External audit for a private nursery in Dubai

A nursery does not look like a complicated business from the outside. Fees come in each term, salaries and rent go out each month, and the rest is small. That impression is part of the problem. It leads to accounting treatments that nobody revisits, and errors that sit undisturbed in the books for as long as the cash keeps arriving.

Swift was engaged to carry out the external audit of a private nursery in Dubai. The work covered the annual financial statements, the accounting records behind them, and the processes supporting three revenue streams: tuition fees, sales of educational materials, and uniforms.

Two things were wrong, and neither had been noticed.

The first issue was revenue recognition. The calculation used to recognise income was not correct, and the result was that revenue was overstated in the financial statements. Income was not landing in the periods it belonged to.

This is common in nurseries and it is rarely deliberate. Fees are often invoiced by term or by year, sometimes with deposits, sometimes with discounts, and the money frequently arrives before the service has been delivered. If the recognition schedule does not follow the delivery of the service, the accounts show a business performing better in one period and worse in another than it actually did.

The second issue was inventory. Everything the nursery bought in educational materials and uniforms had been recorded straight to cost of sales at the point of purchase. Nothing was carried as stock.

There was no inventory tracking in place at all, so there was no record of what remained unsold at the year end. The statement of financial position understated what the nursery held. Cost of sales was overstated in the periods when stock was bought and understated in the periods when it was actually used. And because the cost side was wrong, management had no reliable view of what it was really making on materials and uniforms.

That last point matters more than it sounds. A nursery selling uniforms and materials is running a small retail operation alongside an education business. If you cannot see its margin, you cannot tell whether it is contributing anything or quietly costing you money.

We reassessed the revenue recognition calculations so that income was recorded accurately and in the correct accounting period.

We then analysed the purchases of uniforms and educational materials to work out what the inventory balances should have been. Once those figures were established, the relevant amounts were reclassified. Proper inventory records were created and cost of sales was adjusted accordingly.

The audit adjustments and revised financial schedules were prepared so that the financial statements reflected the nursery’s actual financial position, and we took management through both issues so they understood how each had arisen.

The financial statements were corrected and fairly presented once the adjustments were made. The revenue overstatement was identified and rectified, which improved the reliability of the reporting management and other stakeholders depend on.

Proper inventory recognition was established for uniforms and materials, which produced accurate cost of sales and, for the first time, a readable margin on those lines.

Beyond the audit itself, we left the nursery with practical recommendations: a basic inventory tracking process for materials and uniforms, a stronger approach to recognising tuition and related income, and a clearer way to monitor operational profitability month to month.

An external audit is often treated as a compliance exercise, something to be completed because a licence or a bank requires it. This engagement is a reminder that an audit also finds things.

Neither of these issues involved anything unusual. Both were ordinary treatments applied consistently for a long time, which is exactly why nobody inside the business questioned them. It took an independent review of the records to surface them, and once surfaced they were straightforward to correct.

Swift provides external and statutory audit services to businesses across Dubai, including nurseries and early learning centres. We also help owners put in place the accounting processes that stop the same issues returning. If you are appointing or reviewing your auditor, or you want a clearer view of where your business is actually making money, contact our team.