EXTERNAL AUDIT SERVICES – JEBEL ALI FREE ZONE (JAFZA)
JAFZA is one of the biggest free zones in Dubai and the Middle East region. It was established in the year 1985 by his highness Sheikh Rashid Bin Saeed Al Maktoum. It is located in between the Jebel Ali sea port and the new Al Maktoum International Airport. It is one of several independently governed free zone areas in Dubai and the UAE. JAFZA actively encourages and promotes formation of new businesses within free zone area.
Each free zone in Dubai and the UAE is governed by a local authority that is responsible for establishing rules and regulations for businesses operating within the free zone areas. There are also some additional rules for businesses conducting business activities within the UAE but outside the free zone areas. The purpose of the rules and regulations established by the free zone authority is to ensure that the environment within the free zone is well regulated and controlled.
One of the mandatory requirements for companies operating in JAFZA is to submit their external audit report at the end of their respective fiscal year. External audit requirement is very important for businesses in JAFZA as the requirement is an integral part of the process for renewing the business license which is mandatory for the businesses to operate in JAFZA. An independent external audit report provides assurance to the authority that the information presented by the business in its financial statements is true and in accordance with applicable accounting standards and that the business is not involved in any kind of misconduct or inappropriate activity.
Benefits for Businesses in JAFZA
JAFZA provides companies conducting their business activities in JAFZA with the following benefits:
- Total exemption from corporate tax
- Total exemption from personal tax
- No currency restrictions
- 100 percent foreign ownership
- No restriction on repatriation of capital
- No restriction on hiring foreign employees
Rules and Regulations associated with External Audit of companies in JAFZA
The clause 51 of the implementing regulations No. 1/99 states that companies in JAFZA must appoint independent auditors from a list of approved audit firms in JAFZA. One of the major requirements for providing external audit services within JAFZA is that auditors in JAFZA must hold a professional license approved by the Economic Department of Dubai, UAE. The approved auditor appointed by a company in JAFZA must perform external audit of the company’s annual accounts and submit an external audit report to the company and the free zone authority.
As per clause 49 of the regulation the annual accounts of the company must be approved by the directors and signed by manger of the company. At least one director is required to sign the balance sheet of the company making it the official representation of the company’s financial position.
According to clause 50 of the regulation a company is required to submit a copy of its annual accounts along with the report of auditors to the Free Zone Department within 3 months of the end of its fiscal year. The time can be extended subject to permission from the free zone authority.
There are some additional rules and regulations associated with the appointment of an auditor in JAFZA and the content of the report of the auditor. The external audit report must contain the auditor’s opinion on whether the financial statements give a true and fair view of the company’s financial position. Auditors in JAFZA are also required to assess the company’s operations and processes to ensure that the company is conducting its business activities in accordance with the implementing regulations applicable in JAFZA.
Reasons for External Audit service in JAFZA
The free zone authority requires the Companies in JAFZA to submit an external audit report annually mainly due to the following reasons:
- The audit report offer the authorities the information they need to ensure that the businesses in JAFZA are complying with the rules and regulations established by both the free zone authority and the UAE government.
- An external audit provides assurance to the authority that the financial statements presented by the company are complete and that the company is not concealing any information from the authority.
- An independent external audit report provides assurance to the authority and the stakeholders that the company’s financial statements are accurate and can be relied upon to make strategic decisions.
- Independent external audits provide the authorities with assurance that the company’s accounts are prepared in accordance with applicable accounting standards and that the business is not involved in any illegal or fraudulent activity.
Benefits of External Audit services in JAFZA
An independent external audit report provides the company’s shareholders and other stakeholders with important information about the company’s operations and financial position beyond the information provided by the free zone authority and the business management. The company’s shareholders use external audit as a tool to assess the accuracy of the information presented in the company’s annual financial statements. An external audit performed by an approved audit firm also provides investors and banks with accurate and reliable information they require to make timely decisions with regards to their investment in the company. The external audit report also provides confidence to potential investors that are interested in making investment in the businesses operating within JAFZA. The audit report also provides employees with information they need to assure company’s financial stability and its future prospects. There are some other government authorities that can also use the audit report and the annual financial statements as a tool to assess whether the business is complying with specific regulations relating to labor practices or import/export.
Approved Auditors in JAFZA
Only the audit firms mentioned on the list of JAFZA approved auditors can perform the statutory external audits of businesses in JAFZA. In order to be approved by the authorities to perform external audits in JAFZA, audit firms must hold a valid professional license from Department of economic development in Dubai, UAE. In order to remain as an approved auditor in JAFZA the audit firms are required to provide evidence to the free zone authority of their employees being provided with various educational and professional development programs so that to assist them in updating their knowledge with the changing auditing and accounting standards.