The introduction of corporate tax and the increase in regulatory oversight in the UAE fundamentally changed the way businesses operate. Many business owners are left scratching their heads and wondering: Does my company need an audit? That’s what we’re here to tell you. Plenty of companies have already written articles about the finer details: Every nook and cranny of an audit, how it works, what it is and more. This article aims to inform you on why they are needed, who needs them, and what you can do about it. We also discuss when it is necessary for your business to acquire professional audit reporting services.
Why Audits Have Become a Bigger Issue in the UAE
With the addition for corporate tax effective for financial years post-June, 2023, regulatory oversight was significantly increased. Authorities in the UAE are now more structured about financial reporting than before, and banks are increasingly requesting audited financial statements. This is to say that these changes didn’t come out of the blue – they’re signs of a maturing system. It’s also worth mentioning that audit reporting strengthens your business’ credibility with investors and lenders, so there is something in it for you too.
When is an audit mandatory in the uAE?
This is where things can get tricky. Whether it’s “mandatory” for your company depends on the authority and business type. Read more below:
Mainland LLCs
Under the UAE Commercial Companies Law, mainland companies are required to maintain proper accounting records and prepare annual financial statements. Many company structures (particularly LLCs and public joint stock companies) need to appoint a licensed auditor. This is extremely common when a company has multiple shareholders, the Memorandum of Association requires audited accounts, or Regulatory authorities request annual audited reports.
Free Zone Companies
Some free zones require audited financials annually, but this can be conditional. Some only require them upon license renewal, and others only above a revenue threshold. Other zones don’t enforce this as strictly, but banks may still request them.
Note: Free zone rules differ by authority, so assumptions are risky. Always check with your local authority to make sure your business is staying compliant.
Special Regulated Entities
Financial services businesses, insurance-related entities, and entities under specific regulatory oversight usually have mandatory audit obligations.
Most importantly: Once your company has begun doing audits, it is strongly advise that you do not stop. This is because the FTA will, moving forward, expect audited financials and tax filings from your company. A sudden pause in these can trigger an audit from the FTA.
When is an audit not Mandatory?
In some situations, audits are not actually a requirement (but again, if your company begins submitting audited reports, it is strongly advise to continue doing so). These include sole establishments (meaning a business owned and operated by one individual) with no specific authority requirements; Certain small free zone entities (again, check with your local authority rather than assuming), dormant companies, and businesses whose MOA does not mandate audited reports, although these cases are limited.
Note: While dormant companies aren’t subject to audits, regular bookkeeping documentation like tax filings and financial reports are still required – even if taxable income is zero.
What happens if you skip a required audit?
Businesses who do not submit audited reports when they are required to can experience several consequences:
- License renewal delays
- Free zone fines
- Regulatory penalties
- Difficulty renewing trade license
- Banking complications
- Issues submitting corporate tax returns with credible financials
- Increased scrutiny is reviewed
Most problems arise when businesses discover that they are required to submit too late. It is extremely important that you consult an expert in audit reporting services if you are not sure about your own requirements.
What does an audit actually involve? (Simplified)
In a nutshell, an audit is simply a:
- Review of financial statements
- Verification of income and expenses
- Checking supporting documentation
- Ensuring compliance with accounting standards
- Issuing an official audit report
It is not a raid, investigation, or automatic sign of wrongdoing. It is merely standard procedure.
How long does an audit usually take?
This can be tricky to answer, as every business (and the state of their books) is different. In general, though, this depends on the:
- Volume of transactions
- Quality of the company’s bookkeeping
- Complexity of structure
- Level of organisation in a company’s records
It’s typical of most SME audits to take between 2-6 weeks depending on how prepared they are. Having well-maintained books dramatically shortens audit time and expenses.
Learn how Number Perfect, audit reporting services can help clean up your books and get you audit-ready here!
How much does an audit cost?
Much like the previous, this question has a highly conditional answer. The cost of an audit will depend on:
- The size of your company
- How many transactions your company makes
- The complexity of your industry
- How organised your books and overall business are
- Whether your business is a multi-entity structure
What’s important to understand for SMEs especially is this: Poor bookkeeping increases audit cost significantly.
Why banks and investors often require audited financials
The short version? Credibility and trust. Having audited financials is a bullet-proof way to assure potential investors and banks providing your business with loans that your company is honest, law-abiding, and compliant with regulations. It can significantly help with:
- Applying for loans
- Credit facilities
- Investor due diligence
- Corporate restructuring
- Share transfers
Mostly importantly: Having audited financials will aid and boost your company’s growth, especially in the long run.
Common Misunderstandings SMEs have about Audits
- “My business is small, so I don’t need an audit.”
- “Free zone companies don’t require audits.”
- “I only need one if the authority asks for one.”
- “My accountant prepared statements, that’s enough.”
Here’s the truth of the matter. Many, many businesses make the assumption that they are exempt from audit reports for the reasons above; and many businesses each year suffer penalties and surprise audits from the FTA as a result. It is always necessary to check, confirm, and clarify the details of your business’ requirements with experts and related authorities.
If you’re right, you don’t get anything to reward it; but if you’re wrong… You get potentially serious consequences.
(Pssst… We often make posts about common mistakes on our Linkedin page!)
How to prepare for an audit (even if you’re not yet due for one)
Even if you have confirmed that your company does not owe an audited report just yet, the best time to start preparing for your first or next one is, and always will be, now. Here are some practical steps:
- Maintain accurate monthly bookkeeping
- Keep proper invoices and receipts
- Separate personal and business finances
- Ensure bank reconciliations are current
- Confirm free zone requirements annually to ensure nothing has changed
Like we said previously, good bookkeeping saves money and time on audits. It also helps your business avoid unnecessary, growth-stunting penalties. If you’re ready to get your quote from us and get your business audit-ready, send us an email at sg@numberperfect.me today!
When you should seek professional audit support
Now that you’ve read this article, you know when audits apply, who they apply to, and what the penalties can be for misunderstanding your own business’ legal requirements. With that said, seeking audit support from a professional is most important when:
- You’re uncertain about your own obligations
- Your business license renewal date is approaching
- Your corporate tax filing date is coming up
- There are multiple shareholders involved
- You are planning your future growth and/or financing
It’s important not to panic. Audits are a normal part of doing business in the UAE, and gaining clarity now through audit reporting services will prevent disruptions later.
Once again, if you’d like to receive a quote from us to see how much time and money auditing your business will take, send us an email at sg@numberperfect.me or check out our Audit Report Services page!