Baker Tilly Kuwait | financial audit companies

 

so in this lesson we're going to go over an introduction to audit reports we've alluded to these audit reports in all of our lessons and so I wanted to give you an intro to audit reports now there's a whole other section that's just devoted to audit reports so we won't go into much detail but I think it's important to understand it before going in to the rest of the lessons about auditing okay so we've got really four audit reports that we can use as auditors when we evaluate the results of an organization's financial statements and whether or not they are free from material misstatements okay the first one which is the most common one because most companies do follow the rules is called the unqualified opinion report now when I was a student I always got this confused because I saw on and I kept thinking that that means that they did something wrong but in auditing an unqualified report just basically means that it's free from material misstatements or it's not qualified we're not qualifying our our report or our opinion because of something that they did wrong so unqualified opinion says it's free from material misstatement so that's a clean opinion and we'll write that here it's a clean opinion now the next type of opinion can also be used it's called a qualified opinion now a qualified opinion says that the financial statements are fairly stated which means everything except for this one thing we're about to tell you is fairly stated so it's an unqualified opinion however because of this one thing we can't give it a clean opinion so financial statements are fairly stated except for bla bla bla okay whatever it is and usually if you're going to use a qualified opinion it's a small in nature kind of an issue that it doesn't warrant some big issue okay so that one part might not be fairly stated but everything else is and you should trust everything else but we want you to be aware with there's an issue here at management won't change it okay we'll talk about changing it after we talk about all of these four things okay the third one which you don't want is the adverse opinion so the adverse opinion basically says we as auditors have done all the work but based on the outcomes of it it's not fairly stated and shouldn't be relied on okay very rarely used but could be used because the client needs to be audited for a bank stat whatever and we go in and we try to do everything and we do everything and we looked at everything we said no you can't rely on it because it's not fairly stated in accordance with GAAP and that sometimes is the issue it's not done in GAAP it's done in some other way and they're just refusing to do it because there's just too much work involved so the adverse opinion is given so of these three we have the clean opinion the everything is clean except for this one thing and you know what you we've done our work we've looked at everything but it's not worth it don't rely on and it's not fairly staying okay the last one is something that we don't often see as well but we do have it and that's called the disclaimer now when do we use disclaimers we use disclaimers when we have insufficient evidence okay so we go in and we say we need access to X Y & Z and they say no and we say okay we need access to X Y & Z otherwise we can't give you an opinion no and there's no alternative procedures an alternative procedure says that maybe plan a we were going to do this to substantiate an assertion well they won't give us plan a so we're gonna go to plan B which would get us to the same answer for the management sessions and we can't do that so now we're out of roadblocks or sorry we're out of plans and so now we're at a roadblock we can't really tell everybody that everything's there so we're going to disclaim an opinion we're not gonna really give any opinion we're gonna say there is no opinion to give and it may be because we have insufficient evidence now I want to take this with a grain of salt you may have insufficient evidence but you can back it up with some other test 

 

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Kuwait to postpone the VAT implementation to early 2020

On 19 March 2018, Al-Qabas newspaper stated: “informed sources revealed that the Kuwait Ministry of Finance, postponed any arrangements for the VAT application pending the official sanction of VAT Law by the National Assembly, indicating that the VAT preparations are on hold now due to adverse attitudes towards the VAT Law application obstructing its enactment during the coming period.

The sources pointed out that even if the VAT Law would have been enacted during this year by the Parliament, the VAT would be only actually applied by January 2020 since the management and technical preparations within the Ministry of Finance would need more than one year in order to be capable of handling accounting and management operations required by VAT application”.

It is worth mentioning that on 27 November 2016, GCC States signed Common VAT Agreement of the States of the Gulf Cooperation Council. Pursuant to the said Agreement, the six GCC States agreed to introduce the VAT at rate of 5% where each of the member States will set its respective implementation date.

Common VAT Agreement of the States of the Gulf Cooperation Council has come into force since Monday January 1st, 2018, after being approved by the Gulf Cooperation Council (GCC) Summit in Riyadh 2015, particularly that Kingdom of Saudi Arabia and United Arab Emirates decided to introduce VAT starting from 1 January 2018.

We would like to highlight that companies operating in the State of Kuwait should now get ready for the VAT implementation requirements, and not to wait till the last moment of implementation timeframe. They should investigate the impact of VAT Law, when adopted, on their internal systems since this will require amendments to policies and procedures, and development of IT systems and process for exchange of reports with the Ministry of Finance.

Alert! Stay Compliant and Avoid Penalties "2018 CRS & FATCA Reporting"

First: CRS Reporting

On 19 August 2016, the Government of the State of Kuwait signed the CRS Multilateral Competent Authority Agreement with the Organization for Economic Cooperation and Development (“OECD”) for exchange of information for tax purposes.

Pursuant to such Agreement, the financial institutions shall provide the governmental authorities in their countries with information about profits, balances and revenues generated from the sale of assets when the beneficiaries are resident outside their home country in accordance with the Common Reporting Standard developed by OECD.

In this context, we would like to remind that the financial institutions are required to present CRS reports to the Kuwait Ministry of Finance not later than 31 May 2018 in accordance with MoF Resolution No. (46) Of 2017, regarding “Additional Preliminary Guidelines concerning Implementation of the International Agreements on Tax Information Exchange”. To satisfy this obligation, such financial institutions should engage an auditor based on the MoF approved list of audit firms in order to prepare the independent assurance reports in accordance with MoF Resolution No. (36) Of 2017, regarding “Preliminary Guidelines concerning Implementation of the International Agreements on Tax Information Exchange”.

Second: FATCA Reporting

Furthermore, the State of Kuwait entered into the Inter-Governmental Agreement (IGA) with the United States of America to Improve International Tax Compliance and to Implement FATCA, whereby all financial institutions operating in the State of Kuwait shall comply with FATCA reporting requirements and satisfy all FATCA requirements through taking a set of defined actions.

In this context, we would like to remind that the financial institutions are required to present FATCA reports to the Kuwait Ministry of Finance no later than 31 August 2018 in accordance with MoF Resolution No. (48) Of 2015 concerning the Preliminary Guidelines to implementing FATCA requirements in the State of Kuwait.

Relationship between Internal Control and Internal Audit

I have been frequently asked about the difference between the Internal Control and the Internal Audit.

The logical approach to this topic starts from the Internal Control, which is defined by several specialist professional institutes such as the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the Institute of Internal Auditors (IIA) and the American Institute of Certified Public Accountants (AICPA), etc. We will quote here the COSO definition, which states the following:

“Internal Control is a process, effected by an entity's board of directors, management and other personnel, designed to provide "reasonable assurance regarding the achievement of objectives in the following categories: operations, reporting and compliance”.

A part of the philosophy in this definition purports that the internal control can never be limited to financial and accounting activities only since it covers all aspects of the organization and encompasses all levels of employees, the executive management and the board of directors.

Apart from engaging in theoretical details, the internal controls include but are not limited to:

1. The integrated Report (IR).


2. Strategic plan (strategic objectives and business plan).


3. Organizational structure manual (designed according to the corporate governance rules and includes risk committee and management function).


4. Job structure manual (including compliance function).


5. Framework of competencies and integrity that incumbents should have.


6. Delegation of authority matrix.


7. Policies and procedures manual for the organizational units (designed according to four eyes principle for a single activity).


8. Clear-cut job descriptions.


9. Regular reporting systems for organizational units.


10. Appraisal system for the executive management and board of directors.


11. Board of directors’ charter.


12. Code of professional conduct and ethics for the executive management (which should include a whistleblowing channel for the employees along with ensuring protection for them).


13. Annual training plan for the board of directors and the executive management.


14. Employee guide.


15. Deployment of IT systems for the operations based on cost-benefit principle.

Responsibility for update and maintenance of internal controls

Each incumbent of jobs in the organizational structure will be responsible for updating and maintaining the internal controls. An employee shall report to the head of organizational unit and the head of organizational unit shall report to CEO who in turn shall report to the board of directors.

Conclusion

The internal control is a preventive tool employed to achieve specific objectives, namely:

1. Operation objectives
   These are related to effectiveness and efficiencies of operations including financial and operations performance objectives, and protection of assets against loss.


2. Reporting objectives
   These are related to internal and external financial and non-financial reports, which would include reliability, compliance with deadlines, transparency and any other requirements set by the organizational authorities, regulators or recognized standard setters or set forth in the organization’s policies.


3. Compliance objectives
   These are related to compliance with laws and regulations governing the organization’s business.

Internal Audit

The Institute of Internal Auditors (IIA) defines the internal audit as:

“An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”.

Further, the Association of Chartered Certified Accountants (ACCA) defines the internal audit – the control of controls – as the independent and objective evaluation of an organization’s internal controls to effectively manage risk within its risk appetite.

It is worth mentioning that the internal audit activity is carried out by an organizational unit reporting to the audit committee, which in turn reports to the board of directors. The internal audit function develops an annual action plan, which should be approved by the audit committee, and submits periodic reports on the internal audit activities.

It should be also noted that the internal audit report shall contain a section on the review and evaluation of the internal controls, and assurance of its adequacy or requirement to introduce further controls, which achieve an adequate level of internal control.

Conclusion

The internal audit is a detective tool employed to verify the extent of executive units’ compliance with established controls.

Relationship between Internal Control and Internal Audit

In light of the above highlights of internal control and internal audit, it clear that there is a complementary relationship where the internal control establishes the controls based on which a business entity should be managed while the internal audit represents a detective activity, which verifies the implementation of internal controls. This complementary relationship is further confirmed by the matching objectives of internal control and internal audit as both disciplines are ultimately intended to protect the shareholders - the entity’s owners.

College of Knowledge by Bettina Warburg

[embed]https://www.youtube.com/watch?v=PzUwgGdqqiM&t=13s[/embed]

College of Knowledge by Paul Hughes

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Kuwait is to Implement Valued Added Tax (VAT) by Beginning of 2019

Taxes are considered as one of the most important financial policies adopted by states all over the world to achieve its financial goals as they are seen as one of the main income resources, especially with the decrease in the incomes of the oil producing countries due to the oil price drop.

Value Added Tax (VAT) is an indirect tax, which is imposed on consumption of products or services, not profits. VAT is a vehicle that nations use to raise the revenues in order to finance the State public budget. It is assessed in each phase across the supply chain. In general, the final consumer will bear the cost of VAT while businesses calculate and collect the tax and then pay the same to the government.

Based on the above, on 27 November 2016, GCC States signed Common VAT Agreement of the States of the Gulf Cooperation Council. Pursuant to the said Agreement, the six GCC States agreed to introduce the VAT at rate of 5% where each of the member States will set the implementation date.

Common VAT Agreement of the States of the Gulf Cooperation Council has come into force since Monday 1st of January 2018, after being approved by the Gulf Cooperation Council(GCC) summit in Riyadh 2015, especially that Kingdom of Saudi Arabia and United Arab Emirates decided to introduce VAT starting from 1 January 2018.

Such Agreement is expected to be adopted in the State of Kuwait starting from January 2019. Particularly that the common agreement indicates that “if 12 months elapse from the implementation of VAT by two States out of the six States, then the remaining States shall have to implement the same or otherwise, they shall be out of the Value Added Tax (VAT) scope”.

The timeframe for approving VAT Law has been set starting from October 2017 for formulation of VAT draft law in accordance with GCC agreement till November 2018 for developing the Executive Regulation of the VAT Law as below:

(Source: AL Qabas Newspaper, Edition 16001, 17th December 2017)

Companies should engage with tax consulting firms to study and evaluate the implications of VAT once adopted and to consider the internal systems that should be created either through amending the elements of the purchase and sales invoices, adopting the requested accounting systems as well as exchanging reports with the Ministry of Finance.