Dubai’s Virtual Assets and Related Activities (VARA) law provides a complete framework for regulating virtual asset holdings and activities, built around cross-border financial security and economic sustainability. The Compliance and Risk Management (CRM) Rulebook sets out a defined procedure for auditing virtual asset holdings specifically, helping Virtual Asset Service Providers (VASPs) and holders conduct these audits effectively.
This guide covers the key compliance obligations for auditing virtual asset holdings, the step-by-step audit process, how holdings are classified for audit purposes, and a worked valuation example.
Key Compliance Obligations for Auditing Virtual Asset Holdings
| Obligation | Details |
|---|---|
| Registration | Whether registration as a VASP with VARA is required depends on your specific role, such as conducting virtual asset transactions or exchanges. |
| Tax implications | Understanding the tax implications tied to virtual asset holdings is essential, ensuring audit reports align with applicable tax regulations. |
| Record-keeping | Comprehensive records of all virtual asset transactions must be maintained, including amounts, counterparties, dates, and wallet addresses. |
| Audit frequency | VARA’s stated audit frequencies, which vary based on the size of virtual asset holdings, must be followed. |
| AML/KYC procedures | Strong AML and KYC procedures matter for transaction monitoring, identity verification, and reporting to VARA. |
| Reporting to VARA | Periodic reports, including financial statements and transaction logs, must be submitted to VARA according to its requirements. |
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The Process for Auditing Virtual Asset Holdings
Preparation
Start by clearly defining the audit’s purpose, whether tax considerations, compliance, or risk management valuation. Collect all relevant records, including purchase histories, transaction histories, wallet addresses, private keys, smart contract details, and tax documents connected to the holdings. Select an audit method suited to the requirements and complexity involved, self-audit, a professional auditor, or specialized audit software, and make sure the specific VARA obligations applicable to your category are properly understood before proceeding.
Detailed Data Collection and Verification
Validate all accounts against exchange and wallet statements to confirm accuracy and completeness. Blockchain explorers and similar tools can help confirm ownership of each virtual asset holding independently. Address any incorrect information, inconsistencies, or suspicious activity identified during verification directly, since this step is central to ensuring the data collection and verification process is genuinely reliable.
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Assessment and Reporting
Choose a consistent valuation method, market capitalization, fair market value, or another approach reflecting relevant tax implications. Gather all supporting documentation for the audit findings, including the category and quantity of each virtual asset held, purchase details, current market values, and any identified risks or vulnerabilities. Submit the audit report within the deadlines set by VARA for the relevant category.
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How Virtual Asset Holdings Are Classified for Audit Purposes
Under IFRS, the accounting framework applicable in the UAE, virtual asset holdings are generally classified as intangible assets under IAS 38, given their lack of physical substance and the fact that they typically don’t meet the criteria for inventory or cash and cash equivalents. This classification directly shapes how an auditor approaches the valuation phase, an intangible asset generally requires either a cost model or, where an active market exists, a revaluation model, rather than the straightforward market-price approach that might apply to a listed security. Auditors reviewing virtual asset holdings need to confirm which valuation basis was used and whether it was applied consistently across the reporting period.
Worked Example: Auditing a Virtual Asset Holding’s Valuation
A company holds 10 units of a specific virtual asset, purchased at AED 8,000 per unit (AED 80,000 total cost). At the reporting date, the market value per unit has risen to AED 11,000 (AED 110,000 total). Under a cost-based approach, the holding remains recorded at AED 80,000, with any gain unrecognized until disposal. If the company applies a revaluation model and an active market genuinely exists for the asset, the holding could instead be restated to AED 110,000, with the movement recognized through other comprehensive income rather than profit or loss. An auditor reviewing this holding needs to confirm which model the company actually applied, whether it was applied consistently in prior periods, and whether the claimed “active market” genuinely meets the criteria required to support a revaluation approach rather than the more conservative cost basis.
Frequently Asked Questions (FAQs)
What is a VASP under VARA regulation?
What areas does VARA cover in Dubai?
How are virtual asset holdings classified for financial reporting under IFRS?
What records are needed to audit virtual asset holdings?
How often must virtual asset holdings be audited under VARA?
What are common examples of virtual assets covered under VARA?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Farahat & Co., a trusted Audit And Accounting Firm, supports VASPs and virtual asset holders with VARA-compliant audit preparation, valuation methodology review, and IFRS classification for digital asset holdings.
Contact Farahat & Co. today to discuss your virtual asset holdings audit requirements.
