Financial Statement Audit Report Preparation for Corporate Tax in UAE

The UAE Government implemented the Corporate tax on June 1, 2023, and became the fourth GCC country to impose the federal corporate tax. The eligible taxable person or business must pay 9% of the corporate tax from their taxable income each fiscal year. As per Ministerial Decision No.82 of 2023, some need to submit the mandated financial statements audit report to the Federal Tax Authority (FTA) meeting the specific criteria. It involves gathering the necessary financial statements, auditing them with an external auditor, and submit to the FTA to ensure compliance with UAE rules and regulations. This article briefly discusses the financial statements audit record, benefits, accounting standards, etc.

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What is Audit report for Corporate tax in UAE?

An audit report for Corporate Tax in UAE is a formal document issued by a licensed auditor after a thorough examination of a company's financial statements. This report provides an independent opinion on whether the financial statements accurately reflect the company's financial position and performance for the relevant tax period. It typically includes details on the audit scope, adjustments made (if any), and the auditor's final opinion on the company's compliance with accounting standards. This report is crucial in ensuring transparency and accuracy for the Federal Tax Authority (FTA) when assessing a company's tax liability.

Benefits of Audited Financial Statements for UAE Corporate Tax

While mandatory for certain entities, obtaining an audited financial statement offers several advantages for businesses in the UAE:

• Accuracy and Transparency: An audit ensures financial statements accurately reflect a company's financial position and performance, promoting transparency with tax authorities and stakeholders.

• Reduced Risk of Errors: Professional auditors identify and rectify potential errors in financial reporting, minimizing the risk of penalties or tax assessments based on inaccurate information.

• Enhanced Credibility: A clean audit report strengthens a company's credibility with potential investors, lenders, and business partners, boosting its overall image.

• Improved Internal Controls: The audit process often identifies weaknesses in a company's internal controls, leading to improved financial management practices.

Also read: Who should get the Corporate tax registration in UAE?

Who should Audit the Financial Statements?

Companies must appoint a licensed and registered auditor to ensure independence and expertise. These auditors must be approved by the UAE's competent authorities, typically under the Ministry of Finance or related regulatory bodies. This ensures the auditor has no conflicts of interest with the company and adheres to high professional standards. Choosing a qualified auditor with experience in UAE Corporate Tax regulations is crucial for a smooth audit process and a reliable report for the Federal Tax Authority (FTA).

Who should Audit their Financial Statements for Corporate Tax in UAE?

As per Ministerial Decision No. 82 of 2023, the following entities are mandated to have their financial statements audited for Corporate Tax purposes:

• Businesses with Revenue Exceeding AED 50 Million: Any company exceeding an annual revenue threshold of AED 50 million (approximately USD 13.6 million) must obtain an audited financial statement.

• Qualifying Free Zone Persons (QFZPs): Businesses operating within Free Zones but classified as QFZPs are subject to mandatory audits regardless of their revenue.

What are the Financial Statements that need to be Submitted?

The following financial statements are needed for auditing to accurately showcase the financial situation of the UAEâ??s business. 

• Balance Sheet: An overall view of a company's financial health at a specific time, showing assets, liabilities, and shareholders' equity.

• Statement of Profit or Loss (Income Statement): Details the company's financial performance over a period, showing revenues, expenses, and net income/loss.

• Statement of Cash Flows: This statement tracks the movement of cash within the company, categorized by operating, investing, and financing activities.

• Statement of Changes in Equity: Explains the changes in shareholders' equity over a period, including net income/loss, dividends, and capital contributions.

Note: If necessary, the Federal Tax Authority (FTA) might request additional information about the financial statements. 

Financial Statements Accounting Standards for UAE Corporate Tax

As per Ministerial Decision No114 of 2023, every individual or business subject to UAE corporate tax must prepare financial statements complying with the required accounting standards in UAE,

The Financial Statement Audit Process for Corporate Tax

In this section, we are going to sum up the process of preparing a financial statement audit report to grasp the overall picture,

1. Selecting an Auditor: Companies must appoint a licensed and registered auditor from the competent authorities in the UAE, ensuring independence from the company and its affiliates.

2. Planning and Risk Assessment: The auditor collaborates with the company's management to understand its operations, internal controls, and potential risks that may affect the financial statements.

3. Performing Audit Procedures: Based on the risk assessment, the auditor conducts various procedures to verify the accuracy and completeness of the financial statements, such as reviewing internal controls, testing transactions, and performing analytical procedures.

4. Communication and Adjustments: The auditor communicates any potential adjustments required to the financial statements to management and obtains supporting documentation.

5. Issuing the Audit Report: Upon completion of the audit procedures and finalization of the financial statements, the auditor issues the audit report with their opinion.

6. Submission of Audit Report to FTA: The completed and signed audit report and the audited financial statements are submitted to the FTA by the company. The FTA then reviews the submission and may request further information or conduct inquiries before determining the company's tax liability.

Learn more: How to file Corporate tax returns in UAE?

Conclusion

Preparing a financial statement audit report for Corporate Tax in the UAE is crucial for businesses subject to the regulations. It ensures transparency and accuracy in financial reporting, minimizes tax risks, and enhances company credibility. Understanding this procedure's mandatory requirements, benefits, and processes helps businesses navigate the UAE Corporate Tax regime effectively. For a smooth and compliant audit, choosing a qualified and experienced auditor familiar with UAE Corporate Tax regulations is essential.

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