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There are substantial distinctions between accounting standards and principles. Accounting standards are precise rules and regulations established by accounting or other regulatory agencies in order to ensure that financial reporting is transparent, accurate, and fair.
Accounting standards include the International Financial Reporting Standards (which address global uniformity of accounting processes) and the Generally Accepted Accounting Principles (GAAP) proposed by the IASB and FASB, respectively. Businesses must adhere to these guidelines in the letter.
Accounting principles, on the other hand, are a set of broad and established concepts that assist organizations in recording and presenting transactions in a unique and accurate order. Businesses in Dubai, United Arab Emirates, are not required to follow all accounting rules. Rather, they can select accounting concepts that are compatible with their operations and goals.
The UAE does not have its GAAP. The “UAE Commercial Firms Law” implemented new accounting standards laws in 2015, requiring public limited companies listed on NASDAQ Dubai, Dubai Financial Market PJSC, Dubai Financial Services Authority (DFSA), and Abu Dhabi Securities Exchange to meet IFRS standards. The same may be said for foreign enterprises doing business in the UAE. Dubai, as a UAE state, is required to apply IFRS accounting standards in accordance with UAE regulations.
Other companies listed on other stock exchanges or companies might choose to use IFRS or their own securities exchange’s accounting rules.
If a private company is founded under “The UAE Commercial Companies Law,” it must adhere to international accounting standards.
As a regulator of the banking industry, the Central Bank of the UAE requires that all banks operating in the UAE’s seven states adhere to the International Financial Reporting Standards (IFRS).
There are some basic accounting rules that all businesses must adhere to. However, whether they utilize the IFRS or GAAP framework will determine how they execute those principles in their operations. Accounting concepts are presented here by IFRS norms because they are more relevant to Dubai enterprises.
According to IFRS-18, firms can record sales revenue by transferring goods or products to customers in exchange for an agreed price. The cost of the recording revenue item must be identified as a precondition. If an item’s costs cannot be traced for a specific period, that item’s revenue for that time will be zero. According to IFRS-15, when recognizing income from contracts, businesses must use the “% of completion” technique. enterprises.
Businesses must take expenses into account when preparing an income statement for a period in which related revenue items have been recognized. This is why businesses in Dubai do not include the cost of ending inventory in their gross profit calculations because these items have not yet been sold and hence have not contributed to revenue generation. The same principle compels businesses to record an asset’s depreciation expense regularly in proportion to the economic benefits the item is expected to produce in a given period.
All Dubai public limited corporations are required to publish annual financial statements reports at least once a year. The notes to the financial statements are required by the International Financial Reporting Standards (IFRS). Because of the full disclosure principle, companies are required to incorporate relevant non-financial information, such as contingent assets and liabilities, derivatives, and other items not included in financial reporting, in the notes, as well as a detailed breakdown of reported accounts. It assists general investors in making informed decisions about their next steps.
Companies in Dubai, UAE, are required to prepare financial statements assuming that their operations will continue indefinitely. This is why expenses are divided into current and non-current categories. Though the next year is referred to as the going concern period in GAAP, IFRS considers all foreseeable years to be the going concern period.
Ordinary business transactions in Dubai must be recorded on behalf of the company, not the owner. This idea allows businesses to differentiate their owners’ transactions from their enterprises’ transactions, demonstrating that businesses are distinct from their owners.
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