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Enhancing Audit Quality through effective application of Auditing Standards

Jebel Ali Free Zone Authority (JAFZA) is one of several independently governed business areas in the UAE. Each of these zones offers very business-friendly environments and actively promote new business formation inside the zone’s managed area. Each free zone is governed by a specific authority issuing and enforcing business operations within the zone. Additional rules will apply to businesses doing business outside the zones but within the UAE. All free zone authority regulations are intended to protect UAE citizens from improper business activities; to assure all businesses operating within the zone adhere to common rules of interaction with each other and with the world businesses, and to protect shareholders from fraudulent business practices. One of these regulations is the external audit requirement. Businesses operating in JAFZA must renew their business license annually. As part of the renewal process, every business must get their accounts audited by one of the audit firms from the JAFZA approved auditors list. This audit will assure the authorities that the business’s financial statements are true and accurate and that no fraudulent activities are being disguised by false financial reports.

Official Rules Concerning External Audits

The official rules concerning External Audits are found in the Implementing regulations Number 1/99. In clause 51 of this regulation all Companies in Jebel Ali Free Zone are required to appoint auditors from a list of approved auditors. In practice, audit firms holding valid professional license from the Economic Department are considered eligible to perform the required audit. The appointed auditor must produce an audit report of the company’s annual accounts and deliver the report to the shareholders of the company.

In clause 49 of the regulation the annual financial report of the company must be signed by the directors or on behalf of the directors. At least on director must sign the balance sheet making the balance sheet the official financial position of the company.

Clause 50 requires a copy of the annual accounts (accompanied by the auditors report) to be delivered to FZCO Department within three months of the end of the financial year. It is possible to extend that time with permission from the authority in special circumstances.

Additional Regulations Concerning Approved Auditors

Additional rules describe the appointment of an approved auditor and the required content of the auditors’ report. The audit report must state the auditor’s opinion whether the statements reflect an honest and true description of the company’s finances. The auditor must evaluate the company’s financial practices to be sure the accounts meet Implementing Regulations. It also indicates a signed copy of the report must be delivered to the Free Zone Establishment authority along with the annual business accounts report.

Why is an External Audit Required?
The Free Zone Authority has several reasons for the audit requirement:
• Independent audits provide information the authorities need to assure the commercial environment is well regulated.
• An independent audit assures the financial statements are complete and nothing is being hidden.
• The audit report assures the authorities that the business’s financial reports are accurate and reliable.
• An independent auditor is required by international auditing standards to disclose any fraud or misconduct uncovered by the audit.

Additional Description of Approved Auditors

As stated above, only JAFZA approved audit firms are allowed to perform audits in Jebel Ali Free Zone Authority. Firms will hold a valid professional license from the UAE Economic Department in Dubai. To remain approved, audit firms must provide proof of continuing education in the changing standards of auditing and professional development.

Who benefits from The External Audit?

The independent audit report for a JAFZA registered company provides valuable information for several “stakeholders” beyond the authorities and the business management. Shareholders in the company will view external audit reports as “lie detectors” for the company’s public financial statements. The value and safety of their investment depends on accurate information. Customers doing business with a JAFZA registered company need to know they are dealing with a honest company and not some fraudulent entity. The audit report gives them confidence in the business. Bankers providing financing for company operations need to know their money is being used properly and is not being exposed to excessive risk. Employees need to know their paychecks will continue and that those checks will be valid. All citizens where the company does business need to know that the company is not operating in some way harmful to the environment. There are some smaller government departments that can use financial reports to find evidence a company is ignoring regulations about labor practices or import/export…etc

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