Guide to Accounting For Investment in Gold in IFRS in UAE

Gold occupies an unusual position in IFRS. There is no accounting standard that specifically addresses gold, silver, platinum, or other precious metals, which means every business holding gold as an investment has to work out its accounting treatment from first principles rather than pointing to a single applicable standard. For UAE businesses, particularly those active in the gold trading and commodities sector centered around Dubai Multi Commodities Centre, this isn’t a hypothetical accounting puzzle, it’s a real policy decision that affects reported profit every time gold prices move.

This guide covers why gold falls outside the standards that would normally apply, how to build a defensible accounting policy under IAS 8, the fair value model most commonly used in practice, and the UAE VAT treatment that runs alongside the accounting question.

Why Gold Doesn’t Fit Existing IFRS Standards

Gold held as an investment doesn’t meet the definition of a financial instrument under IFRS 9 or IAS 32, since a financial instrument requires a contractual arrangement, and gold itself carries no such contract. It also doesn’t qualify as investment property under IAS 40, which specifically defines investment property as land, buildings, or parts of buildings, none of which describes a bar or coin of gold. IAS 2 Inventories touches on gold only for commodity brokers and dealers, who measure inventory at the lower of cost and net realizable value and recognize fair value changes in profit or loss, a treatment that applies specifically to that narrow group, not to a business or individual holding gold as a store of value or investment.

Building a Custom Accounting Policy Under IAS 8

Since no standard directly addresses investment gold, IAS 8 sets out how to build a policy in the absence of one. The required approach, in order, is:

1. Look for IFRS standards addressing similar or related issues. This is the mandatory first step, and it’s what points toward IAS 40’s fair value model as the closest analogy, even though gold isn’t technically investment property.
2. Apply the Conceptual Framework. Where no directly similar standard exists, the Framework’s general concepts and recognition criteria guide the policy.
3. Consider other standard-setters’ pronouncements. Publications from other accounting bodies can inform the policy, provided they don’t conflict with IFRS.

Where multiple potential sources conflict, IAS 8 gives priority to other IFRS standards dealing with similar issues over general frameworks or external publications, which is why the IAS 40 comparison takes precedence over other reference material when building a gold policy.

Also check: External Audit Services

Why the Fair Value Model Fits Investment Gold

Investment gold shares the key characteristics IAS 40 uses to justify the fair value model for investment property: it’s a durable, non-consumable asset, its value tends to appreciate over time (though not consistently), and it’s held primarily for capital appreciation or income generation rather than use in operations. This is why UAE businesses building a gold accounting policy typically land on a fair value model resembling IAS 40’s approach, even though IAS 40 itself doesn’t technically apply. Financial assets held for capital appreciation, such as shares, can similarly be measured at fair value through profit or loss, reinforcing the same underlying logic.

Under this policy, gold is measured at fair value on acquisition, which departs from IAS 40’s cost-on-acquisition requirement but is considered more appropriate given gold’s nature. At the end of each reporting period, gold is remeasured to fair value, with the change recognized in profit or loss. There is no depreciation, since gold, unlike a building, doesn’t wear out or lose service potential over time.

Worked Example: Applying the Fair Value Model

A UAE trading company acquires 10kg of investment-grade gold as an investment for AED 2,200,000 at the start of the year, when gold trades at roughly AED 220 per gram. By year-end, the gold price has risen to AED 235 per gram, putting the fair value of the holding at AED 2,350,000. Under the fair value model, the company recognizes a gain of AED 150,000 in profit or loss for the period, reflecting the price movement, with no cost-based carrying value retained and no depreciation charge. If the price had instead fallen to AED 205 per gram, the same mechanism would produce a AED 150,000 loss recognized in profit or loss rather than an impairment assessment, since the position is remeasured to fair value each period regardless of direction.

Disclosure Requirements When No Standard Directly Applies

Building a policy under IAS 8 in the absence of a directly applicable standard carries its own disclosure obligation. The financial statements need to explain the judgment made in developing the policy, including which standards were considered analogous (IAS 40 in this case), why the chosen treatment was considered most appropriate, and the specific fair value measurement approach used period to period. This disclosure matters more for gold than for many other judgment areas, since a reader of the financial statements has no single standard to check the policy against, the disclosure itself is what lets them assess whether the judgment was reasonable.

VAT Treatment of Gold in the UAE

Alongside the accounting question sits a separate, practical UAE VAT question that often gets conflated with it. Investment-grade precious metals, gold, silver, and platinum meeting specific purity and tradability conditions, generally qualify for VAT zero-rating in the UAE. Standard-rated VAT at 5% applies to gold that doesn’t meet the investment-grade criteria, such as gold jewelry sold at retail. For business-to-business supplies of gold and diamonds between VAT-registered dealers, a reverse charge mechanism applies, shifting the responsibility for accounting for VAT from the seller to the registered buyer, rather than the seller charging VAT on the invoice. This VAT treatment is entirely separate from the IFRS accounting policy question, a business needs to get both right independently, since one governs how gold is reported in the financial statements and the other governs how VAT is charged and accounted for on its purchase and sale.

Must check: VAT Consultants in UAE

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How Farahat & Co. Can Help

Farahat & Co. supports UAE businesses with developing defensible IFRS accounting policies for gold and other precious metals, alongside VAT treatment for gold trading transactions.

Contact Farahat & Co. today to discuss your gold accounting and audit requirements.