Companies are required to audit no matter in which country their company exists in the world. It depends on the jurisdiction as well, in the UAE companies are mandated to be audited but not in Freezones. Auditing in Freezones depends on the legal framework of the authorities or rules and regulations.
Those companies that are not mandated to get audited are also encouraged to undergo an audit to ensure that the company is not having detrimental problems. The one important thing is that only the authorized audit firm can perform auditing for your business, and you need to find one of the best-authorized audit firms to get auditing services.
Audit requirements in UAE
According to the Commercial Companies Federal Law, No.32 of 2021, all the companies in the mainland UAE have to get their financial accounts audited. The companies in UAE have to keep their financial records for five years at least to comply with the requirements.
Companies that are in the free zone do not get audited necessarily and do not submit an audit report. However, there are some entities that have to deal with mandatory auditing such as free zone companies (FZCO) and free zone establishments (FZE).
If the free zone is not required to submit an audit report but it must prepare it for the company itself. The audit report of the company can be required for immigration at any point in the future.
Now the tax system in UAE is getting more active and in play and companies are finding it more necessary to maintain their accounting records and audits. This gives the company better insights into which areas of the company require more attention and how they can be handled in the future.
Auditing in Mainland VS Free Zone
It is important to know more about the mainland and free zone to know the auditing regularities in UAE. The mainland is the location outside of a free zone area and companies in the mainland are onshore companies. The licenses are issued by the Department of Economic Development or any other related department in the UAE. these companies are free to do business without restriction outside the UAE and in the local market.
Even if there are many advantages to having a company on the mainland but a foreign individual needs a local sponsor, and he should be a UAE national. The local sponsor must own at least 51% of your business.
On the other hand, the free zone authority is a location that has its jurisdiction in the UAE. free zones have their own rules and regulations and companies are allowed to do business in UAE or outside UAE.
If you are starting your business in free zone areas, then you will get many free zone benefits. Foreign persons do not have any local sponsorship because they can have 100% ownership. You will find industry-specific free zones all over the UAE that focus on the requirements of a certain industry. At this point, companies in free zones are not required to present an audit report to the authorities but audit reports are necessary for a company to comply with the tax regulations accurately.
There are many auditing firms in Dubai, UAE that are helping people with their auditing reports. As auditing is the act of determining and evaluating whether the operational financial and strategic goals are complying with the principles or not. Therefore, it is crucial for a company to have an evaluation of the process and goals of the company.
Is Audit necessary for companies in the UAE?
Audit of accounts is mandatory for Free zone companies (FZCO) and Free Zone establishments (FZE) but for some local or foreign companies, it may not be mandatory. It is important for the companies to maintain the accounting reports and documents to finalize the audit.
The commercial companies law states that the audit of accounts is mandatory for mainland companies. Every company must appoint an auditor to auditor for auditing their books of accounts authorized and licensed auditor, but many companies are not mandated to follow the requirements.
Legal Requirements
- Some of the free zone companies are required to submit the audited financial statement to the authority such as 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), etc.
- It is mandatory for foreign companies to submit audit reports and audited financial statements of the branch of foreign companies registered in the UAE every year.
- Audited financial statements of companies under liquidation are necessary to prepare the liquidator’s audit report.
- The government authorities such as ministerial departments, municipalities, and insurance authorities also demand the companies submit their audited financial statements.
Management purposes
- Some of the UAE companies get their books of accounts audited to understand their financial position, assess the progress of the business, and also to evaluate the performance of the entity.
- Sometimes companies only hire bookkeepers to update their day-to-day activities, but the auditor finalizes the books of accounts and also provides the necessary inputs for management decisions.
- The business owners also seek advice on the net worth of the business, so they get their books audited every year to have a clear picture of the business to present to the shareholders.
Third-Party Requirements
- Lenders such as non-banking financial institutions and banks insist companies get their books of accounts audited by an audit firm.
- Dealers and suppliers also ask the companies to submit audited financial statements to ensure the financial creditworthiness of the companies to deal with them.
Conclusion
It is apparent that auditing your financial statements and books of accounts is mandatory in the mainland and some parts of the free zones in the UAE. Companies must appoint licensed auditors for auditing the books of accounts and financial statements. Companies that do not present the audit reports get penalties from the authorities. ebs provide a wide range of auditing services in accordance with the client’s business needs. Auditors at ebs are committed to providing the best auditing services in the UAE in compliance with the latest updates. ebs is a professionally equipped firm with relevant industry experience from different ends.
No matter whether you are located in the mainland or the free zone, we got you covered for your auditing requirements. Feel free to consult the expert teams of ebs about auditing services and any confusion regarding internal or external auditing. If you are looking for approved auditors in UAE, then don’t hesitate to contact ebs.