The Auditing of accounts is essential for certain entities in the free zones likely to be the free zone companies (FZCO) and for the free zone establishments (FZE). The branch of local and foreign company audit report may not be vital in most of the free zones. To substantially finalize the audit on the grounds of the accounting records, there must be documents available and well-maintained appropriately. In the United Arab Emirates, the general requirement for businesses are maintaining their records at least for five years time frame.
Northern emirates allocates free zones that do not require submitting the audited accounts for some companies. One should understand that the waiver permits the submission of the audit report to the authorities. But the preparation of the audit report for the entity itself cannot be overlooked.
The Commercial Company Law depicts the audit of accounts is mandatory for all the companies in the mainland. Generally, the law enforces the preparation of the audit report, the submission of the same is not impeccable by the authorities and hence many organizations do not follow the same.
The accounting records proves to be important for all types of entities in UAE for the forthcoming VAT in 2018. Companies generally have a limitation of 3 to 6 months after the close of their financial year to complete their audit report and submit to the general assembly. Maintaining accounting records and auditing can assist the management for understanding the performance of the company and their requirements.
On the accordance of the new UAE Commercial Companies Law, Federal Law No. 2 of 2015, Article 27, Chapter 2, It states every company can appoint auditors for auditing their books of the accounts by a licensed auditor registered under the Ministry of Economy in the UAE. But many companies do not follow this kind of requirement.
Companies belonging to the SME category get their books of accounts audited in the following ways.
The Free Zone companies comprise certain Free Zones Authorities makes it mandatory to submit the audited financial statements to the authority for renewing the trade licenses of the companies legally registered under them
The free zone such as Dubai World Central, Dubai Airport Free Zone, Jebel Ali Free Zone, Dubai International Financial Center, Creative City – Fujairah and Dubai Silicon Oasis.
Other types of Government Authorities that are Insurance Authorities, Municipality and Ministerial Departments require the companies to submit their audited financial statements to the authorities.
The Liquidation of the Company enhances the audited financial statements of Companies under liquidation as one of the essential documents for a liquidator to prepare the liquidator’s Report.
The Branch of Foreign Companies should submit the audited financial statements in the branch of foreign companies as registered in UAE each year.
The Management purpose
To understand the financial background, to evaluate the performance of the entity, to assess the progress of the business and to get guidance from the professional financial experts. The owners get advice on the net worth of the business to know the selling part of the shares from the prospective owners (partners or shareholders) serve a prudent proposition. In the meanwhile, the majority of the SME companies are managed properly for getting their books audited each year.
Certain SME companies get their accounts book audited likewise. In the SME sector there lays small companies unable to afford the service of full-time CFO’s or experienced management accountants under their payscale to get professional guidance in decision making.
Certain times, the small companies employ only a bookkeeper to update their daily activities. They expect the auditor to finalize the books of accounts and provide the necessary inputs for managing decision making on financial matters. This type of business owners take advice from the external auditor to withdraw part of the profit or retaining the business.
Lenders such as bank or other non- banking financial institutions seek companies to get their books of accounts audited by an audit firm which are listed as approved auditors. Suppliers or dealers or institutions ask the SME companies to submit their audited financial statements to list the credentials as well their financial credit-worthiness of the companies for dealing with them.
Each company that has been registered under UAE Commercial Company law must amend their Memorandum of Association (MOA) before 30th June 2017 to the provisions of the new UAE Commercial Company law as issued on the year of 2015.
As per the provisions of the Law, it is essential to get the books of accounts audited each year. From 1st July 2017, every company that is registered under the law should get their accounts audited by the registered auditor.