Just like any other state, for a business to remain operational, it must comply with certain accounting standards in Dubai. Companies must monitor their financial records and international transactions from the UAE.
With the help of a proper accounting process, a company can provide better information to its shareholders and investors and numerical data of financial assets to the authorities for audit.
Some authorities also require accounting details at the time of renewal of your business license in Dubai. To fulfill this demand, the company must prepare audit reports to create a progress report of the company.
Dubai’s local and international companies follow accounting standards in Dubai. This article will provide a complete guide on UAE accounting standards for businesses.
Overview of Accounting Standards
Accounting standards are the rules and guidelines that a company uses to prepare its financial records for bookkeeping purposes. These standards help companies to make financial records of their business and make it easy for shareholders to compare the financial information of different companies.
The UAE accounting rules are updated regularly to review changes in accounting methods and the market environment. Accounting standards’ main focus is preparing accurate financial statements across various industries. It is crucial to keep yourself updated and mandatorily follow accounting standards for smooth business operations in the country.
International Standard of Accounting
International accounting standards are rules for financial records that were later replaced by international financial reporting standards (IFRS). IFRS is similar to the Generally Accepted Accounting Principles (GAAP) used in the United States.
In the UAE, companies must follow one of the previously mentioned accounting standards to ensure the financial report is accurate and transparent. The GAAP and IFRS have different accounting rules, such as accrual accounting, inventory valuation reports, and management of physical assets. Another difference is that the GAAP is based on rules, while IFRS is based on principles.
To comply with UAE accounting standards, working with consultants who are experts in accounting and bookkeeping is necessary.
International Financial Reporting Standards (IFRS)
IFRS was initiated by the International Accounting Standard Board (IASB) to act as the international accounting standard for completing tasks and processes of financial management. IFRS maintains specific negotiations for financial reports and sets a universal language for people in business and accounting firms to help them understand accounting standards.
The IFRS presents a comprehensive guideline for accountants to manage their financial statements, and it is one of the main UAE accounting standards for businesses. Under the IFRS, the administration composes a financial report on the profit basis of accounting. The main components of IFRS in the UAE are as follows;
- Income statement
- Balance sheet
- Cash flow statement
- Equity Statement
Generally Accepted Accounting Principles (GAAP)
GAAP contains fundamental rules to deal with challenges, uncertainty, and rights of accounting while handling corporate accounting. The accounting methods accepted and applied by the Financial Accounting Standards Board (FASB) are based on GAAP accounting standards.
To implement GAAP, thorough accounting services are required because they handle balance sheets, identify profits, identify unusual categories of items, and estimate the total for public announcements.
It is necessary to comply with GAAP if a company provides its financial statements to third parties. Accounting records must follow the rules of the Exchange Commission if the inventory is publicly traded. Some companies might present financial reports using both GAAP and non-GAAP standards. It is necessary to mention non-GAAP standards in the financial statement and public announcements in compliance with GAAP accounting standards.
The GAAP covers the following items,
- Revenue recognition
- Balance sheet
- Calculation of capital stock
- Items categorization
Required IFRS Accounting Standards in UAE
Companies are mandated by the Securities and Commodities Authority (SCA) to abide by IFRS. Due to this decision, the UAE has become the best destination for doing business, following the top international practices in compiling financial reports.
Following the best accounting services is the common practice of the major accounting companies, with effective financial consulting services and reliability. IFRS is implemented in more than 100 countries worldwide as it allows inventory reversal in critical situations and profit from development expenditure.
Financial Report Through IFRS Accounting Standards
A company must use an efficient accounting technique to prepare an accurate financial report and follow UAE accounting rules. With the help of an accurate financial report, investors can make informed decisions about investments, incorporation, and acquisitions. IFRS is the most common UAE accounting standard among all businesses and government institutes.
Here are some of the financial reports that need to be prepared under IFRS standards,
- Financial Statements
- Reports from the company’s board of directors
- Reports on corporate laws
- Additional information on the financial statement
- Audit Report
- Reports on management analysis and decisions
- Prospectus
Financial Statements
Under IFRS, the companies need to prepare the following financial statements,
- Balance sheet
- Income statement
- Changes in equity
- Cash flow
Reports from the Board of Directors
Under IFRS, a company needs to include a summary of business activities, talk about risks the business faces, and write about the company’s plans.
Reports on Corporate Laws
You must include your company’s corporate laws and guidelines in this report. In addition, provide information about the company’s board of directors, the task force, and the company’s procedure for handling risks.
Reports on Management Analysis
An analysis of the company’s financial achievements, profits, expenses, and income should be included.
Additional Information on Financial Statements
These notes provide additional information on the company’s financial statements and details of different transactions that may affect the company’s economic performance.
Audit Report
The company should prepare an Audit Report by hiring an external auditor to analyze if the financial report is prepared according to the IFRS standards and give detailed suggestions for the business.
Prospectus
A company prepares a prospectus when a company wants to issue bonds or stocks. The prospects should contain accurate information about the company’s revenue, profitability, and costs.
Contrast between IFRS and GAAP in Dubai
Below are the main differences between IFRS and GAAP in the UAE.
| International Financial Reporting Standards (IFRS) | Generally Accepted Accounting Principles (GAAP) |
| IFRS is based on principles and provides guidelines to companies. | GAAP is rule-based and provides rules that a company must follow. |
| It allows companies to recognize intangible assets such as trademarks and goodwill. | It allows companies to recognize intangible assets such as trademarks and goodwill. |
| GAAP is limited to only tangible assets such as land and buildings. | IFRS’s main focus is the transfer of rewards and risks |
| In crucial circumstances, IFRS allows reverse inventory | Under GAAP, companies are not allowed to reverse inventory |
| Under IFRS, Last-in First-out (LIFO) inventory accounting method is prohibited | GAAP allows the LIFO inventory accounting method |
| Companies are required to recognize leases on their annual report regardless of their nature. | GAAP is laid back and allows the business to categorize some leases that are not acknowledged on the balance sheet |
End Note
Lastly, we expect you to understand accounting standards in Dubai and why they are important. With the help of financial reporting through accounting standards, it becomes easy for investors to understand and compare financial data with other companies. It also makes sure that the balance sheet is accurate and transparent.
Al-Riyady is here to answer all your questions related to UAE accounting standards. Our expert consultants are here to help you with accounting & auditing, tax policies, Business Valuation, and Business Feasibility Study. We will guide you through the whole process and ensure your company’s setup is in accordance with the country’s regulations.
