TBY talks to Mahmud P.K. Merali, Managing Partner of Merali’s (formerly Baker Tilly Merali’s), on accounting standards, auditing issues, and structural reforms in Dubai.
TBY How developed are the UAE accounting standards requirements for auditing practices?
MAHMUD P. K. MERALI Presently, the Commercial Companies Laws do not specify any accounting standards framework for the preparation of financial statements. The Central Bank of the UAE has made it mandatory for banks to prepare their accounts as per International Financial Reporting Standards (IFRS). Listed companies prepare their accounts according to the IFRS. In the absence of any specific standards framework in the UAE, most of the practicing firms apply IFRS in the preparation of audited financial statements, and apply International Standards of Auditing in the conduct of the audit of financial statements. The Real Estate Regulatory Agency (RERA) of the Land Department also recommends that the financial statements of buildings owners’ associations should be prepared according to IFRS.
Did the global economic crisis place greater importance on the need for strong internal auditing and risk management procedures?
As economic conditions change, so too must risk management priorities. That is why internal auditors should consider—first and foremost—whether they are aligned with the strategy and direction of the company. By focusing on the company’s long-term strategy, understanding the impact of short-term initiatives on this strategy, and aligning itself accordingly, the internal audit function can better position itself to monitor and address risk management activities throughout the organization.
How is the Strata Titled and Jointly Owned Property legislation governed in Dubai, and how prevalent is this type of ownership in the Emirate? What kind of auditing issues should owners be aware of?
Dubai’s Jointly Owned Property Law (Law No. 27 of 2007) establishes a framework for the development and sub-division of developments into such units and common parts, with the sub-division known as “jointly owned property.” Each development in Dubai comprises not only a number of units, but also common parts designed for common use by unit owners and occupants. Regulations have been introduced to enforce the law, and among other things, they provide that an owners’ association of all the unit owners is responsible for the management, operation, and maintenance of common areas. For each development, the developer must file a “jointly owned property declaration” with the Land Department. RERA made it mandatory to submit the annual audited financial statements of owners’ associations.
In terms of business challenges, what sort of reforms to the framework do you think would enhance the development and resilience of the economy?
The reform of insolvency and creditor/debtor regimes can improve economic efficiencies and strengthen market resilience in times of crisis. Reforming the insolvency law to provide a clear, predicable, and transparent means for a company to reorganize would benefit the national economy and all UAE companies by reducing the cost of capital for UAE companies over the medium- to long-term. A bankruptcy law already exists. However, it has not been tested by any company, which means there is much uncertainty in legal circles about how it could be applied in reality. Best practice corporate governance provisions can play an important role in stimulating investment in the UAE and enhancing the confidence of investors.
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