The first year of an audit takes longer and costs more than any year that follows, for a reason unrelated to the size of the business: the auditor starts from zero. They must understand and document your activity and internal control, verify opening balances that nobody audited before them, and attend a count and send confirmations at a date they were not around for if appointed late. A business that understands what the auditor will ask for and prepares it in advance saves weeks of work, reduces the findings and — most importantly — protects the opinion from modification.
This guide organises preparation for a first audit in four steps: the reverse timeline from the statutory deadlines, the list of documents the auditor asks for, what the auditor is entitled to and what you owe, and the ten causes that prolong an audit and multiply its findings.
First: the timeline — start from the statutory deadlines and work backwards
These three deadlines determine when the audit must end, not when it should start:
| Deadline | Obligation | Basis |
|---|---|---|
| Before the financial year end | Appoint the auditor and sign the engagement letter, so they can attend the inventory count at the reporting date and send confirmations for year-end balances | Companies Law Art. 18; ISA 501 and ISA 505 |
| Within 120 days of the year end | File the zakat return and pay what is due, based on the financial statements — so the statements must be complete before then | Zakat Regulation 1445H, Art. 102 |
| Within 6 months of the year end | File the financial statements prepared under the adopted standards (with the auditor’s report for non-exempt companies) | Companies Law Art. 17 |
The practical consequence: the zakat return is built on the financial statements and filed within 120 days, so an audit that begins two months after year end puts everyone under pressure. The Companies Law allows the first financial year to run between six and eighteen months from the date of registration in the commercial register (Article 16), which gives a new business the chance to choose a first year that closes once its books have settled. We covered the return deadline in the zakat return guide and the filing deadline in the Qawaem guide.
Second: the list of documents the auditor will request
Known in the profession as the “prepared by client” list, it arrives with the engagement letter. These are its main items for a small or medium-sized business:
| Area | What to have ready before the auditor arrives |
|---|---|
| Legal | Commercial registration, articles of association or bylaws and amendments, licences, minutes of partners’ or general assembly meetings, the auditor’s appointment resolution, and a list of related parties (partners, their relatives and sister companies) |
| Books | Final trial balance, general ledger, adjusting and closing entries, chart of accounts, and draft financial statements with notes |
| Cash and banks | Statements for every bank account for the full year, signed monthly bank reconciliations, cash count records, signature authorities, and statements for the first month after year end |
| Revenue and receivables | Receivables ageing, contracts with major customers, sample e-invoices, reconciliation of revenue to VAT returns, credit policy and the allowance for doubtful debts |
| Inventory | Physical count records at the reporting date, item lists with quantities and cost, the costing method, and an analysis of slow-moving and damaged items |
| Fixed assets | Register at cost with accumulated depreciation, title deeds and purchase contracts, invoices for additions, disposal decisions, and long-term lease contracts |
| Liabilities | Payables ageing, reconciliations with major suppliers, loan and financing agreements with repayment schedules, facility statements, contingent liabilities and litigation |
| Payroll | Payroll registers, GOSI statements and reconciliation, end-of-service and leave accruals, and staff movements |
| Zakat and tax | Zakat and tax returns filed, assessments and correspondence with ZATCA, and the provision calculation |
| Equity | Movements in capital, partners’ current accounts in detail, dividend resolutions, and personal drawings if any |
At the end of the audit the manager signs the management representation letter: a written acknowledgement of management’s responsibility for the statements, that the auditor was given all records and information, and that related parties, litigation and subsequent events have been disclosed. This letter is a condition for issuing the report, not a formality; what the manager confirms in it, the manager answers for.
Third: what the auditor is entitled to, and what you owe
The Companies Law gives the auditor the right — at any time — to inspect the company’s documents, accounting records and supporting documents, and to request the data and clarifications they consider necessary to verify assets and liabilities; it obliges the manager or the board to enable them to perform their duty, and if the auditor meets difficulty they record it in a report to management, and if obstructed they ask that the partners or the general assembly be convened to consider the matter (Article 20(4)). The auditor’s report itself must state “the position of the company’s management regarding enabling the auditor to obtain the data and clarifications requested” (Article 20(5)) — meaning that delays in handing over documents can end up written in the report that partners, the bank and ZATCA read.
In return, the auditing standards require, before the engagement is accepted, that management acknowledge its responsibility for preparing the statements under the adopted framework, for the internal control needed to prepare them, and for providing all information and unrestricted access to anyone inside the business the auditor needs to question. The auditor does not prepare the statements or correct the books; they audit them — we set out the difference in our article on audit, review and compilation.
Fourth: ten causes that prolong an audit and multiply its findings
- Bank accounts without monthly reconciliations, or partners’ personal accounts through which the business’s transactions pass.
- Cash sales without documents, or revenue that does not reconcile to the VAT returns, so that confirming revenue becomes the largest item in the audit.
- No count at the reporting date, leaving the auditor to rely on alternative procedures that may not be sufficient for inventory.
- Fixed assets without a register: balances accumulated over years with no detail and no depreciation computed per asset.
- Unsupported opening balances; in the first year the auditor must obtain sufficient evidence about the balances at the start of the year, and if that is not possible the opinion is qualified.
- Partners’ drawings mixed with expenses, or recorded as loans without documentation.
- Undisclosed related parties: rent paid to a partner, or sales to a sister company at unusual prices.
- Long-term contracts without a file showing the basis of revenue recognition and the stage of completion.
- Provisions estimated arbitrarily for doubtful debts, end-of-service benefits and zakat — or missing altogether.
- A change in the accounting team during the audit, with nobody left to answer questions about the earlier period.
Each of these translates professionally into one of two things: a misstatement that must be corrected, or a limitation on the scope of the audit that the auditor cannot get around; the second is what leads to a qualified opinion or a disclaimer, as explained in types of auditor opinion.
Fifth: what happens after the report?
The auditor’s report is presented with the statements to the partners or the general assembly at its annual meeting for approval of the statements (Articles 20(5) and 88); the statements are then filed on Qawaem and the zakat return is built on them. The auditor usually delivers with the report a management letter of observations on internal control and the books; it is the most valuable thing a business takes from its first year if its points are addressed before the next — the subject of the next article in this series.
Frequently asked questions
When should the auditor be appointed: before or after the year end?
Before the financial year end, so that they can attend the inventory count at the reporting date and send balance confirmations on time. Appointment after year end is legally possible, but forces the auditor into alternative procedures that may not be sufficient, exposing the opinion to qualification.
What are the essential documents the auditor asks for in the first year?
The articles of association, commercial registration and partners’ minutes; the trial balance and general ledger; bank statements for the full year with reconciliations; receivables and payables ageing; count records and the fixed asset register; loan and lease contracts; payroll registers and the GOSI reconciliation; zakat and tax returns; and movements in capital and partners’ current accounts — plus evidence for the opening balances.
Is the auditor entitled to ask for any document?
Yes. Article 20 of the Companies Law gives the auditor the right, at any time, to inspect the company’s documents, accounting records and supporting documents and to request the necessary data and clarifications, and obliges management to enable them; otherwise the auditor records it in the report.
How long does a first audit take?
It depends on the readiness of the books more than on the size of the business. A business that hands over the full document list with bank reconciliations and a documented count completes its audit in weeks; one whose statements are built during the audit can take months and collide with the 120-day zakat return deadline.
What is the management representation letter and why must it be signed?
A written acknowledgement by management at the end of the audit of its responsibility for the financial statements, that it provided the auditor with all records and information, and that related parties, litigation and subsequent events have been disclosed. The auditing standards require it before the report is issued.
Can the first financial year be shorter or longer than a year?
Yes. Article 16 of the Companies Law allows the first financial year to be no less than six months and no more than eighteen months from the date of registration in the commercial register.
How we help
At Al-Mousa & Al-Tamimi Certified Public Accountants we begin a first audit with a clear engagement letter, a document list ordered by priority and a timetable that works backwards from the zakat return deadline; we attend the count and send confirmations on time, and we deliver with the report a management letter setting out what should be fixed before the following year.
See our external audit service · Read next: when must a company appoint an auditor? · Preparing your file for a ZATCA examination · Contact us
Sources: Companies Law, Royal Decree No. M/132 dated 1/12/1443H — Saudi Laws Portal (Articles 16, 17, 18, 20 and 88; Arabic); Implementing Regulation for Zakat Collection, 1445H edition — Umm Al-Qura official gazette (Article 102; Arabic); International Standards on Auditing adopted in the Kingdom — SOCPA (ISA 210, 501, 505, 510 and 580; Arabic). This article is general guidance and is not a substitute for advice on a specific case.
