Auditing is a necessary process undertaken by UAE companies to ensure their financial compliance with the laws and acts as a measure for future business improvements and credibility. It works by having an auditor to analyze and inspect an organization’s books of account and assess whether profits and losses coincides with their financial report to ensure the accuracy of statements and catch errors or fraud.
There is a lot of uncertainty each year from clients who have set up a newly formed business in Dubai and the UAE regarding accounting, bookkeeping, and audit obligations.
Below we have listed some of the frequently asked questions:
- Frequency – Should I get my UAE company account audited every year?
- Needed Requirements – Is there a legal requirement to get our books audited in the UAE?
- Process – Do we need to submit audited accounts to any government authorities?
- Penalties – Will we get a fine if we don’t get our company accounts audited and submitted to government authorities?
This article will address if companies in the UAE are required to get their books of accounts audited. Furthermore, we will highlight reasons on why it is necessary for businesses to get audits done for their financial statements.
UAE COMMERCIAL COMPANIES LAW REQUIREMENTS
From a legal aspect of whether a Dubai or UAE business needs to get their financial statements audited will entirely rely on the jurisdiction of where the business is incorporated. The jurisdiction will specify if it is mandatory requirement for a Dubai or UAE company to get their books of accounts audited or not.
For companies registered in mainland Dubai and UAE, such companies must comply with the requirement of Commercial Companies Law. Requirements as per the new UAE Commercial Companies Law, Federal Law No. 32 of 2021, Chapter 2, Article 27, are listed below:
- Every company shall have one or more auditors to audit the accounts on a yearly basis.
- Company shall prepare annual financial accounts including the balance sheet, the profit and loss account.
- Company shall apply the International Accounting Standards and Practices upon preparing its periodical and annual accounts, to give a clear and accurate idea of profits and losses.
Free zone companies need to comply with the requirement of their respective free zones. For example, some jurisdictions such as: IFZA free zone and RAKEZ free zone currently do not require companies to submit annual audited accounts. Whereas DMCC free zone and Dubai South free zone etc., require all companies to file audited reports annually.
In addition to the jurisdiction of where a company is located, type of company also determines if audited accounts are mandatory or not. For example, it is mandatory for branch of foreign company to get this type of company/branch accounts audited annually. If a company is under the process of liquidation, liquidators also require the most up to date audited financial accounts.
Irrespective of the fact if companies require an audit of their financial statements or not, it is a general requirement for all businesses to maintain their records for a period of at least 5 years.
Generally, companies need to submit their audited accounts within 90 days of the company’s year-end. If for some reason, the audit will not be completed by the due date provided by the authority, companies may submit an Undertaking Letter from their auditor stating the audit is underway and will be submitted in due course. Normally such Undertaking Letters are to be approved by the authority and are likely to be accepted in the interim. However, it is imperative a company provides the audit report asap.
MAIN REASONS WHY A COMPANY SHOULD MAINTAIN AUDITED ACCOUNTS:
Listed below are the main reasons and the benefits of maintaining audited accounts for your organization these include:
Up to date Records
Companies who have the practice of maintaining audited accounts, will automatically maintain proper bookkeeping records and ensure all transactions are recorded regularly and in accordance with the acceptable accounting standards and practices.
Management Decision Making
Accounting error may prevent management from making correct decisions. Audited accounts will help in providing management with the correct financial data and results of operations of the company, in addition to having all transactions correctly recorded in accordance with International Financial Reporting Standards.
The information included in audited financial statements is critical for decision making for an investor. Audited accounts provide a certain level of comfort and assurance on the financial situation of a company if accounts are audited. It will be easier for management to attract investors or raise capital if audited accounts are available. In addition, if a business has taken a bank loan or would like to take a bank loan, it will need to submit audited accounts to the bank.
Reduces Risk of Fraud
As part of their audit, external auditors need to verify internal controls present in an organization. They can identify the possible gaps in the internal control system and suggest ways to improve controls to avoid frauds by employees, thereby reducing the risk of losses that a business may face. This is important, where the owner or shareholders are not available to verify and approve all transactions of the company or where the business has more than 1 shareholder/owner.
As a good business practice for your Dubai and UAE companies, we encourage those to get accounts audited. Even if it is not required by governing bodies for your UAE company to provide audit accounts, the advantages would prove beneficial in the long run. Creation Business Consultants has partnered with several trusted audit firms and can make an introduction should you require assistance. Should you require assistance with accounting, or bookkeeping services contact our team at [email protected] or call +971 4 878 6240.