Audited financial statements are a company’s annual financial statements with an independent auditor’s report attached. The auditor does not prepare them. Management prepares the statements, and a licensed auditor tests them and gives an opinion on whether they present fairly, in all material respects, the company’s financial position and results.
In the UAE, three separate sets of rules can require them: company law, your free zone or regulator, and corporate tax. They overlap, but they are not the same. A company can be exempt under one and still bound by another. This guide explains each requirement, what a complete set of audited statements contains, what the auditor actually does, and the issues that most often delay a report or lead to a modified opinion.
Three Sources of the Audit Requirement
1. Company law and your licensing authority
The Commercial Companies Law (Federal Decree-Law No. 32 of 2021) requires companies such as LLCs and joint stock companies to appoint an auditor and keep proper accounts. This applies regardless of revenue or tax status.
Most free zones have the same expectation under their own regulations. DMCC, JAFZA, DAFZA, RAKEZ and the Dubai Development Authority zones, among others, require companies to submit audited financial statements, usually within a set period after year end or at licence renewal. DIFC and ADGM have their own rules and limited exemptions for small private companies. For zone-by-zone detail, see audit requirements in the UAE.
2. Corporate tax
Every taxable person must prepare financial statements for corporate tax. Under Ministerial Decision No. 84 of 2025, which applies to tax periods starting on or after 1 January 2025, the following must prepare and keep audited financial statements:
- A taxable person that is not in a tax group and earns revenue above AED 50 million in the tax period
- Every Qualifying Free Zone Person, whatever its revenue
- Every tax group, which prepares audited special purpose aggregated financial statements, whatever its revenue
Qualifying Free Zone Persons that distribute goods in or from a designated zone also need an agreed-upon procedures (AUP) report from an independent auditor.
3. Banks, government and commercial counterparties
Even where no law requires an audit, banks usually ask for audited statements before granting or renewing facilities. In-Country Value (ICV) certification, many government and semi-government tenders, and supplier registrations also rely on them. For many SMEs, this is the practical reason they need an audit every year.
Where Companies Get It Wrong
| Assumption | The position |
|---|---|
| “Revenue is under AED 50 million, so no audit is needed.” | The AED 50 million test is for corporate tax only. Company law and most free zones still require an annual audit. |
| “We are in a tax group, so subsidiaries no longer need audits.” | Group members do not need standalone audited statements for corporate tax. Their free zone or company law audit still applies. |
| “We elected Small Business Relief, so we are exempt.” | Small Business Relief affects the tax payable, not the audit duty under company law or the free zone. |
| “The company was dormant, so no audit.” | Many free zones still require audited or dormancy-confirmed statements for a company with no activity. |
| “We can use cash basis accounts for the audit.” | Cash basis is allowed for corporate tax only where revenue is AED 3 million or less, or in exceptional cases approved by the FTA. Free zones and banks normally expect IFRS statements. |
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What a Complete Set of Audited Financial Statements Contains
A set of audited financial statements is a bound document, usually in this order:
- Management or directors’ report: a short report from management on the year’s activities and results.
- Independent auditor’s report: the auditor’s opinion, the basis for it, and the responsibilities of management and the auditor. This report is not part of the financial statements. It is attached to them.
- Statement of financial position: assets, liabilities and equity at year end, with comparative figures for the previous year.
- Statement of profit or loss and other comprehensive income: revenue, expenses, corporate tax and other gains or losses for the year.
- Statement of changes in equity: movements in share capital, statutory reserve, retained earnings and dividends.
- Statement of cash flows: cash from operating, investing and financing activities.
- Notes: accounting policies, judgements and estimates, related party transactions, going concern, corporate tax (current and deferred), subsequent events and the detail behind each main figure.
The notes are where most audit questions arise. Related party balances, tax disclosures and going concern notes are the items regulators and banks read most closely.
Which accounting standard applies
Under Ministerial Decision No. 114 of 2023, financial statements for corporate tax must follow IFRS. Companies with revenue of AED 50 million or less may use IFRS for SMEs. Most free zones and banks expect one of the two.
Special purpose statements for tax groups
A tax group’s statements are different. Under FTA Decision No. 7 of 2025, the standalone statements of each member are added together line by line, transactions between members are eliminated, and consolidation effects such as goodwill are excluded. The result is presented in AED. A cash flow statement is not required. These statements exist only for corporate tax and do not replace each member’s own audit where company law or a free zone requires one.
Audited, Reviewed, Compiled or Management Accounts
| Type | Who is involved | Assurance | When it is enough |
|---|---|---|---|
| Audited financial statements | Licensed auditor, under International Standards on Auditing | Reasonable assurance, with an audit opinion | Company law, free zone, corporate tax and most bank requirements |
| Reviewed financial statements | Practitioner, under review standards | Limited assurance, with a review conclusion | Some lenders and internal purposes, where no audit is required |
| Compiled financial statements | Accountant prepares them | No assurance | Internal use, or as a starting point for the audit |
| Management accounts | Prepared internally | No assurance | Monthly or quarterly management reporting |
If a free zone or the FTA requires audited statements, a review or compilation does not satisfy the requirement. For limited assurance work, see our financial statement review services.
How the Audit Actually Works
1. Acceptance and engagement letter
The auditor checks independence and agrees the scope, the reporting framework, the deadline and the fee in a signed engagement letter.
2. Planning and materiality
The auditor learns how the business earns revenue, sets materiality (the size of error that would change a reader’s view) and identifies the areas most likely to be wrong. In UAE companies these often include revenue recognition, related party balances, inventory and, since corporate tax, the tax provision.
3. Internal controls
The auditor tests key controls such as approvals, segregation of duties and bank reconciliations. Where controls are weak or undocumented, the auditor cannot rely on them and must test more transactions directly.
4. Evidence from outside the company
The auditor sends confirmation requests to banks, and often to major customers, suppliers and lawyers. Where inventory is material, the auditor attends or observes the year-end stock count. Evidence from third parties carries more weight than internal records.
5. Substantive testing
The auditor tests balances and transactions: samples of sales and purchases traced to invoices and bank movements, fixed assets checked against the register, accruals and provisions recalculated, and the corporate tax provision and deferred tax tested.
6. Completion
Before signing, the auditor reviews events after year end, assesses whether the company can continue as a going concern for at least twelve months, and obtains a management representation letter. Proposed adjustments are discussed with management.
7. The auditor’s report
The auditor issues an unmodified (clean) opinion, or a modified one: qualified, adverse or a disclaimer. For what each type means, see types of audit report.
Issues That Commonly Lead to a Qualified Opinion
- Inventory not counted at year end: without a count the auditor can attend, the closing stock figure may not be verifiable.
- Unreconciled related party balances: amounts due to or from shareholders and sister companies that do not agree on both sides.
- Unsupported cash transactions: large cash payments or receipts without invoices or approvals.
- No fixed asset register: assets in the accounts that cannot be traced to physical items or purchase documents.
- Negative equity without support: accumulated losses that exceed capital, with no financial support letter from shareholders, raise a going concern issue.
- Missing bank or third party confirmations: unanswered confirmations leave balances unverified.
Most of these can be fixed before the audit starts. A qualified opinion can affect bank facilities and free zone renewals, so it is worth resolving them early.
Documents Your Auditor Will Ask For
Company records
- Trade licence, memorandum and articles of association, shareholder register
- Minutes and resolutions approving major decisions, dividends and borrowing
- Corporate tax registration and any tax group or Qualifying Free Zone Person documents
Accounting records
- Trial balance and general ledger for the full year
- Bank statements and reconciliations for every account at year end
- Customer and supplier ageing reports with year-end balances
- Fixed asset register, and the year-end stock count sheets where relevant
- Related party balances with supporting statements from the other parties
Contracts and tax
- Loan, lease and major customer or supplier contracts
- VAT returns for the year and the corporate tax computation
- End of service benefit calculation and payroll records
- Last year’s audited financial statements, if any
If your books are incomplete or several months behind, bring them up to date before the audit starts. Backlog accounting done first is faster and cheaper than reconstructing records during the audit.
How Long the Audit Takes
For a small or medium company with complete, reconciled records, fieldwork typically takes two to four weeks from the time all documents are received. Missing reconciliations, slow confirmations or weak controls can double that. Groups, tax groups and first-year audits take longer because opening balances and intercompany positions have to be agreed.
Work back from your deadline. Your free zone’s filing date and your corporate tax return date (nine months after year end) both depend on the report being signed in time. Starting within the first two to three months after year end avoids most delays.
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
