Have you ever thought about why businesses are subject to audit? There can be various reasons. However, there is one reason that is mandatory in any situation: “to increase confidence.” In the UAE, several companies are subject to audit. Therefore, there is a need to understand audit requirements in the UAE. Federal Decree-Law No. 2 Commercial companies mandate all companies to maintain accounting records showing their transactions, provided that such records would accurately and at any time demonstrate the company’s financial standing as per law. Furthermore, depending on the nature of the company and its revenue, some businesses might be subject to a statutory audit.
Audit requirements in the UAE
What is an Audit?
An audit, in simple words, is an independent examination of financial data. Professionally, an audit is a systematic examination and verification of financial records, transactions, systems, and processes to ensure accuracy, compliance with laws and regulations, and adherence to established standards and policies. Audits are typically conducted by qualified professionals, known as auditors.
Internal vs. External Audit
Broadly, an audit can be of two types: internal audits and external audits. Internal audits focus on the effectiveness of internal controls and the overall risk management and governance of a firm. The role of an internal auditor is to identify weaknesses in internal controls and areas of operational inefficiencies. Furthermore, they also evaluate the risks, including compliance risks, and recommend areas for improvement. On the other hand, an external audit is an independent examination of an organization’s financial statements. The goal is to evaluate the truth and fairness of financial statements concerning accounting standards and other regulations. External audits provide assurance mainly to external stakeholders of a business, such as investors, shareholders, creditors, and so on.
The findings of the internal audit plus recommendations are reported to the internal management, including the directors and audit committee. The goal of such a report is to provide actionable recommendations and insights to improve internal controls and operations. However, external audit findings are reported in the form of an audit report that is mainly for shareholders of the organization. The audit report provides an opinion on the truth and fairness of the enterprise’s financial statements, including disclosures.
Statutory Audit:
A statutory audit is an external audit mandated by the law. It is an examination of the firm’s financial position and performance as per the financial statements. This ensures compliance with the statutory requirements of business, including accounting standards, laws, and regulations. These audits are usually conducted on an annual basis. However, statutory audits are only an obligation for certain entities as per the relevant laws. These include entities such as public companies and entities subject to regulatory oversight. The primary purpose of these audits is to assure stakeholders such as regulatory authorities, shareholders, investors, and so on.
External auditors perform a statutory audit of a business. External auditors bring independence to the overall audit and their opinions about the entity’s financial performance and position. Relevant stakeholders, for instance, shareholders or regulatory authorities, appoint these auditors.
Typical documents that auditors need to conduct statutory audits in the UAE:
- Company basic details
- Fixed assets, including depreciation schedules
- Bank Statements
- Cash transactions
- Business contracts (such as a rent agreement)
- Statutory Dues
- Inventory
- Details on all company transactions
- Credit, loans, and advances
- Payables and receivables
- Purchases (local and imported)
- Overhead costs
This list is only for learning purposes; there can be a lot of other requirements.
The Need to Maintain Audited Financial Statements:
The Ministerial Decision No. 82 of 2023 provides audit requirements in the UAE for corporate tax purposes. The following categories of taxable persons shall prepare and maintain audited financial statements:
1) A taxable person with revenue of over AED 50,000,000 in a relevant tax year.
2) A Qualifying Free-Zone Person
Conclusion:
Understanding audit requirements in the UAE is vital for businesses operating in the region. Audits enhance overall confidence in financial reporting, whether it be a statutory audit, a voluntary audit, or an internal audit. In the case of statutory audits, which are mandatory for certain entities, remaining in compliance is a necessity. Internal and external audits both play a critical role in assessing a firm’s financial reporting accuracy and compliance. By complying with the audit requirements in the UAE, businesses will not only meet their legal obligations but also elevate their credibility. This, in turn, will boost overall investor confidence in the UAE’s business landscape.
Why CZTA?
Our team of experienced professionals provides comprehensive audit services, ensuring regulatory compliance every step of the way. Whether you’re a start-up navigating tax regulations or an established enterprise, we’re here to support your journey toward success. Partner with Creative Zone Tax & Accounting and unlock the full potential of your business in the dynamic marketplace of the UAE.
Disclaimer:
The information provided might get outdated with time. Therefore, this blog cannot be a reference for tax planning or tax advice. We strongly advise you to consult a tax consultant or lawyer for all your tax matters.
