What is a Statutory Audit in the UAE? Process and Importance Explained

The United Arab Emirates is an investment doorway to the Middle East. It is one of the top destinations for investments and home to many international companies due to its business-friendly policies and robust legal system. Additionally, the laws and regulations of the UAE apply to all the companies operating in the UAE. Different aspects of companies are regulated by different government bodies. The Federal Tax Authority is responsible for handling the statutory audit in UAE, an audit mandated by the law of the country.

Statutory Audit in UAE

Statutory Audit is basically an independent review of the financial statements of an organization. Through this review, the auditors ensure that their financial statements are accurate and in compliance with the laws and guidelines. This helps businesses plan a better future for their business and protects them from potential risks.

The below-listed organizations are typically subject to statutory audit in UAE:

• Banks and investment firms
• Insurers
• Brokerage services
• Publicly traded companies

All public sector companies in the UAE need to have a statutory audit performed regularly by a designated auditor, who is elected by shareholders at an annual general meeting. In addition, statutory audits are also performed by independent entities and audit firms. They extensively review the accounts and procedures of the company and provide a fair and transparent view of its financial situation.

The government directs a statutory audit firm to assess business records, provide inputs, and evaluate overall business performance.

Statutory Audit in UAE – Basic Procedure

A company usually conducts a statutory audit when ordered by the concerned authority. These steps will explain the necessary statutory audit requirement in UAE that businesses must keep in mind –

Review the internal audit report – Conduct an extensive review of the internal auditors’ report to get a clear understanding of the mechanisms and finances of the organization.

Report all conflict situations – Reviewing the internal audit report will help identify certainties and accordingly recommend solutions to improve the profitability and efficiency of the company. The present auditor must consider all these suggestions and discuss them with the company’s management as well.

Review the previous statutory audit report – Assessing the previous statutory report can provide a glimpse into the previous financial status of the company and how it was ranked in the past. Based on this data, the auditors can prepare the present statutory audit report.

Understand the accounting and auditing software – Using accounting and auditing software helps businesses keep track of information about their finances. Therefore, auditors must ensure to understand this software and their functioning to assess the following:

• Understand how costs and expenses are sanctioned
• Identify the expenses related to business functions
• Learn the marketing, sales, and partnership policies of the company

Statutory Audit Requirement in UAE

The basic requirements of a statutory audit in the UAE are:-

• Mandated by the regulations set forth by the UAE Federal Law and the Commercial Companies Law
• Appoint an independent, registered auditor approved by the UAE Ministry of Economy
• Adhere to the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS)
• Comply with the laws and regulations governing financial activities including tax regulations, corporate governance rules, labor laws, and all industry-specific regulations

Necessary documents required in Statutory Audit UAE

To conduct a statutory audit in UAE, auditors require the following information and documents of the company:-

• Information about fixed assets
• Information about all legal dues
• Details of all company agreements
• Bank statements for all business accounts including information on transactions and details of financial receipts
• Details about inventory
• Details on all company transactions
• Information regarding verified and free credit, loans, and advances
• Total payables and receivables
• Details for purchases, both local and import
• Overhead costs including remuneration for management and staff
• Details concerning profit

Things to consider during Statutory audit in UAE

To understand the accounting system mechanisms of a company, the auditors must understand the components of an internal control system. This will help them accommodate the procedures of internal control systems and assess the risk involved, even if they are unable to sort the company accounts.

• Analytical scrutiny: The auditor determines the nature, duration, and size of the audit on the basis of their evaluation of the systems of audit risk and internal control.
• Evaluation of audit results: After finishing the audit, the auditor assesses the results to create a report, which defines the scope of audit work and findings concerning fairness in each financial position and operation.
• Follow-up: Approximately six months after the publication of the audit report, the Office of Internal Audit Services UAE will conduct a follow-up audit to check whether remedial actions were taken.
• Valuation of financial assets: Employees prepare the accounting records of the company, which are further checked by an external auditor. The audit firms in Dubai ensure that the prepared financial records are accurate.
• Establish credibility: The reputation and credibility of a company attract investors and gain government confidence. Moreover, customers also see the company as a trusted brand which further boosts its success.
• Recognizing and correcting errors: The auditors scrutinize the books of accounts to identify errors and discrepancies and effectively rectify them.
• Reduce fraud risks: The companies need external auditors to conduct independent audits of the financial records. This helps them identify scams or unnoticed errors committed by employees that can lead to reputational damage or loss of money.
• Get an independent opinion: External auditors are the best source of current financial information for the company. They give an objective opinion on the business operation and provide valuable insights into its performance.

Benefits of conducting a Statutory audit in UAE

There are plenty of reasons for companies to have a statutory audit in UAE. The benefits of this process include the following:-

Ensure the accuracy of financial records – Statutory audits guarantee the accuracy and reliability of the company’s financial statements. Businesses engage external auditors to conduct an in-depth analysis of financial records, internal controls, and compliance with accounting standards. This provides shareholders and partners with a fair picture of the financial health of the organization.

Ensure management attention – Statutory audits draw the attention of the management team and encourage them to focus on the accuracy and efficiency of financial reporting and internal controls.

Promote compliance – Through statutory audit in UAE, businesses ensure that they adhere to the UAE Commercial Companies Law, International Financial Reporting Standards (IFRS), and other applicable regulations.

Provide a comprehensive understanding of company procedures – Statutory audits ensure the financial accuracy of the company and offer an all-inclusive understanding of its internal processes. They also assess the operational procedures, risk management practices, and governance structures of the organization to identify inefficiencies, mitigate risks, and enhance overall productivity.

Shuraa Tax – Providing the best audit services in the UAE

Shuraa Tax Consultants and Accountants, UAE is committed to delivering the best audit services for their clients. Through their proactive advice, insights, and thorough approach,  they streamline the finances of the company, maintain the day-to-day activities, and align the company for success. Utilizing their years of experience in business practices, they help businesses navigate the foreign investment landscape in the UAE.

Furthermore, Shuraa Tax also assists companies with issues and activities related to bookkeeping and accounting, tax and auditing, and other business financial services. If you have more questions about the Statutory Audit in UAE, feel free to connect with Shuraa Tax. They would be happy to assist you with their best services.