Financial audits are independent investigations into the records, processes, and statements of a company concerning their accuracy in line with accounting standards. It reviews whether the financial information presented concerning the company is presented fairly and according to the applicable Financial reporting standard.
Laws Governing Audit in UAE
The following regulations govern audits in UAE:
- Commercial Companies Law (Federal Decree-Law No. 32 of 2021)
- This law requires the audit of all mainland companies’ accounts.
- Free Zone Regulations
- Audits are required depending on the different free zones
- Corporate Tax Law (Federal Decree-Law No. 47 of 2022)
- Corporate tax imposition has made maintaining proper financial books and audits much more important.
- Ministerial Decisions
- Some ministerial decisions explain the requirements concerning audits, especially for those entities and companies that come under the category of a taxable entity and companies operating in free zones.
Audit Requirements for General Trading Companies in Mainland UAE
Audit Requirement of Companies in UAE Mainland: Following are the audit requirements to be completed by the companies in the mainland of UAE:
- Statutory Audits
- Companies operating in the mainland are required to have yearly audits conducted by a registered and licensed external auditor.
- It also comprises the requirement of an audit of financial statements in compliance with accounting standards.
- Record Keeping Duty
- The companies are required to maintain the books of accounts for at least five years.
- Audit of Financial Statement
Free Zone Companies’ Audit Requirement
Free zone companies are governed by some special regulations. Special audit requirements may be applicable in different free zone authorities.
- The submission of the audit is discretionary.
- Not all free zone companies are required to present and file audited financial statements unless their respective free zone authority demands so.
- Statutory Requirement for Auditing in Some Entities
- FZE and FZCO may be required to carry out audits based on the regulatory requirements.
- Voluntary Preparation
- Though audits are not compulsorily necessary, it is essential for free zone companies to keep records in order to address future potential auditing procedure requirements.
Comparison of Audit Requirements: Mainland vs. Free Zone
Parameter
| Mainland Companies | Free Zone Companies | |
| Audit Requirement | Mainland Companies | Authority-dependent |
| Record Keeping Requirements | Must keep financial records for a minimum 5 years | Authority-dependent but advisable on record |
Statutory Audits and Their Importance
The importance of statutory audit include:
- Compliance
- Compliance with financial reporting and tax laws.
- Credibility
- Maintaining internal control
- Corporate Tax Compliance
- Ensures proper and accurate tax filings, thus avoiding FTA audit risk
Financial Audit Documents
The documents commonly used in a financial audit process are:
- Company general information: legal form, ownership, and trade license.
- Financial records: Bank statements, invoices, receipts, and cash transaction records.
- Details on fixed assets: depreciation schedules and valuation reports.
- Stock reports: stock valuation and movement records
- Commercial agreements: sale, leasing, and purchase agreements
- Tax Record: Corporate return, VAT, and other statutory dues.
- Outstanding Liabilities and Dues Receivable: All payables and receivables have to be kept on a record with details.
- All these books of accounts should be correctly maintained and updated to have an efficient audit.
Audit Process for General Trading Companies
- Pre-Audit Preparation
- Collecting all the books of accounts and financial documents, reports, and records.
- Reconciliations of accounts.
- Fieldwork by External Auditors
- Audit of financial transactions.
- Audit of internal controls and compliance matters.
- Audit Report Preparation
- The auditor shall prepare a comprehensive report on the findings, inconsistencies, and recommendations.
- Submission and Review
- The audit report shall be forwarded to the concerned authorities or stakeholders.
Penalty for Non-Compliance with Audit
Non-compliance with audits may attract very stern penalties, including:
- Financial Fines
- AED 10,000 to AED 500,000, depending on the seriousness of the offense.
- Operational Restraints
- Suspension of licenses or operations of non-compliant companies.
- Legal Ramifications
- Legal Action and Reputational Damage for Persistent Offences.
Advantages of Financial Audits for General Trading Companies
- Improved Financial Accuracy
- Ensuring that financial records are accurate and reliable.
- Better Decision Making
- To give a clear picture of the financial position, this will help make strategic decisions.
- Regulatory Compliance
- Meets statutory compliance and avoids penalties.
- Easy Access to Finance
- Audited companies are considered more trustworthy by lenders and investors.
Audit Preparation Tips
- Maintain Organized Financial Records: Keep the financial records updated and organized.
- Qualified Auditors: Engage auditors with professional qualifications and experience, particularly those trained in UAE legislation.
- Internal Audit: Regular internal audits help in the early detection and solving of problems.
- Compliance with Regulations: Keep updated in the case of changes in law and update requirements.
Conclusion
Financial auditing is recommended to be conducted for general trading companies in the UAE. Companies operating either in the mainland or a free zone should maintain proper financial records. Contact us, and we shall be glad to assist you with audit services.