Many economists and top audit firms in Dubai predict that the economic effects of the pandemic, which had devastating consequences for economies around the world, were to be apparent sooner than expected. Gold served as a means of wealth preservation. This is why many institutions in Dubai and UAE and individuals started to invest in gold and continue to do so even now.
IFRS currently does not have a standard that specifically addresses precious metals such as gold, silver, or platinum.
We will be candid: gold should not be considered a financial instrument under IFRS 9 or IAS 32. Gold does not fall within the definition of a Financial Instrument. A contractual arrangement is what creates a financial instrument. There are no contractual arrangements when it comes to gold. The same applies to the standard IAS 40 Investment Property.
Gold is not considered an investment property. IAS 40 defines investment property as land, buildings, or their parts. There is no gold or any other precious metals. The IAS 2 Inventories standard refers to gold in article 3.
Dealers and commodity brokers in Dubai, through the help of financial audit experts, should determine the fair value of their inventory at the lower cost to sell it and then recognize any changes in fair values in profit or loss over the period. It applies to only commodity brokers and dealers.
What should company audit specialists and their managers do in this situation?
- Create a custom accounting policy
- Which Resources Are Available?
- What Happens If The Sources Are Contradictory
- Accounting Policy For Gold Investment
Create a custom accounting policy
As we just discovered, there is no accounting policy that IFRS has prescribed to audit services and financial preparers on how to deal with gold and precious metals value storage. Companies in Dubai and UAE should therefore develop their own accounting policies in accordance with IAS 8. IAS 8 also states that internal auditors must refer back to specific resources when creating their own policy.
Which Resources Are Available?
The audit services team should first search for IFRS that arrange similar or related issues. The Conceptual Framework will then allow them to look at the general concepts and criteria. They can then look at other publications from other standard-setting organizations.
What Happens If The Sources Are Contradictory
Company audit teams must also consider other IFRS that deal with similar issues. They are the priority.
Accounting Policy For Gold Investment
What transaction or issue is similar to investment gold? Let's take a look at the key characteristics of investment gold.
- It is a useful and indestructible product.
- Its fair value tends to increase with time (not all the time)
The primary purpose of capital appreciation is to store and generate income. To sum up, it seems that the fair value model for investment property under IAS40 would also be suitable for investment gold.
Furthermore, if financial assets are being analyzed, such as shares individuals in UAE purchase for capital appreciation, then auditors can choose to measure them at fair value through loss or profit, which is basically the same fair value model under IAS40.
Read also: How Dubai Chartered Accountants Calculate Bad Debt Provision Based on IFRS 9
How Can Audit Services In UAE Apply The Fair Value Model To Gold
Initially, a financial auditor would consider the acquisition of investment gold fair value. This is in contradiction to IAS 40, which requires that investment property be measured at cost. We are creating our own accounting policy, and it doesn't have to be identical to IAS 40. Fair value is also more appropriate due to the nature of gold investment.
Auditors will need to remeasure gold at fair value at the end of each reporting period and account for any profit or loss changes There is no depreciation.
(The Accounting guide for gold from World Gold Council provides detailed guidelines on accounting for gold. You may want to check it out)
It is extremely detailed and talks about the accounting for investment (monetary) gold held by monetary officials ( for instance, It is a detailed document that covers the accounting for monetary (investment) gold held by monetary authorities (such as central banks).
Keep in mind that IAS 8 places the IFRS standards dealing with similar issues first. Only then can you look elsewhere. Therefore, companies in UAE, through their audit services should apply similar accounting policies as fair value models under IAS 40.
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