For DMCC Approved Auditors in Dubai ?

Alya Auditors provide all services for clients in DMCC and all other free zones. We provide all kinds of Auditing including Forensic Auditing & Accounting,Due Diligence Auditing ,Statutory Auditing & Concurrent Auditing. Alya also combines the use of advanced software with the guidance of accounting professionals. We provide professional services in the field of Auditing, Accounting, Company Formation & VAT Consultation etc.Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.

Our powerful software integrates with a variety of accounting software partners, such as  Xero,Tally and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.

When you are ready to hand off the chore of accounting and focus on the business you love, Alya is your financial headquarters. We have powerful software that can save you time and money to get started today.

Understanding Due Diligence in Detail

Due Diligence Audit

Understanding Due Diligence

Due diligence became common practice (and a common term) in the U.S. with the passage of the Securities Act of 1933. Securities dealers and brokers became responsible for fully disclosing material information related to the instruments they were selling. Failing to disclose this information to potential investors made dealers and brokers liable for criminal prosecution. However, creators of the Act understood that requiring full disclosure left the securities dealers and brokers vulnerable to unfair prosecution if they did not disclose a material fact they did not possess or could not have known at the time of sale. As a means of protecting them, the Act included a legal defense that stated that as long as the dealers and brokers exercised “due diligence” when investigating companies whose equities they were selling, and fully disclosed their results to investors, they would not be held liable for information not discovered during the investigation.

Types of Due Diligence

Due diligence is performed by companies seeking to make acquisitions, by equity research analysts, by fund managers, broker-dealers, and investors. The due diligence on a security by investors is voluntary. However, broker-dealers are legally obligated to conduct due diligence on a security before selling it, which helps to prevent any issues arising with non-disclosure of pertinent information.

A standard part of an initial public offering is the due diligence meeting, a process of careful investigation by an underwriter to ensure that all material information pertinent to the security issue has been disclosed to prospective investors. Before issuing a final prospectus, the underwriter, issuer and other individuals involved (such as accountants, syndicate members, and attorneys), will gather to discuss whether the underwriter and issuer have exercised due diligence toward state and federal securities laws.

The Due Diligence Process for Stock Investing

Below are detailed steps for individual investors undertaking due diligence. Most are related to equities, but aspects of these considerations can apply to debt instruments, real estate, and other investments as well.

The list below of due diligence steps is not comprehensive since there are many types of securities in existence and as a result, many variations of due diligence that might be needed for a specific investment.

Also, it’s important to consider risk tolerance when performing due diligence. There’s no one-size-fits-all strategy for investors since investors might have different risk tolerance levels and investment goals. Retirees, for example, might look to an investment for dividend income and might place a higher value on more established companies while an investor seeking growth might place a higher value on capital investment and revenue growth. In other words, due diligence can result in different interpretations of the findings depending on who’s performing the research.

Step 1: Analyze the Capitalization (Total Value) of the Company 

A company’s market capitalization can provide an indication of how volatile the stock price might be, how broad the ownership might be, and the potential size of the company’s target markets.

For example, large-cap and mega-cap companies tend to have stable revenue streams and a large, diverse investor base, which can lead to less volatility. Mid-cap and small-cap companies, meanwhile, may only serve single areas of the market and typically have greater fluctuations in their stock price and earnings than large corporations.

The size and location of the company might also determine which exchange the stock is listed on or where it trades. You should also confirm whether the stock is listed on the New York Stock Exchange, Nasdaq, or if it’s an American depositary receipt (ADRs), which means it’ll have another listing on an exchange in another country. ADRs will typically have the letters “ADR” written in the title of the share listing.

Step 2: Revenue, Profit, and Margin Trends

In analyzing the numbers, the income statement will have the company’s revenue or the top line, net income or profit, which is called the bottom line. It’s important to monitor any trends in a company’s revenue, operating expenses, profit margins, and return on equity.

Profit margin is calculated by dividing the company’s net income by revenue. It’s best to analyze profit margin over several quarters or years and compare those results to companies within the same industry to gain perspective.

Step 3: Competitors and Industries

Now that you have a feel for how big the company is and how much money it earns, it’s time to size up the industries it operates in and its competition. Every company is partially defined by its competition. As stated earlier, compare the profit margins of two or three competitors. Looking at the major competitors in each line of business (if there is more than one) may help you determine how competitive the company is in each market. Is the company a leader in its industry or the specific target markets? Is the industry growing?

Information about competitors can be found in company profiles on most major research sites, usually along with a list of certain metrics already calculated for you. Performing due diligence on multiple companies in the same industry can provide investors with enormous insight as to how the industry is performing and what companies have a leading edge over the competition.

Step 4: Valuation Multiples

There are many ratios and financial metrics that investors can use to evaluate companies. There’s no one metric that’s ideal for all investments, so it’s best to utilize a combination of ratios to help generate a complete picture and lead to a more informed investment decision.

Some of the financial ratios include the price-to-earnings (P/E) ratio, price/earnings to growth (PEGs) ratio, and price-to-sales (P/S) ratio. As you calculate or research the ratios, compare the results to the company’s competitors. You might find yourself becoming more interested in a competitor during this step, but still, look to follow through with the original pick.

P/E ratios can form the initial basis for the company’s valuation. Earnings can and will have some volatility (even at the most stable companies). Investors should monitor valuations based on trailing earnings, or based on the last 12 months of earnings.

Basic “growth stock” versus “value stock” distinctions can be made, along with a general sense of how much expectation is built into the company. It’s generally a good idea to examine a few years’ worth of earnings figures and P/Es to make sure that the current quarter or year isn’t an aberration.

Not to be used in isolation, the P/E should be looked at in conjunction with the price-to-book (P/B) ratio, the enterprise multiple, and the price-to-sales (or revenue) ratio. These multiples highlight the valuation of the company as it relates to its debt, annual revenues, and balance sheet. Because ranges in these values differ from industry to industry, reviewing the same figures for some competitors or peers is a critical step. 

Finally, the PEG ratio brings into account the expectations for future earnings growth and how it compares to the current earnings multiple. For some companies, their PEG ratio may be less than one, while others might have a PEG of 10 or higher. Stocks with PEG ratios close to one are considered fairly valued under normal market conditions.

Step 5: Management and Share Ownership

Is the company still run by its founders? Or has management and the board shuffled in a lot of new faces? Younger companies tend to be founder-lead companies. Research the consolidated bios of management to see their areas of focus or whether they have broad experience. Bio information can be located on the company’s website.

Research if the founders and executives hold a high proportion of shares and whether they have been selling shares recently. Consider high ownership by top managers as a plus and low ownership a potential red flag. Shareholders tend to be best served when those running the company have a vested interest in the performance of the stock.

Step 6: Balance Sheet

Many articles could easily be devoted to just the balance sheet, but for our initial due diligence purposes, a cursory exam will suffice. The consolidated balance sheet will show the assets and liabilities as well as how much cash is available.

Also, monitor the level of debt and how that compares to companies in the industry. A lot of debt is not necessarily a bad thing, especially depending on the company’s business model and industry. But what are agency ratings for its corporate bonds? Does the company generate enough cash to service its debt and pay any dividends?

Some companies (and industries as a whole) are very capital intensive like oil and gas companies while others require few fixed assets and capital investment. Determine the debt-to-equity ratio to see how much positive equity the company has going for it; you can then compare the findings with competitors. Typically, the more cash a company generates, the better an investment it’s likely to be because it can service its debt and short-term obligations.

If the figures for total assets, total liabilities, and stockholders’ equity change substantially from one year to the next, try to determine the reason. Reading the footnotes that accompany the financial statements and the management’s discussion in the quarterly or annual reports can shed light on what’s happening with the company. The company could be preparing for a new product launch, accumulating retained earnings, or in a state of financial decline.

Step 7: Stock Price History

Investors should research both the short-term and long-term price movement of the stock and whether the stock has been volatile or steady. Compare the profits generated historically and determine how it correlated with the price movement. Keep in mind that past performance does not guarantee future price movements. If you’re a retiree looking for dividends, for example, you might not want a volatile stock price. Stocks that are continuously volatile tend to have short-term shareholders, which can add extra risk factors to certain investors.

Step 8: Stock Dilution Possibilities

Investors should know how many shares outstanding exist for the company and how that number relates to the competition. Is the company planning on issuing more shares or further diluting its share count? If so, the stock price might take a hit.

Step 9: Expectations

Investors should find out what the consensus of Wall Street analysts for earnings growth, revenue, and profit estimates are for the next two to three years. Investors should also research discussions of long-term trends affecting the industry and company-specific details about partnerships, joint ventures, intellectual property, and new products or services.

Step 10: Examine Long and Short-term Risks

Be sure to understand both the industry-wide risks and company-specific risks that exist. Are there outstanding legal or regulatory matters? Is there unsteady management?

Investors should keep a healthy game of devil’s advocate going at all times, picturing worst-case scenarios and their potential outcomes on the stock. If a new product fails or a competitor brings a new and better product forward, how would this affect the company? How would a jump in interest rates affect the company or how about economic growth and inflation?

Once you’ve completed the steps outlined above, investors you should get a better sense of the company’s performance and how it stacks up.

Searching For Due Diligence Audit in Dubai ?

Alya Al Marzooqi Auditing Chartered Accountants is the one. Leading CA Firms in Dubai,With its head office at Business Bay & a branch in SAIF Zone.Approved in all the major free zones including DMCC,SAIF,JAFZA,DWC,Maydan etc providing professional services in the field of Auditing , Accounting ,VAT Consultation , Company Formation & CFO services etc. For More Details Contact Us @ Tel : +971 4 876 9377, Mob: +971 52 975 0690, +971 52 475 4007

Alya Auditors assists the registered companies to furnish the annual financial statements . For more information visit us @ www.alyaauditors.com