What are the Audit Requirements for an LLC in Abu Dhabi?

All mainland LLC’s in Abu Dhabi are required to complete an annual audit, regardless of company size or business activity, to comply with the requirements of Article 27 and 54 of Federal Decree Law No. 32 of 2021. Entities are also required to maintain proper books of accounts and prepare annual financial statements in accordance with the International Accounting Standards. Non-compliance may result in license suspension, fines, and banking restrictions.

KEY POINTS

• All the mainland Limited Liability Companies or LLCs registered in Abu Dhabi, Dubai, Sharjah, and all over the UAE have to undergo an annual statutory audit. There are a number of Regulations and Ministerial Decisions that make the audit mandatory in the UAE. To know more about them, please refer to our article why audit is mandatory in UAE.
• Books of accounts must be prepared in accordance with IAS/IFRS and accounting records must be maintained for a period of 5 years, ideally 7 years.
• The audit must be performed by a licensed auditor approved by the Ministry of Economy. There are a number of leading audit firms in Abu Dhabi, but selection should be done after thorough due diligence, including customer reviews, past experience relating to your industry, education and experience of the auditor, training & development program of the firm, etc. These factors directly impact the quality and reputation of an audit firm.
• Annual Audits should be prepared and maintained on a yearly basis as per applicable UAE regulations. Failure to do so may result in any of the following:

1. Trade License renewal suspension
2. Monetary fines and administrative penalties imposed by authorities
3. Bank account restriction or facilities withdrawn
4. Increased scrutiny by investors, financial institutions, lenders, key suppliers

Who Does This Apply to?

• Any LLC based in the UAE mainland (to include Abu Dhabi).
• Any entity governed by the UAE Commercial Companies Law.
• Shareholder/Partner wants financial statements to be audited.
• Entities that require financial statements to be audited for regulatory, banking, tax, or other stakeholder needs.
• Investors wanting audited accounts before they invest in your business.

How to Prepare for an LLC Audit?

A company should prepare for an audit by keeping its financial records complete and up to date. All documents including customer invoices, supplier bills, customer contracts, bank statements, and VAT/Corporate tax records should be maintained well. Internal controls cannot be ignored when it comes to audit as internal control system of an organization determines whether auditors will use more substantive procedures or rely more on analytical audit procedures. Hence, the management should also review internal controls systems involving accounts to address any discrepancies before the audit begins. Working with the right external auditor can make the process smoother and quicker.

What Documents Are Needed for an Audit?

• Trial balance, statement of financial position, statement of profit & loss account and other comprehensive income, cash flow statement, and statement of equity.
• Bank statements, bank reconciliations, customer and supplier reconciliations, and loan documents (if applicable).
• Sales invoices and receipts, purchase invoices and payments.
• Supplier contracts, client agreements, and lease/rental contracts.
• VAT returns, corporate tax filings, and related correlations.
• Employee salary details, benefits, and related documents.
• Asset register and related schedules.
• Previous financial statements and auditor notes, if available.

Step-by-Step Approach to Audit

What are the Penalties for Not Auditing an LLC in Abu Dhabi?

• The Abu Dhabi Department of Economic Development (ADDED) may levy fines for non-compliance with statutory audit requirements.
• Companies that do not conduct audited financial statements may be denied renewal of their trade license.
• Authorities can take bureaucratic action, which include warnings, restrictions from any specific business activities, or issue legal notices.
• Relationships with banks, investors, suppliers, customers, and partners can be affected and financial institutions may potentially lower your credit score too.

When an Audit May Not Be Required

• If a company is incorporated in certain Free Zones or jurisdictions that are considered offshore like JAFZA Offshore and RAK ICC, audit requirements may vary. Some free zones may have different threshold/exemptions.
• Small/inactive companies, or where turnover/assets are below the thresholds applicable in the respective justifications, audit may not always be required. However, such cases must be reviewed carefully based on the type and location of license and specific requirements of the jurisdiction.
• Statutory audits are not generally required for Sole-establishments.

Reasons Why Companies in Abu Dhabi Should Do Annual Statutory Audit Rather Than Going for Audit Exemptions (If Any)

• Show financial integrity and trustworthiness to create credibility with banks, investors, and regulators.
• Audits help you file corporate tax and VAT accurately.
• Financial institutions or lenders require audits before they lend you money or finance operations of your business.
• To have proper books and accurate financial statements (reduces potential of errors and fraud).
• If considering future business expansions, mergers, or sales, the audited history is a strong asset.