Statutory Audit Requirements in Dubai (UAE)
The United Arab Emirates (UAE) hosts a significant number of businesses catering to the Arab and North African markets. It is a sought-after destination for entrepreneurs and investors. Enterprises in the UAE operate under a range of laws and regulations, overseen by various government agencies. The Federal Tax Authority (FTA) manages Value Added Tax (VAT), while Free Zone authorities handle licensing, incorporation, and related matters. Businesses operating in Dubai and the UAE must comply with multiple statutory requirements.
What is Statutory Audit?
Typically, a statutory audit is one that is required by the nation’s laws and is therefore legally mandated. To protect the interests of shareholders, the nation’s government uses the statutory audit to confirm the fairness and correctness of all financial information pertaining to the company.
To guarantee conformity with government laws, public sector enterprises in the United Arab Emirates are required to undergo periodic statutory audits. A authorized statutory auditor is required to audit the financial records of all government entities in the United Arab Emirates.
Audit service teams in the UAE have a few tasks to complete before starting statutory audits. The term of statutory auditors, who are chosen by shareholders at an annual general meeting, usually lasts between three and five years.
Statutory audit firms, which are independent bodies, provide thorough inspections of the accounting and financial procedures of businesses, providing a transparent and understandable assessment of the business’s financial situation. In certain instances, the government could order a Dubai statutory audit company to help the business by evaluating documents and offering insights. The government may also order statutory audits to assess and examine the performance of businesses.
What is a Statutory Audit Function?
The term “statutory” implies that statutory audits are obligatory. Alternatively, a company’s board of directors or key management personnel may have established policies and procedures.
Audits involve reviewing documents owned by businesses, government organizations, departments, or individuals. This process includes analyzing various financial records and other relevant areas. For instance, financial audits of a Dubai-based UAE company may encompass reports on income, benefits, returns on investment, expenses, and more. These elements can be used to calculate cumulative ratios.
The primary purpose of a financial audit typically revolves around assessing whether funds were managed appropriately and if all necessary records and filings are accurate. While a statutory audit does not imply misconduct, it serves as a formality to deter criminal acts such as misappropriation of funds. It involves regular scrutiny by a professional third party, applying similar principles as in other audit forms.
Requirements for a statutory Audit include several documents that auditors need to examine:
- Detail of fixed assets
- Details of Legal and professional expenses
- Information about all company’s transactions
- Bank statements
- Details of stock / inventory
- Details credit, loans and advances
- Trade payables and receivables
- Details of purchases local and imported
- Overhead costs, including management and staff salaries
Is Audit necessary for companies in the UAE?
Free Zone entities are obligated to undergo an audit of accounts, whereas for certain local or foreign companies, this requirement may not be mandatory. Regardless, it is crucial for all companies to maintain accounting reports and documents to facilitate the audit process.
As per the commercial companies’ law, mainland companies are mandated to conduct an audit of accounts. Each company is required to appoint an authorized and licensed auditor to audit their books of accounts. However, not all companies are obligated to adhere to these requirements.
Legal Requirements
Certain free zone companies are obligated to submit audited financial statements to the respective authorities.
Foreign companies must annually submit audit reports and audited financial statements for the branches registered in the UAE. Audited financial statements for companies undergoing liquidation are essential for preparing the liquidator’s audit report.
Government authorities, including ministerial departments, municipalities, and insurance authorities, also require companies to submit their audited financial statements.
Management purposes
Certain UAE companies conduct audits on their books of accounts to gain insights into their financial standing, gauge the business’s progress, and evaluate the overall performance of the entity.
Business owners often seek advice on the net worth of their enterprises, prompting them to conduct annual audits on their books to present a clear and comprehensive picture of the business to shareholders.
Third-Party Requirements
Lenders, including non-banking financial institutions and banks, require companies to undergo audits by an audit firm for their books of accounts.
Dealers and suppliers also request companies to provide audited financial statements as a means of ensuring the financial creditworthiness of these companies before engaging in business transactions with them.
