Post By: Mark Thompson August 13 2023

UAE Auditing Requirements: Regulatory, Statutory, and Performance Audit Breakdown!

Have you ever thought about why companies request auditing services in the UAE? So many different reasons arise for performing an audit. A vast majority of them narrow down to three key reasons regulatory purposes, statutory purposes, or examination of the performance of operations.

But what does each of these audits mean, and how is this relevant for your small businesses in the UAE?

Let’s deep dive into each of them to know the key differences:

Regulatory Audit

A regulatory audit focuses on ensuring that a company complies with the various laws, regulations, and standards set forth by the local authorities and regulatory bodies. These include compliance with:

Federal laws and regulations: These cover laws issued by the federal government, such as labor laws, corporate governance regulations, and intellectual property laws. In the UAE, limited liability companies (LLCs) must comply with new governance and compliance regulations by December 31, 2021, according to Federal Decree Law No. 26 of 2020. Another example is the Law on Bankruptcy, which provides a framework for restructuring and insolvency procedures for companies facing financial difficulties or unable to pay their debts
Industry-specific regulations: Certain industries have additional regulatory requirements. For instance, the Economic Substance Regulations (ESR), require companies with relevant activities to demonstrate economic substance in the UAE.

Likewise, the Accountability and Audit Authority (ADAA) Resolution No. (1) of 2017, requires all ADAA subject entities and their material subsidiaries to comply with the resolution and follow the International Standards on Auditing (ISA) for their audits contracted after August 2017.

You can also read: How can Bookkeepers Guide to Effective Fraud Detection and Prevention: Key Insights for Dubai’s SMEs

Statutory Audit

A statutory audit is the inspection and analysis of the financial records and statements of a government organization or a firm. It aims to provide transparency and build confidence among stakeholders in the company's financial health.

In the UAE, key aspects of the statutory audit include:

Independent Audit Firms: Statutory audits must be conducted by an independently registered audit firm approved by the UAE Ministry of Economy and other relevant authorities.
Annual Financial Statements: Companies in the UAE are required to prepare annual financial statements, and the statutory auditor's role is to verify and express an opinion on their fairness and compliance with accounting principles.
Reporting to Authorities: The auditor submits the audit report to the company's shareholders and the relevant authorities.

Performance Audit

A performance audit assesses the efficiency, effectiveness, and economy of a company's operations, processes, and management. These types of audits are usually conducted by internal auditors or external audit firms with expertise in performance auditing.

Key features of a performance audit include:

Scope and Objectives: The performance audit is customized to the specific needs of the organization and may focus on areas such as cost management, process improvement, risk assessment, and internal control effectiveness.
Internal Control Evaluation: The audit evaluates the internal control mechanisms and identifies any weaknesses that could lead to inefficiencies or potential risks.
Recommendations: The audit report provides actionable recommendations for improvement, enabling the organization to enhance its performance and achieve its strategic goals.

Now that you have a clear idea of each type of audit, let’s look at the differentiating factors in all three!

Differentiating Factors in All Three Cases

Purpose: Statutory audits verify financial accuracy, regulatory audits assess compliance with laws and standards, and performance audits evaluate operational efficiency in organizations.
Focus: Statutory audits focus on the accuracy of financial statements, while regulatory audits focus on compliance with laws and regulations. Performance audits, on the other hand, focus on operational efficiency and effectiveness.
Outcome: Statutory audits ensure financial statements are free from material misstatement;, regulatory audits ensure legal compliance; and performance audits provide recommendations for enhancing organizational performance.

Insights For Small Businesses

As a small business operating in the UAE, understanding the nuances of regulatory, statutory, and performance auditing is crucial for financial success and compliance. These audits hold the key to legal compliance and optimizing performance, empowering you to stay ahead of the curve in this competitive landscape.

Why CDA?

At CDA, we provide top-notch assistance in maintaining accurate and error-free financial records. Our professionals are always ready to help you with accounting and auditing challenges, offering personalized services tailored to your needs. Contact us today for expert guidance on all your audit requirements.