Annual or Statutory Audit - Resources

Statutory or Annual Audit is required to be carried out by:

• All limited liability companies, joint stock companies and partnerships in UAE
• Free Zone Companies and Free Zone Entities where the registering authority makes it mandatory to provide audited accounts for renewal of trade / professional / other license
• Sole establishments that are covered by the relevant law
• Businesses that need to obtain Tax Residency Certificate (to take advantage of Double Taxation Avoidance Agreements signed with specified countries)
• Businesses that would like to improve their compliance while availing bank facilities (loans)
• Businesses that need to obtain credit rating (optional)
• Businesses that have been advised by the Federal Tax Authority to submit an audit report
• Business disputes of a financial nature being heard in a court of law or by any arbitrator or authority where the presiding officer or panel has asked for audited financial statements to be submitted
• Managements that generally follow better business practices and corporate governance

(Note that this website does not claim to be an authority on the law of auditing. The examples and excerpts presented here are not the complete provisions of the laws and have to be read along with other provisions of the same law and related laws.)

1. Statutory audit is carried out:
   • To fulfill the conditions laid out in one or more statutes (laws)
   • For a period of one year (not less than 6 months and not more than 18 months for the first audit)
   • By a licensed auditor (an "audit firm") approved under the rules of a country
   • By an auditor (a "certified auditor") who fulfils the necessary conditions of the audit license and who has acquired the required training and experience to do so
   • In accordance with International Standards on Auditing (ISA)
   • By an Auditor appointed by the Shareholders of a Company (not its managers)
   • Where the Auditor has total independence (in terms of what he can check, how much time he takes to check it, having no relationship with the Shareholders of the company and other factors that ensure an unprejudiced opinion)
   • As a forensic activity or a historical review {that is, after the preparation and fair presentation of financial statements in accordance with International Financial Reporting Standards (IFRS) that are based on books of account (financial records) as prescribed under the International Accounting Standards (IAS)}
   • To give an opinion (and not a certificate of accuracy) of the Auditor on the true and fair presentation of all material aspects of the performance of a Company and its position on a particular date
   • To obtain reasonable assurance about whether the financial statements are free of material misstatement (and not as an assurance that the books are free of errors)
   • To report the position to all the readers of the financial statements (that is, it is not carried out for any single purpose or for a specific audience)
2. Annual audit of financial statements of a business (by a licensed and registered auditor) is mandatory (statutory / compulsory / mandatory) under various laws of almost all countries. It has also become necessary as a standard practice within the business environment in which the Management operates. Statutory means required by law.
3. In many cases, when the management has become professional (that is, there are paid managers as decision makers instead of shareholder-directors), it is important to have an independent overview of operating results (profit and loss account) and financial position (balance sheet). An audit, although not mandatory by law in such cases, becomes crucial as a trade practice and as a management tool.
4. Some examples of a statutory requirement:
   • Article 27 (1) of the UAE Federal Law No 2 of 2015 on Commercial Companies (CCL) specifies (verbatim): “Every Joint Stock Company or Limited Liability Company shall have one or more auditors to audit the accounts of the company every year. The other types of companies may appoint an auditor in accordance with the provisions of this Law.”
     (To download the complete law, click here)
   • Article 102 of the UAE Federal Law No 2 of 2015 on Commercial Companies (CCL) specifies (verbatim): “A Limited Liability Company shall have one or more auditors to be elected by the General Assembly of the partners every year and, other than as provided by Article 244 of this Law, the provisions concerning the auditors in public joint stock companies shall apply to the auditor of a Limited Liability Company. The expression "Competent Authority" shall substitute the term "Authority" wherever it appears.” Chapter 7 (Articles 243 to 254) of the Law is drafted for Auditors of Public Joint Stock Companies.
     (To download the complete law, click here)
   • Several Free Zones make it mandatory for annual financial statements to be audited. For example, Article 62 of Regulation No 1 of 2003 of the Dubai Multi Commodities Authority (the DMCC Company Regulations) mandates the appointment of an auditor.
     (To download the complete regulation, click here)
   • Certain services that are available from the government make it essential for audited financial statements to be submitted. For example, for obtaining a Tax Residency Certificate (or Tax Domicile Certificate), one of the requirements is to submit “a certified copy of the audited financial accounts”.
     (To refer the requirements available online, click here)
   • Chapter X covering Sections 139 to 148 of the Indian Companies Act 2013 cover the audit and auditors of companies. For example, Section 139 states (verbatim, partially): “Subject to the provisions of this Chapter, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor……” (continued in the Act).
     (To read the bare act online, click here) | (To download the bare act, click here)
   • Often, legal matters like court cases make it essential to submit audited financial statements.

1. Statutory audit is required to be carried out:
   • within 3 to 6 months of the close of the financial year as per the governing statute
   • before holding the annual general meeting of the shareholders of a company
   • before the last date of filing audited financial statements as required by any law
   • in other cases, as stipulated by the governing regulations.
2. Some examples of deadlines:
   • Application guideline 4.1 of the DMCC requires that the audited financial statements be submitted within 90 days of the end of each financial year. At present, companies can choose the date of their financial year ending, but it is normally 31 December.
     (To download the complete text of the guideline, click here)
   • The Department of Income-tax, Government of India, specifies that the date for filing an annual corporate income-tax return is 31 October (unless extended) for the financial year that ends on 31 March.
     (To access the complete official information pertaining to this, click here)
   • Companies in UK follow the financial year ending on the last day of the month of their incorporation and their annual return is required to be filed within the end of 12 months from that date.
3. For more details, you may contact us on [email protected]

Why is Prudential Auditing faster, better and more economical?

• With higher qualification and experience, our auditors - although costlier for us in absolute terms as well as taking up a higher proportion of our revenues as manpower cost - are more efficient, complete the work faster and with less mistakes thereby avoiding costlier rework
• Maximum information is collected by electronic communication (email and WhatsApp), so the auditors save on travel time and pass on the cost benefit of the saved time to you (an hour’s meeting with the client increases the audit fee by AED 500 approximately)
• We have simplified the audit format and made it point-wise, cutting off long narrative paragraphs, without compromising the information content of the report - this speeds up report preparation, saves costly time and we pass the benefit to you
• Instead of more than 4 time-consuming reviews by directors of audit firms, we carry out only 2 audit reviews - this saves time as well as cost - and although it creates quality issues in reporting, these are addressed by simplifying the audit report format
• We do not have a specialised team that targets bankers for listing us with the banks, which saves considerable cost - where banks object to our not being on their approved auditors’ list, we highlight the quality of our reporting and satisfy the bankers at no extra cost