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01 December 2023

This is the best time for the cash-rich to invest

Ansarhusein H Merchant Partner at PKF (XAVIER WILSON)

By VM Sathish

Auditing firm Pannell Kerr Forster (PKF) is a member of PKF International, an association of legally independent member auditing firms. PKF, which operates in 120 countries, provides independent auditing and business consultancy services to many prestigious clients in the region.

Emirates Business caught up with Ansarhusein H Merchant, Partner at PKF, who outlined the duties and responsibilities of auditing firms in these challenging times.

The auditing sector is facing challenges due to the global financial crisis. What is the role of an auditor in such a situation?

The responsibility of preparing the financial statements is of the company's management – owners, partners or directors. It needs to be understood that the responsibility of the auditor is to audit those financial statements in accordance with the International Standards on Auditing (ISA) as laid down by the International Federation of Accountants (IFAC). Based on these standards, the auditor will issue an audit opinion whether or not the financial statements present a true and fair view of the company's financial position. The auditor will also have to ensure and mention in his report whether or not the financial statements comply with the relevant accounting standards.

What is the situation in the UAE and the Middle East?

Most of the companies in the Middle East are either following or increasingly moving towards adopting the International Financial Reporting Standards (IFRS) as their framework for preparation of the financial statements. Therefore, it is important for an auditor to have thorough knowledge of auditing standards (ISA/IFAC) and accounting standards (IFRS).

The company management is also responsible to ensure proper and effective systems and controls are in place to detect and prevent fraud. As part of the overall audit strategy and audit procedures to be performed, the auditor will review, document and test the adequacy and effectiveness of those controls to identify control weaknesses, if any, and its impact on the risk of fraud.

As an auditor, what is your outlook for 2009?

Currently, markets all over the world are going through testing times and the Middle East is no exception, though I believe the impact is less in the Middle East compared to North America and Europe. Nevertheless, investor confidence and consumer spending will be at lower levels in 2009 compared to the recent past. Credit crunch and managing liquidity will be major challenges.

Those companies that have ambitious growth plans will have to reassess their growth strategies and in all probability, many of them will have to wait for quite a while before they can actually pursue their growth plans. Economic growth and related commercial activities in the Middle East, particularly in the UAE, are closely linked to construction, real estate and infrastructure development, oil exploration and refining, tourism and hospitality. Considering the present situation, where we are seeing global economic slowdown, sharp decline in oil and metal prices, unstable and nervous markets, significant corrections in real estate prices and sudden strictness in credit and lending norms by financial institutions, I believe most of the businesses in the UAE will, to some extent, feel the impact of the existing economic situation on their business.

What should company managements do in such a situation?

The management will have to act sensibly and quickly to assess and, if required, to realign and/or restructure their business according to the market and economic conditions. Looking at the situation from the other perspective, there could be significant opportunities for people and businesses that are cash rich to buy/invest in existing and fundamentally good ventures because this is the time when they could possibly strike good deals at good prices. Hence, I would not be surprised if we saw a sudden spurt in mergers, acquisitions, due diligence and valuation of businesses.

Until September 2008, many aggressive investment decisions were taken. Post September, fear and pessimism have gripped the minds of investors. Hence, we see two extremes that have led to the current gloom – rumours and uncertainties in the minds of people – which is understandable. While we should not shy away from accepting the reality of the current economic situation, at the same time we should not over react to the situation and let our emotions and sentiments overshadow our wisdom and power of reasoning. We must recognise that similar situations have risen in the past and the world economies have bounced back and recovered from such situations. In my opinion, current all-round pessimism will slowly be replaced with a reasonable level of optimism with the passage of time. How soon this will happen is anybody's guess. Most economists are of the opinion – and I agree with them – that there is no 'quickfix' solution available for the current economic problems; it will take some time and a lot of effort and commitment on the part of world's political and business leaders to implement various appropriate measures in order to ensure world economies are back on track and markets rebound as soon as possible.

So what are the challenges facing the auditing sector now?

The existing situation calls for extra care and caution on part of the auditor in carrying out the audit of the financial statements of any company. The major challenges auditors could face may be correct application of accounting standards; valuation of assets; restructuring of debt or borrowings; Attempts by management to suppress losses; etc.

PROFILE: Ansarhusein H Merchant Partner at PKF

Merchant is a Chartered Accountant. He is a Partner with Pannell Kerr Forster – accountants and business advisors.

Pannell Kerr Forster is based in Dubai since 1976. The firm now has offices in Abu Dhabi, Sharjah, Jebel Ali and Dubai Internet City.

Pannell Kerr Forster, UAE is a member firm of PKF International Limited, an association of more than 200 legally independent member firms in 120 countries.

Pannell Kerr Forster, Dubai, is also registered with DFSA as an authorised firm to provide ancillary services such as internal audit, back-office support, etc.