Notably, Dubai is the third-largest crypto market in the Middle East, with an estimated $26 billion in total transaction values, led by United Arab Emirates audit firms. With the UAE Securities and Commodities Authority's 144 regulation, which was published in 2020, cryptocurrencies and other digital assets will be able to be used as stored values in the purchase of goods and services. Technology developments have fundamentally altered how top audit firms in Dubai conduct their operations and present their findings. In this light, advances in computer technology and software enable the acquisition and processing of ever-increasing amounts of transaction-level data in a comparatively shorter period of time.

Having cryptocurrency in your possession enables you to conduct business with people and organizations directly, without going through third parties like banks or other financial institutions. Blockchain technology is used in these bitcoin transactions. In the UAE, owning digital assets is on the rise, and businesses have begun to invest in them. These investments are now included in the statutory audit of their financials.

The Service of UAE External Auditors

A third-party, impartial evaluation of the annual financial statements of a company's compliance with generally accepted accounting principles is provided through an external audit. The procedure can assess if financial reports are free of material misstatements with a reasonable degree of assurance, albeit it cannot give a 100% guarantee. The need for internal controls within the corporation and its organizational structure are the driving forces behind external audits.

Public organizations

A public firm issues and trades stock shares on a stock exchange or the over-the-counter market. With the passing of the Sarbanes-Oxley Act of 2002, public companies were required to comply with a greater number of reporting requirements. It mandates the management of the company to include a report on the efficacy of the organization's internal controls and that external auditors vouch for the veracity of the report.

Private organizations

Legally, private businesses and small NGOs are not required to carry out an annual external audit. Many people nonetheless decide to perform a voluntary external audit despite this. There are various company goals when performing optional external audits. While some base their audit judgments on goals related to public credibility, others give more weight to pragmatic factors.

For instance, when a small firm or organization requests financing, lenders could demand audit reports. A requirement for submitting a grant proposal or placing a bid on a contract could potentially be the results of an audit.

Market Innovations for Digital Assets and Auditor Considerations

The digital asset market is evolving quickly and several ongoing advances could make the auditor's job even more difficult. The implementation of Central Bank Backed Digital Coins, hedging instruments, Initial Coin Offerings, creative takes on conventional financial statements (fraud schemes), the development of new Dark Web tools, the emergence of sophisticated privacy coins, and the creation of crypto racy jurisdictions are examples of cryptocurrency innovations that can increase the liability associated with client engagement.

Cryptocurrency Assets and Transaction Audit Considerations

In addition to increasing real-time accounting, introducing artificial intelligence into the auditing process, and providing assurance relating to smart contracts, blockchain technology itself presents many prospects for the accounting profession.

Blockchain Technology

Some of the distinctive features of enterprise blockchain platform (EBP) technology may be able to address specific data quality issues businesses have regarding their financial reporting processes. Users with access to the blockchain, for instance, may quickly spot any changes to a block's contents once it has been uploaded to the blockchain.

A fundamental feature of all blockchain technology is the locking of data within a chain of blocks, sometimes known as an "immutable ledger," which assures that no later modifications can be made to elements like the transaction's values and date.

Read More : Impact of BlockChain on the Audit Function and Financial Reporting

Challenges when auditing cryptocurrencies

1. A bitcoin balance or transaction may be at risk of significant misrepresentation if:

An event or circumstance occurs that bears on one or more of the entity's claims regarding its cryptocurrency balances and transactions.
Neither the events nor conditions resulting from them are documented in the entity's financials. As a result, they are not reflected in its financial statements as required by its appropriate financial reporting framework, since internal control cannot provide reasonable assurance of this.

2. Despite providing proof of transaction, digital assets, such as cryptocurrency, emphasize the anonymity of the parties involved. It will therefore be difficult for an auditor to ensure that the entries conducted by the business transactions are not fraudulent or illegal in a country like UAE, with strict laws and Islamic finance.

3. Financial Statement Audit of Cryptocurrency Assets in UAE requires auditors to unlearn traditional auditing methods. Alphanumeric codes are used for digital assets. Accessing records is one thing, but the auditor also has to verify the parties involved are real and not just a fake account like a shell company.

4. In the financial statements, digital assets must be classified according to a standard. Since digital assets have their own valuations and risks, a legal framework for auditing will be necessary in the future.

5. Since open-source blockchain assets are available to developers, they pose even more risks. By hacking or exploiting software security weaknesses, hackers can manipulate data.

6. Since crypto assets are not physical, they cannot be classified as inventory. Due to their non-conforming nature, they cannot be held as cash or cash equivalents. Also, it is considered volatile, so the country must approve its use as a legal tender. The lack of physical substance makes them intangible assets according to FASB ASC 350.

Avail the Services of Top Audit Firms in UAE

Audit firms in Dubai are capable of auditing digital assets in Dubai when hired for a statutory audit that includes digital assets. A leading auditing firm like Farahat & Co has auditors who understand digital assets and can evaluate their use in financial statements. Thus, contact us today and we shall be happy to assist you.

Read More : How Should Cryptocurrencies Be Accounted in the Financial Statements