Many companies from different industries are setting up operations in Dubai, one of the world’s fastest-growing business hubs. However, one of the major tasks in every business is effectively managing finances, which requires them to maintain proper accounting records and adhere to certain accounting standards in UAE. Implementation of these standards enables them to provide better insight to the shareholders and potential investors about the company’s financial health, and statistical data on monetary assets to the government institutions for audit.
Every time at the time of license renewal, the majority of authorities in the UAE request financial statements, and to do so, companies are required to create performance reports through account audits. This can only be possible if they properly follow specific accounting standards. This article will help you understand different types of accounting standards used internationally and the one recommended for the corporate world in UAE.
What are Accounting Standards?
Accounting standards are a set of principles, rules, and guidelines for financial reporting. These rules are used to prepare and present the financial statements. In the corporate world, these standards act as a common language for companies to prepare and maintain their financial records, making it easy for shareholders, creditors, lenders, and investors to understand and compare financial information across different companies.
The primary goal of accounting standards in UAE is to ensure that the financial accounts are precise, transparent, and reliable across different companies in the country. Besides, these standards are regularly revised and restructured to bring changes in accounting practices, technology, and business environments. Therefore, accountants in the UAE must ensure to stay up-to-date with these changes and work accordingly while preparing financial reports. Companies must also consider installing suitable accounting software to process financial transactions flawlessly.
Basic accounting is a requisite for businesses operating in the UAE. However, many people get confused about the amendments and reforms in the design and format of financial record management. So, let’s understand the standards recommended for bookkeeping and accounting in Dubai.
International Accounting Standards and its types
Companies worldwide adopt different formats and rules to manage their accounts. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are two of the most commonly used accounting principles. Countries like the United States of America use GAAP for bookkeeping journal management and the creation of financial statements.
International Accounting Standards (IAS) is a set of accounting principles established by the International Accounting Standards Committee (IASC). The IASC was later succeeded by the International Accounting Standards Board (IASB). This authority governs the development and maintenance of IFRS. Both these principles differ in a certain way. Nevertheless, IFRS is said to be more principles-based, while GAAP is rules-based.
International Financial Reporting Standards (IFRS)
IASB launched IFRS to carry out tasks and activities of financial management. They define an extensive way to maintain the records, thus making sure that the guidelines are clearly understood by accountants and companies across the world. The components of IFRS accounting standards are as follows:-
- Balance Sheet
- Income statement
- Equity Statement
- Cash Flow Statement
Generally Accepted Accounting Principles (GAAP)
GAAP, approved by the Financial Accounting Standards Board (FASB), encompasses all essential principles to deal with the complexities and accounting legalities of managing corporate accounting. The implementation of GAAP mandates comprehensive accounting services as it is used for balance sheet management, revenue identification, and classification of items and collective valuations for public declaration.
Key differences between IFRS and GAAP
- IFRS principles are used by more than 100 countries across the globe, while GAAP is used by a few countries, including the USA and Canada.
- IFRS was approved and accepted by the International Accounting Standard Board (IASB), whereas GAAP was developed and introduced by the Financial Accounting Standard Board (FASB).
- IFRS accounting principles enable companies to reverse inventory under critical circumstances, which is prohibited in GAAP.
- IFRS facilitates businesses to capitalize on the development costs, whereas GAAP considers the cost of development as an expense for the companies.
- IFRS is unsupportive of Last In First Out (LIFO) management processes, which is quite the opposite in the case of GAAP.
Looking for reliable accounting bookkeepers in Dubai? Contact Shuraa Tax to ensure compliance with the latest rules and guidelines of IFRS.
Mandatory accounting standards in UAE
As stated by the Central Bank of the UAE, the Securities & Commodities Authority (SCA) mandated businesses to comply with IFRS accounting standards in the UAE. companies registered with NASDAQ Dubai, Dubai Financial Market, or the Abu Dhabi Securities Exchange are required to manage their financial records according to the IFRS guidelines. Thus, by deploying IFRS Standards, the UAE has become a global financial center with the best international accounting practices.
Reportedly, IFRS is widely used in many countries across the world. These guidelines enable businesses to reverse their account under crucial conditions and profit from on development costs.
Financial reporting under IFRS
Businesses aiming for ideal and precise financial reporting need to implement a robust and efficient accounting method. Through accurate financial reporting, external parties can make productive decisions regarding investments, mergers, acquisitions, etc. Therefore, companies in the UAE have adopted the IFRS model.
Additionally, some major types of financial reports need to be prepared under these standards of accounting in Dubai:-
- Financial statements – Companies while preparing financial statements under IFRS are required to record all transactions in an accounting system and make any necessary corrections. Further, they must prepare the following reports – Balance Sheet (Statement of Financial Position), Income Statement (Statement of Comprehensive Income), Statement of Changes in Equity, and Statement of Cash Flows.
- Board of Directors reports – As per IFRS, the reports must outline the company’s activities, address any existing risks or uncertainties, and define the company’s plans for the future.
- Management decision and analysis reports – This report provides information and analysis on the financial performance, revenue, expenses, and profitability of the company.
- Audit reports – An external auditor prepares the audit report for the company, evaluating whether the financial statements are prepared according to the IFRS, and also provides additional insights or recommendations for the company.
- Corporate governance report – This report includes the governance structure and practices of the organization, such as information on the board of directors, any established committees, and the policies and procedures adopted by the company for managing risks.
- Accounts notes – These notes basically provide additional information on the financial reports of the organization such as details on specific transactions that may affect its financial performance.
- Prospectus – A prospectus is generally prepared for issuing securities, such as stocks or bonds. The prospectus entails accurate and transparent information on the company’s financial performance, such as revenue, expenses, and profitability.
Thus, financial reporting enhances clarity in the accounting practices of an organization. It enables the potential allies to examine the finances of the company and remove any prospective fraud or irregularities.
Reach out to certified accountants of Shuraa
Shuraa Tax Consultants and Accountants is one of the leading accounting firms in Dubai with IFRS-certified accountants. Their accounting professionals hold decades of experience in providing quality financial reporting services to various businesses and industries across the UAE. Moreover, they ensure that their clients stay compliant with the IFRS standards and maintain their books of accounts accurately.
For further queries regarding accounting standards in UAE, contact Shuraa Tax at info@shuraatax.com
