To understand this, we should know about the different kinds of audits normally performed in UAE. Lets have a brief introduction of these.
Regulatory Audit
A regulatory audit focuses on ensuring that a company complies with the various laws, regulations, and standards set forth by the local authorities and regulatory bodies. These include compliance with:
- Federal laws and regulations: These cover laws issued by the federal government, such as labor laws, corporate governance regulations, and intellectual property laws. In the UAE, limited liability companies (LLCs) must comply with new governance and compliance regulations by December 31, 2021, according to Federal Decree Law No. 26 of 2020. Another example is the Law on Bankruptcy, which provides a framework for restructuring and insolvency procedures for companies facing financial difficulties or unable to pay their debts.
- Industry-specific regulations: Certain industries have additional regulatory requirements. For instance, the Economic Substance Regulations (ESR), require companies with relevant activities to demonstrate economic substance in the UAE.
Likewise, the Accountability and Audit Authority (ADAA) Resolution No. (1) of 2017, requires all ADAA subject entities and their material subsidiaries to comply with the resolution and follow the International Standards on Auditing (ISA) for their audits contracted after August 2017.
Statutory Audit
A statutory audit requirement in the UAE is a legal procedure that assists in determining the accuracy of a company’s financial reports and records. It is mandatory to hire a statutory audit firm in UAE to assist you in evaluating your records. In some cases, such audits are mandated by the government in order to screen and evaluate firm performance. Generally, the statutory audit requirement in the UAE helps the general society by encouraging financial accountability. It helps in ensuring that companies present valid and exact financial data to the general population. The statutory audit inspects data, such as accounting records, bank balances, and related economic exchanges.
The benefits of maintaining compliance with audit requirements in UAE are as follows;
- It improves the reputation of the company.
- The statutory audit report enhances the believability and credibility of the firm.
- It helps customers in assessing the company’s fiscal position before doing any business.
Performance Audit
A performance audit assesses the efficiency, effectiveness, and economy of a company’s operations, processes, and management. These types of audits are usually conducted by internal auditors or external audit firms with expertise in performance auditing.
Key features of a performance audit include:
- Scope and Objectives: The performance audit is customized to the specific needs of the organization and may focus on areas such as cost management, process improvement, risk assessment, and internal control effectiveness.
- Internal Control Evaluation: The audit evaluates the internal control mechanisms and identifies any weaknesses that could lead to inefficiencies or potential risks.
- Recommendations: The audit report provides actionable recommendations for improvement, enabling the organization to enhance its performance and achieve its strategic goals.
Is Audit necessary for companies in the UAE?
Audit of accounts is mandatory for Free zone companies (FZCO) and Free Zone establishments (FZE) but for some local or foreign companies, it may not be mandatory. It is important for the companies to maintain the accounting reports and documents to finalize the audit.
The commercial companies law states that the audit of accounts is mandatory for mainland companies. Every company must appoint an auditor to auditor for auditing their books of accounts authorized and licensed auditor, but many companies are not mandated to follow the requirements.
Legal Requirements
- Some of the free zone companies are required to submit the audited financial statement to the authority such as Dubai Multi Commodities Centre (DMCC), Dubai World Central (DWC), Dubai Airport Free Zone (DAFZA), Jebel Ali Free Zone (JAFZA), Dubai Silicon Oasis (DSO and Dubai International Financial Center (DIFC), etc.
- It is mandatory for foreign companies to submit audit reports and audited financial statements of the branch of foreign companies registered in the UAE every year.
- Audited financial statements of companies under liquidation are necessary to prepare the liquidator’s audit report.
- The government authorities such as ministerial departments, municipalities, and insurance authorities also demand the companies submit their audited financial statements.
Management purposes
- Some of the UAE companies get their books of accounts audited to understand their financial position, assess the progress of the business, and also to evaluate the performance of the entity.
- Sometimes companies only hire bookkeepers to update their day-to-day activities, but the auditor finalizes the books of accounts and also provides the necessary inputs for management decisions.
- The business owners also seek advice on the net worth of the business, so they get their books audited every year to have a clear picture of the business to present to the shareholders.
Third-Party Requirements
- Lenders such as non-banking financial institutions and banks insist companies get their books of accounts audited by an audit firm.
- Dealers and suppliers also ask the companies to submit audited financial statements to ensure the financial creditworthiness of the companies to deal with them.
How can Digits help you?
It is apparent that auditing your financial statements and books of accounts is mandatory in the mainland and some parts of the free zones in the UAE. Companies must appoint licensed auditors for auditing the books of accounts and financial statements. Companies that do not present the audit reports get penalties from the authorities. Digits provides a wide range of auditing services in accordance with the client’s business needs. Auditors at Digits are committed to providing the best auditing services in the UAE in compliance with the latest updates. Digits is a professionally equipped firm with relevant industry experience from different ends.
No matter whether you are located in the mainland or the free zone, we got you covered for your auditing requirements. Feel free to consult the expert teams of Digits about auditing services and any confusion regarding internal or external auditing. If you are looking for approved auditors in UAE, then don’t hesitate to us.