Audit Requirements In UAE: Do All Companies Need to Be Audited?

Auditing plays a crucial role of checking and verifying accounts of companies to ensure compliance with the accounting and financial reporting standards. The Audit Requirements in UAE differs depending on whether the company is operating in the mainland or in any free zone. This article will explain each and every aspect of audit requirements for the companies operating in UAE. 

Requirements for Auditing Companies in UAE

The primary legal provision that covers the rules of auditing in the UAE is the Commercial Companies Law No 32 of 2021. According to this law:

• Annual audit of the financial statements of commercial companies has been mandatory for all the companies operating in the UAE mainland. To do this, they must appoint an authorized and licensed auditor to undertake this task.
• Audit is optional in free zone companies, but in some cases free zone authority may require it. But there are some that fall under the category of mandatory auditing,g such as the free zone companies (FZCO) and free zone establishments (FZE). Some of the Free Zones that require audits are: Dubai Multi Commodities centre (DMCC), Dubai World Central (DWC), Dubai Airport Free Zone (DAFZA), Jebel Ali Free Zone (JAFZA), Dubai Silicon Oasis (DSO), and Dubai International Financial center (DIFC).
• Corporations incorporated in the UAE but owned by foreign investors are required to file annual audited financial statements of the branch.
• It is mandatory for companies that are engaged in liquidation processes to have the liquidator to produce an audit report.
• Certain government authorities may also prefer to receive audited financial statements by companies for their records as well.
• There is a legal requirement for every company incorporated in the UAE, unless otherwise provided for by the Cabinet, to provide an audited financial statement to the relevant authority not later than four months after the end of its financial year.
• The report must be prepared based on the International Financial Reporting Standards and must be prepared by a licensed auditor or an audit firm holding a license from the Ministry of Economy, the report should include a complete set of financial statements along with an audit opinion.
• Moreover, commercial company accounts should be kept for at least 5 years due to legal requirements for record retention.

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Table: Audit Requirements in UAE

Read more: Top 10 Audit Firms in Dubai

Mainland vs Free Zone companies in UAE

The UAE provides two primary business formation choices, which are the mainland and the free zones. It is important to note that these differ in certain key aspects, largely concerning ownership, operation, and audit.

Purpose of Auditing of Financial Accounts

Beyond legal compliance, auditing serves important management purposes for companies:

• Management purposes: Analyse the financial situation, review the performance, and evaluate the business advancement.
• Third-party requirements: Banks/lenders usually seek audited statements when conducting loans/credit checks. Suppliers may as well.
• Shareholder/owner assurance: Allows presenting accurate financial information when making changes to the ownership.
• Financial statement credibility: The third parties are more likely to consider the audited statements as more reliable.
• Error/fraud detection: They detect simple mistakes and reveal cases of possible embezzlement.
• Tax compliance: Assist in the preparation of correct corporate tax returns and preparation of Transfer pricing documentation.

Thus, it can be seen that many non-mandatory companies prefer to audit for operational and assurance reasons only. A qualified audit brings confidence in the quality of financial statements and management information. 

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