A statutory audit is a business’s requirement to submit its accounting documents and operations for examination by an outside party, such as auditors. It indicates the accuracy of a company’s financial records. Businesses are held to a fair standard on the reporting date, thanks to statutory audits. Therefore, an independent review of financial records by authorised auditors to verify adherence to legislative mandates and accounting standards is known as a statutory audit.
By evaluating the entity’s financial health, its main goal is to provide transparency and encourage trust among stakeholders. Important elements of the statutory audit in the UAE include the following:
Autonomous Audit Organisations
Independent audit companies that have been properly registered and authorised by the UAE Ministry of Economy and relevant regulatory agencies are in charge of carrying out statutory audits
Financial Statements Every Year
Companies in the United Arab Emirates are required to provide yearly financial statements. Examining these statements, verifying their correctness, and expressing an opinion on their conformity to accepted accounting principles are the responsibilities of the statutory auditor.
Reporting Requirements
The auditor provides the audit report to the appropriate regulatory authorities as well as the company’s shareholders.
Legal and Compliance Requirements for Statutory Audits in the United Arab Emirates
In the United Arab Emirates, statutory audits are subject to a number of laws and regulations that guarantee adherence to corporate governance procedures, auditing standards, and financial reporting requirements. These standards for compliance fall into the following categories:
Legal FrameWork
Federal Decree-Law No. 41 of 2023, which supersedes Federal Law No. 12 of 2014, is the main statute controlling statutory audits in the United Arab Emirates. This legislation lays out the responsibilities for audit companies and professionals and creates a strong foundation for the accounting and auditing profession. Ministerial decisions like No. 74 of 2023 and No. 82 of 2023 also provide specific guidelines and requirements for audits of company tax compliance.
Required Audit Conditions
Organisations Subject to Audit: Depending on how they operate, certain organisations are required to undergo statutory audits. Usually, they consist of:
- Companies in the public sector are obligated to frequently perform statutory audits.
- Commercial Companies: All businesses founded on the UAE mainland are required to conduct financial audits in accordance with Federal Decree-Law No. 32/2021.
- Individuals Subject to Taxation: Organisations classed as Qualifying Free-Zone Persons or those with annual sales above AED 50,000,000 are required to file and maintain audited financial accounts.
Documentation Mandatory for Statutory Audit
The government mandates statutory audits in order to monitor and assess the performance of businesses. Although these specifications are almost the same, they might differ based on the kind of business and the location of the organisation. Dubai’s statutory audit standards call for the following paperwork:
- Details on fixed assets
- Details on all statutory obligations and other responsibilities
- Information on every business transaction
- All accounts’ bank statements that provide more facts about transactions and money receipts
- Information about inventories, and Information about every business transaction
- Details on loans, advances, and verified and unrestricted credit
- Total amount owed and due
- Information about import and local purchases
- Overhead expenses consisting of Salaries for management and employees
- Information about earnings and other applications
- Information on all statutory obligations
Statutory Audit Requirements in Free Zones
Statutory audits are necessary for authorities in free zones. When renewing their yearly licence, businesses must present audited reports. In the majority of UAE free zones, it is mandatory. An appointed Company Liquidator may need to get the same information from the company’s management.
Every year, the authorities require an audited report from every branch of international corporations registered in the United Arab Emirates. This will assist management in comprehending the operation of the business and the efficacy of different process controls.
Qualifications and Licensing of Auditors
Statutory auditors are required to have a licence. The Ministry of Economy grants audit licenses in accordance with certain requirements, such as:
- a legitimate accounting bachelor’s degree.
- Depending on the situation, practical experience might range from one to five years.
- Association of Accountants and Auditors of the Emirates (EAAA) membership.
Observance of Auditing Standards
For all statutory audits, the Ministry of Economy requires that the International Standards of Auditing (ISA) be followed. Maintaining the integrity and openness of the audit process depends on adherence to these principles.
Repercussions for Non-Compliance
Relevant authorities may impose penalties or fines for noncompliance with statutory audit requirements, which may include late submission, providing false information, or failing to keep the required documents.
Conclusion
To guarantee the correctness and openness of the company’s finances, shareholders want audited financial statements. Investors may use these reports to do a risk analysis and decide which investments to undertake. Before approving a loan or releasing cash, banks and other financial institutions in Dubai, United Arab Emirates, must see the company’s audited financial accounts.
Understanding the nuances of statutory audits is essential for companies doing business in the United Arab Emirates in order to achieve both regulatory alignment and financial success. Statutory audits provide the means to sustain a competitive advantage in an ever-changing corporate environment by guaranteeing legal compliance and maximizing performance.
