Is Audit Necessary for Companies in the UAE, Dubai ?
Audit of accounts is mandatory for some forms of entities in the free zone like the free zone companies (FZCO) and free zone establishments (FZE), for branches of local and foreign company audit reports may not be necessary for most free zones. In order to finalize the audit, it is obvious that the accounting records and documents must be available and well maintained. In UAE the general requirement for businesses is to maintain their records for no less than five years. The Commercial Companies Law states that the audit of accounts is necessary for all companies in the mainland. Generally, though the law stipulates the preparation of the audit report, the submission of the same is not enforced by the authorities and hence many organizations do not follow the same. Some free zones, particularly in the northern emirates do not require the submission of audited accounts for certain companies; one needs to bear in mind that this waiver is only for the submission of the audit report to the authorities however the preparation of audit report for the entity itself cannot be overlooked. The maintenance of accounting records will become more important for nearly all kinds of entities in the UAE in light of the forthcoming VAT in 2018. Companies have generally a time period between 3 to 6 months after the close of their financial year/period to complete the audit report and submit to the general assembly. Maintenance of accounting records and audit of same also assists the management to understand the performance of the company and areas which need more attention.
As per the new UAE Commercial Companies Law, Federal Law No. 2 of 2015, Article 27, Chapter 2, every company shall appoint auditors for auditing their books of accounts by a licensed auditor registered under the Ministry of Economy in the UAE. But many companies do not follow this requirement. In general, companies belonging to the SME category get their books of accounts audited in the following circumstances.
- Legal Requirements.
- Free Zone companies: Some of the Free Zones Authorities made it mandatory to submit the audited financial statements to the authority for renewing the trade licenses of the companies registered under them. Such free zones include; Dubai Multi Commodities Centre (DMCC), Dubai Airport Free Zone (DAFZA), Dubai World Central (DWC), Jebel Ali Free Zone (JAFZA), Dubai International Financial Center (DIFC), Dubai Silicon Oasis (DSO), Creative City – Fujairah, etc.
- Branch of Foreign Companies: It is mandatory for foreign companies to submit the audited financial statements of the branch of foreign companies registered in the UAE every year.
- Liquidation of the Company: Audited financial statements of Companies under liquidation is one of the most important documents for a liquidator to prepare the liquidator’s Report.
- Other Government Authorities such as Municipalities, various Ministerial Departments, Insurance Authorities, etc. also demand the companies submit their audited financial statements as of and when it is required for the authorities.
- For Management purposes.
- To understand the financial position, to evaluate the performance of the entity, to assess the progress of the business, also to get guidance from professional financial experts, some of the SME companies get their books of accounts audited. In the SME sector; small companies normally cannot afford the service of full-time CFO’s or experienced management accountants under their payroll to get professional guidance in decision making.
- Sometimes, the small companies employ only a bookkeeper to update their day-to-day activities. They expect the auditor to finalize the books of accounts and provide the necessary inputs for management decision-making on financial matters. Such business owners even take advice from the external auditor as to whether it is feasible to withdraw part of the profit or should it be retained in the business.
- The owners even seek advice on the net worth of the business to know if selling part of the shares to prospective owners (partners or shareholders) at a premium is a prudent proposition. At the same time, the majority of the SME companies managed properly are getting their books audited every year.
- Third-Party Requirements.
- Lenders such as banks and/or other non-banking financial institutions insist companies get their books of accounts audited by an audit firm which are listed by them as approved auditors.
- Suppliers or other dealers/institutions also ask the SME companies to submit their audited financial statements to ensure the credentials as well as financial credit-worthiness of the companies to deal with them.
Every company registered under UAE Commercial Company law must amend their Memorandum of Association (MOA) on or before 30th June 2017 to be in line with the provisions of the new UAE Commercial Company law issued in 2015. As per the provisions of the Law, it is mandatory to get the books of accounts audited every year. Hence with effect from 1st July 2017, every company registered under the law should get their accounts audited by a registered auditor.
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Courtesy to Khaleej Times