Audit standards for private companies

The private companies surely have different standards than the companies that come under
the government. The standards for these companies are less stringent and the reason behind it
is none other than the disclosure requirements. As private companies have fewer
requirements of disclosure, their standards are different for the audit too.

The private companies have to face fewer complex regulations and this acts as a plus point
for them. This is because private companies have to deal with so much stuff already and they
cannot handle the burden of huge audits as well. So, it is a good option for private companies
do not have stringency in their audits with the help of audit firms in Dubai, Abu Dhabi,
Sharjah UAE.

Generally Accepted Accounting Principles is necessary

The companies should not avoid Generally Accepted Accounting Principle (GAAP) no
matter whether they come in the public sector or the private sector. In both the cases,
Generally Accepted Accounting Principle is a must and it should be fulfilled properly as well.
Generally Accepted Accounting Principle is basically the short form of generally accepted
accounting principles. All the companies have to present the GAAP-compliant audited
financial statements. If the private companies have to satisfy the lenders, insurance
companies or other shareholders then they might need Generally Accepted Accounting
Principle. The private companies mostly do not issue the financial statements that have been
audited because they want to minimize their taxes as much as they can. This is also the reason
why they prepare tax returns and unaudited statements more often.

Private Council

Generally Accepted Accounting Principle standards for the public has been released by the
Financial Accounting Standards Board (FASB). It has been specially created for private and
non-profit organizations. The main reason behind this was to make sure that the companies
may follow the standards of Generally Accepted Accounting Principle, but it came out to be
more complex and of more economic costs for the companies especially the smaller
companies. So, to rectify the effect, FASB created the Private Company Council (PCC) so
that the area where the Generally Accepted Accounting Principle was irrelevant for the
private companies, the modifications can be made to that particular area.
Accounting Framework

Accounting framework was made for the companies which are not too big or of medium-
sized so that they can use this tool in case they are not subjected to GAAP. In this way, the
smaller businesses would be able to process their accounting work in a good way step by
step. The tool for financial accounting is almost like GAAP but the hot-button issues have
been removed.

According to Article (17):

The Higher Shari`ah Authority may seek assistance of a specialized party, if necessary, to
conduct Shari`ah external audit of the business of any Licensed Financial Institution, which
carry on the whole or part of their businesses and activities in accordance with the provisions
of Islamic Shari`ah, and the conditions and procedures determined by the Authority, at the
expense of the concerned institution.

According to Article (81):

State Audit Supervision

Where a Licensed Financial Institution, which exercises all or part of its business and
activities in accordance with Islamic Shari`ah, is subject to the supervision of the State Audit
Institution, pursuant to the referenced Re-organization of the State Audit Institution law, the
function of the audit institution shall be restricted to post- audit, and shall not interfere in the
conduct of business or policies of these institutions

1. The auditors shall not be represented in the board of directors of the Licensed
Financial Institution, which appointed it to audit its accounts, nor have one of its staff
appointed as employee, or act as advisor to the same institution.
2. A Licensed Financial Institution shall not extend credit facilities, of any type, to the
auditors of its accounts. An auditor approved by the Central Bank may not commence
its functions at a Licensed Financial Institution, unless any obligations it may have
towards such institution were settled.
3. The auditors shall be responsible for the contents of their report on the financial
statements of the concerned Licensed Financial Institution. If failure to properly
perform their assigned duties or violation of provisions of this decretal law and the
 regulations and decisions issued in implementation thereof was established, the Central
Bank may take any necessary measures or procedures, in collaboration and
coordination with the concerned authorities in the State to strike their names from the
established registers. The Central Bank may, at its own discretion, take any
administrative or legal actions against the negligent or violating auditors.
4. The Central Bank may, at its discretion, require the auditors of a Licensed Financial
Institution, or its subsidiaries or affiliates, to submit a report, at the expense of the
concerned Licensed Financial Institution, establishing their compliance with the
provisions of this decretal law and the regulations issued in implementation thereof.
5. The Board of Directors shall issue regulations and establish a register for approved
auditors, authorized to audit the accounts of Licensed Financial Institutions.

Article (98) Reporting of Violations:

1) Licensed Financial Institutions, along with their legal representatives, compliance officers,
and auditors of accounts shall be responsible for, immediate reporting of any of the following
to the Central Bank:

a. Occurrence of any material or crucial developments, which may impact its activities,
structure, or overall position.

b. Occurrence of any violation to the provisions of this decretal law or the decisions,
regulations, or instructions issued in implementation thereof.

2) The aforementioned Persons referred to in item (1) of this article shall not be considered to
have breached any of their obligations if they, acting in good faith, filed a report as per
provisions of this article, or provided information or opinion to the Central Bank. The
Licensed

1. A Finance Company must appoint a statutory external auditor acceptable to the

Central Bank, maintain proper accounting records and submit statements concerning
these records to the Central Bank on the required forms.
2. The person nominated as external auditor of a Finance Company should be
theoretically and practically familiar with the finance business and should have
relevant managerial experience.
3. A Finance Company must obtain approval from the Central Bank prior to appointing
an external auditor. The Central Bank may require the Finance Company to appoint
 another auditor if the size and nature of the business of the Finance Company so
requires.
4. A Finance Company must not provide financing, facilities or open any accounts for
its external auditors.
5. A Finance Company must rotate their external audit firm at least every 6 years
subject to the conduct of a procurement procedure. In addition, a Finance Company
must rotate their external audit firm's partner in charge of the audit every 3 years.
6. The Central Bank may require a Finance Company to replace its external auditor or
change the partner of its external auditor or may appoint another external auditor at
the expense of the Finance Company in the following cases:
a) If required by the size and nature of its business;
b) If the external auditor commits a violation of a professional nature;
c) If there is a reason to believe that the external auditor has a conflict of interest
d) If the integrity of the finance sector or governance considerations and the
protection of stakeholder' s interest so requires.

According to Central Bank of UAE

1. The External Auditor must comply with the independence provisions laid down in the
Central Bank Law, this Regulation and the accompanying Standards. In case of violation
of these provisions or failure in the performance of duties, the Central Bank may take any
measures against the violating or negligent External Auditor, including rejection by the
Central Bank to carry out audits in Banks.
2. The External Auditor must meet with the Central Bank as deemed necessary for
supervisory purposes. The Central Bank will access the External Auditor's working
papers, when necessary.
3. External Auditors must promptly report to the Central Bank violations of the Central
Bank Law, regulations, instructions and any Matters of Significance arising from their
audit of the Bank. External Auditors making such reports in good faith shall not be
considered to have breached any of their obligations.
4. The External Auditor must provide the Board audit committee with timely observations
arising from the audit that are relevant to the committee's oversight responsibility for the
financial reporting process. These include, but not limited to:
a) Significant difficulties encountered during the audit;
 b) Key areas of significant risk of material misstatement in the financial statements,
in particular areas of estimates or measurement uncertainty such as loan loss
provisioning and consequential effects on earnings, capital and other regulatory
ratios;
c) Areas of significant management judgement;
d) The extent of requests made by the Group auditor to another audit firm or member
firms with respect to performance of a Group audit;
e) The use of external experts to assist with the audit;
f) The External Auditor's approach to internal control and significant internal control
deficiencies noted;
g) The extent to which the External Auditor has used the work of the internal audit
function;
h) Matters relating to accountability, including significant decisions or actions by
Senior Management that lack appropriate authorization;
i) Significant qualitative aspects of financial statement disclosures; and
j) Feedback on the External Auditor ' s relationship with Senior Management
5. The prohibited non-audit services are listed below; they must include further any
prohibited services under Article (20) of Federal Law no. 12 of 2014 concerning Auditing
Profession as well as under the Code of Ethics for Professional Accountants issued by the
International Ethics Standards Board for Accountants, which are not specifically listed
below:
a. Bookkeeping and preparing accounting records and financial statements;
b. Designing and implementing internal control or risk management procedures
related to the preparation and/or control of financial information or designing and
implementing financial information technology systems;
c. services related to the Bank's internal audit function;
d. valuation services, including valuations performed in connection with actuarial
services or litigation support serv ices;
e. human resources services, with respect to:
i. management in a pos1t1on to exert significant influence over the
preparation of the accounting records or financial statements which are the
subject of the external audit, where such services involve searching for or
seeking out candidates for such position or undertaking reference checks of
candidates for such positions;
 ii. structuring the organization design; and
f. cost control;
g. brokerage services in securities services or works;
h. services linked to the financing, capital structure and allocation, and investment
strategy of the Bank, except providing assurance services in relation to the
financial statements, such as the issuing of comfort letters in connection with
prospectuses issued by the Bank;
i. promoting, dealing in, or underwriting shares in the Bank;
1. legal services, with respect to:
2. the provision of general counsel;
3. negotiating on behalf of the Bank; and
4. acting in an advocacy role in the resolution of litigation;
j. services that involve playing any part in the management or decision-making of
the Bank; and
k. tax services and provision of tax advice.
6. Where non-audit services are provided by the External Auditor, the Board audit
committee must monitor the provision of such services to ensure that their performance
does not impair the External Auditor’s objectivity and independence. This must take into
consideration various factors including the skills and experience of the External Auditor,
safeguards in place to mitigate any threat to objectivity and independence, and the nature
of and arrangements for non-audit fees. The Bank's annual report must explain to
shareholders the nature of and the fee arrangements for the non-audit services received,
and how the External Auditor's independence is safeguarded.
7. The External Auditor must meet the following expectations:
i. Have banking industry knowledge and competence sufficient to respond
appropriately to the risks of material misstatement in the Bank's financial
statements and to properly meet any additional regulatory requirements that may
be part of the external audit;
ii. be objective and independent in both fact and appearance with respect to the
Bank;
iii. exercise professional skepticism when planning and performing the audit of
Banks, having due regard to the specific challenges in auditing a Bank;
iv. comply with the applicable standards on quality control;
 v. identify and assess the risks of material misstatement in the Bank's financial
statements, taking into cons ide ration the complexities of the Bank's activities and
the effectiveness of its internal control environment; and
vi. have professional indemnity insurance in the UAE.
8. The External Auditor must furnish the Board audit committee at least annually with
information about the firm's policies and processes for maintaining independence and
monitoring compliance with independence requirements. This includes, but is not limited
to, assurance that the audit engagement team members have no personal, family, business,
financial or other relationships with the Bank which could adversely affect the External
Auditor's actual or perceived independence and objectivity.
9. The External Auditor may not purchase the securities of the Bank whose accounts are
audited by them or sell such securities directly or indirectly or provide any consultancies
to any person in connection with such securities during the blackout period.
10. The External Auditor may not serve on the Board or hold a position in Senior
Management before two years have lapsed from the time of involvement in the Bank' s
audit.
11. The External Auditor's terms of engagement must be established in a written contract
which, at a minimum, provides that:
i. The External Auditor must meet with the Central Bank as deemed necessary for
supervisory purposes. The Central Bank will determine whether the Bank will
participate in such meetings;
ii. The External Auditor bears no duty of confidentiality to the Bank with respect to
any notification to or meeting with the Central Bank required by this Regulation,
or the provision of any document or information required to be submitted to, or
requested by, the Central Bank for supervisory purposes; and
iii. The External Auditor must provide, upon request by the Central Bank, access to
working papers and other documents that support conclusions made in the audit
opinion.

Filing a return for VAT

UAE imposes Value Added Tax on tax – registered business. If the UAE Cabinet defines a
certain free zone as a ‘designated zone’, it is treated as outside the UAE for tax purposes.
VAT return is submitted to Federal Tax Authority (FTA) on regular basis and usually within
28 days of the end of ‘tax period’. VAT return is filed through FTA portal:
eservices.tax.gov.ae.