What Accounting Standards Must Be Used to Prepare Financial Statements in the UAE?

UAE has been known for its world-class amenities, which it has been providing to the businesses established there. This innovative infrastructure and the business-friendly policies have made the UAE one of the global destinations for entrepreneurs all over the world. The businesses around the globe now look forward to investing in the UAE. This increase in the businesses in the UAE has also resulted in an increase in the accounting requirements for the businesses. 

In order to ensure a transparent operating framework and to promote uniformity, the authorities in the UAE make it mandatory for the businesses to implement accounting functions in the businesses. In fact, the common accounting standards that are allowed by the authorities in the UAE are the IFRS standards, which must be used by the businesses. In this blog, we will share the highlights about the accounting standards and the financial statements that must be prepared in the UAE.

The Accounting Standards in UAE

The authorities of the UAE have made it mandatory for the businesses registered in the UAE to get their financial statements and records prepared as per the IFRS standards. This mandatory requisition has been made to ensure the uniformity in the financial statements of the businesses.

The IFRS standards not only allow the businesses to prepare the financial statements but also ensure that the businesses make accurate calculations of the profits of the businesses. The uniform accounting standards like IFRS enable the businesses in the UAE to facilitate accurate comparisons of the performances, which further can be utilized for accusation or merger decisions of the businesses.

IFRS accounting standards provide the businesses in the UAE with a basis to enhance transparency and also enable the stakeholders to get clear insights into the operations of the businesses. These financial statements, which are prepared using the IFRS standards, can also facilitate the comparison with the overseas businesses, as these are the universal accounting standards that are commonly used around the world in multiple countries, allowing the domestic companies to attract international investments.

You can also read: How to Apply for a VARA License For New Firms in the UAE?

All About IFRS (International Financial Reporting Standards) Standards

IFRS accounting standards, being commonly accepted accounting standards, provide the businesses with all the required instructions and guidance with regard to the treatment of various items and transactions. The IFRS standards enable the businesses to identify the treatments for each transaction and ensure the accuracy of the statements. There are multiple standards, each related to certain classes of assets, liabilities, and other natures of transactions and scenarios like consolidation of businesses, lease transactions, etc. These standards could be used as guidance for the businesses and their accountants to identify the nature and the impact of these transactions on the financial performance and the cash flows of the business.

Financial Statements as per IFRS standards

There are mainly 4 financial statements that are to be created under the IFRS; they mainly include: statements of financial position, statement of profit and loss, statement of changes in equity, and statement of cash flow.

1. Statement of Financial Position: It is commonly known as the balance sheet, which depicts the financial position of the business at a point in time. The statement can further be broken down into assets, liabilities, and equity. These components make up the statements; hence, these are recorded in the accounts as per the IFRS standards. As for each type of asset, liability, and equity, there are specific rules and regulations provided by the IFRS that are to be met.
2. Statement of profit and loss: This statement shows the profit of the business and performance of the business over the time. It includes mainly the income generated by the business and expenses incurred in the business, the net of which is then calculated. As per the IFRS standards, the revenue is initially calculated from which the cost of goods sold and other operating costs are deducted, giving the gross profit, then further adjustments and deductions are made to it to get the net profit for the year.
3. Statement of changes in equity: This statement shows the changes in equity that have occurred during the life time of the business; hence, it shows the difference between equity at the start of the period and equity at the end of the period.
4. Statement of Cash Flow: The statement of cash flow is prepared based on the information that is taken from the statement of profit and loss. It shows the liquidity of the businesses and how they can meet their expenses with the available funds. It helps to track the flow of cash within the business.

Enhance your Financial Reporting with CDA

CDA’s experts are well versed with the IFRS and the GAAP standards, enabling them to assist the clients in ensuring proper recording of the accounting transactions. Businesses in the UAE can get their financial statements prepared as per the IFRS standards and ensure accurate reports with the assistance of the leading accounting team of CDA. Our team, being one of the most experienced teams in the UAE, can enable the clients to get ahead of their competitors and prepare the strategic statement with more accuracy.

To know more about the accounting services, contact our experts now.