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Audit & Financial Glossary

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A

Audit

Audit Fundamentals

An independent examination of financial information of any entity, whether profit-oriented or not, irrespective of its size or legal form, conducted to express an opinion on the financial statements.

Auditor

Audit Fundamentals

A qualified professional authorized to examine and verify the accuracy of financial records and ensure compliance with tax laws. Must be licensed by the UAE Ministry of Economy for statutory audits.

Audit Opinion

Audit Fundamentals

The auditor's formal conclusion regarding whether financial statements are presented fairly in accordance with applicable financial reporting framework. Can be unqualified, qualified, adverse, or disclaimer.

Adverse Opinion

Audit Fundamentals

An audit opinion stating that financial statements do not fairly present the financial position and are materially misstated or misleading. The most serious type of audit opinion.

Audit Evidence

Audit Fundamentals

Information used by the auditor in arriving at the conclusions on which the audit opinion is based. Includes source documents, accounting records, and confirmations from third parties.

Audit Trail

Audit Fundamentals

A chronological record of system activities that provides documentary evidence of the sequence of activities that have affected a specific transaction or event.

Audit Risk

Audit Fundamentals

The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Comprises inherent risk, control risk, and detection risk.

Audit Program

Audit Fundamentals

A detailed set of procedures and tests to be performed during an audit engagement, designed to achieve the audit objectives and obtain sufficient appropriate evidence.

Audit Engagement

Audit Fundamentals

The formal agreement between an auditor and client to perform an audit, outlining scope, responsibilities, timing, and fees.

Audit Scope

Audit Fundamentals

The extent and boundaries of an audit, including which financial statements, periods, and areas will be examined.

Audit Working Papers

Audit Fundamentals

Documentation of audit procedures performed, evidence obtained, and conclusions reached. Must be retained for specified periods per regulatory requirements.

AML

UAE Regulations & Compliance

Anti-Money Laundering - regulations and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.

Accrual Accounting

Financial Reporting

An accounting method where revenue and expenses are recorded when earned or incurred, regardless of when cash is exchanged.

Amortization

Financial Reporting

The gradual write-off of an intangible asset's cost over its useful life, or the repayment of debt through regular installments.

Assets

Financial Reporting

Resources owned by a business that have economic value and can provide future benefits. Classified as current or non-current.

Accounts Receivable

Financial Reporting

Money owed to a business by customers for goods or services delivered on credit. A current asset on the balance sheet.

Accounts Payable

Financial Reporting

Money owed by a business to suppliers or creditors for goods or services received on credit. A current liability on the balance sheet.

Analytical Procedures

Audit Procedures

Evaluations of financial information through analysis of plausible relationships among financial and non-financial data, used to identify unusual trends.

Audit Committee

Corporate Governance

A subcommittee of the board of directors responsible for overseeing financial reporting, internal controls, and relationships with external auditors.

Agreed-Upon Procedures

Specialized Audits

Engagement where auditor performs specific procedures agreed with the client and reports factual findings without providing opinion.

B

Balance Sheet

Financial Reporting

A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time. Also known as Statement of Financial Position.

Board of Directors

Corporate Governance

A group of individuals elected to represent shareholders and oversee management, responsible for major decisions and corporate governance.

C

Control Risk

Audit Fundamentals

The risk that a material misstatement will not be prevented or detected on a timely basis by the entity's internal controls.

Cash Flow Statement

Financial Reporting

A financial statement showing cash inflows and outflows from operating, investing, and financing activities during a specific period.

Cash Accounting

Financial Reporting

An accounting method where transactions are recorded only when cash is received or paid. Simpler than accrual accounting but less accurate for financial position.

Current Assets

Financial Reporting

Assets expected to be converted to cash or consumed within one year, including cash, accounts receivable, and inventory.

Current Liabilities

Financial Reporting

Obligations due to be settled within one year, such as accounts payable, short-term loans, and accrued expenses.

Cost of Goods Sold

Financial Reporting

Direct costs attributable to producing goods sold by a company, including materials and labor. Also known as COGS or Cost of Sales.

Confirmation

Audit Procedures

Direct communication with third parties to verify information in financial records, such as bank balances or accounts receivable.

Controls Testing

Audit Procedures

Audit procedures to evaluate the operating effectiveness of internal controls in preventing or detecting material misstatements.

Corporate Governance

The system of rules, practices, and processes by which a company is directed and controlled, balancing interests of stakeholders.

COSO Framework

Corporate Governance

Committee of Sponsoring Organizations framework - a widely used model for evaluating and improving internal control systems.

Compliance

Corporate Governance

Adherence to laws, regulations, standards, and ethical practices applicable to the organization.

Corporate Tax

VAT & Tax

Tax on business profits introduced in UAE in June 2023, at 9% for profits above AED 375,000, with 0% for profits below threshold.

Compliance Audit

Specialized Audits

Examination to ensure an organization complies with laws, regulations, policies, and contractual obligations.

Current Ratio

Financial Metrics & Ratios

Current assets divided by current liabilities, measuring ability to pay short-term obligations. Ratio above 1.0 indicates good liquidity.

D

Disclaimer of Opinion

Audit Fundamentals

Issued when the auditor cannot obtain sufficient appropriate audit evidence and concludes that the possible effects of undetected misstatements could be both material and pervasive.

Detection Risk

Audit Fundamentals

The risk that audit procedures will not detect a material misstatement that exists in an account balance or class of transactions.

DED

UAE Regulations & Compliance

Department of Economic Development - the government authority in each emirate responsible for issuing trade licenses and regulating commercial activities.

DMCC

UAE Regulations & Compliance

Dubai Multi Commodities Centre - one of Dubai's largest free zones, requiring annual audits for most company categories.

DIFC

UAE Regulations & Compliance

Dubai International Financial Centre - a financial free zone with its own legal and regulatory framework, requiring IFRS-compliant audited financial statements.

Depreciation

Financial Reporting

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Due Diligence

Corporate Governance

Comprehensive investigation and evaluation of a business or person before signing a contract or agreement, particularly in mergers and acquisitions.

Due Diligence Audit

Specialized Audits

Comprehensive investigation before a transaction (M&A, investment) to identify risks, verify information, and assess value.

Debt-to-Equity Ratio

Financial Metrics & Ratios

Total liabilities divided by shareholders' equity, indicating financial leverage and capital structure.

Days Sales Outstanding

Financial Metrics & Ratios

Average number of days to collect payment after a sale (DSO), measuring accounts receivable efficiency.

E

External Audit

Audit Fundamentals

An independent examination of a company's financial statements by a licensed third-party auditor to provide assurance that the financial statements are free from material misstatement. Mandatory for UAE mainland and most free zone companies.

Engagement Letter

Audit Fundamentals

A written agreement between auditor and client that defines the terms of the audit engagement, including scope, responsibilities, deadlines, and fees.

Escrow Account

UAE Regulations & Compliance

A bank account where funds are held in trust during a transaction. For Dubai real estate, developers must deposit buyer payments in RERA-registered escrow accounts.

Economic Substance Regulations

UAE Regulations & Compliance

UAE regulations requiring certain business activities to demonstrate adequate economic presence and substance in the UAE through annual ESR reporting.

ESR

UAE Regulations & Compliance

Economic Substance Regulations - compliance requirement for UAE businesses engaged in specific activities to prove adequate economic presence.

Equity

Financial Reporting

The residual interest in assets after deducting liabilities, representing owners' stake in the business. Includes share capital and retained earnings.

EBITDA

Financial Reporting

Earnings Before Interest, Taxes, Depreciation, and Amortization - a measure of operational profitability excluding non-operating expenses.

Exempt Supply

VAT & Tax

Goods or services not subject to VAT and not allowing input VAT recovery, such as residential property rentals and local passenger transport.

Earnings Per Share

Financial Metrics & Ratios

Net income divided by number of outstanding shares (EPS), key metric for shareholders measuring per-share profitability.

F

Federal Law No. 32 of 2021

UAE Regulations & Compliance

The UAE Commercial Companies Law that governs the establishment, operation, and dissolution of companies in the UAE. Mandates annual audits for all mainland companies.

Free Zone

UAE Regulations & Compliance

Designated areas in the UAE offering 100% foreign ownership, tax exemptions, and simplified regulations. Each free zone has specific audit requirements.

FTA

UAE Regulations & Compliance

Federal Tax Authority - the UAE government body responsible for administering and collecting federal taxes including VAT and corporate tax.

Financial Statements

Financial Reporting

Formal records of the financial activities and position of a business, including the balance sheet, income statement, cash flow statement, and notes to accounts.

Fixed Assets

Financial Reporting

Long-term tangible assets used in business operations, such as property, plant, and equipment (PP&E). Not expected to be converted to cash within one year.

Fraud

Corporate Governance

Intentional deception or misrepresentation to gain unauthorized benefit, including financial statement fraud and asset misappropriation.

Forensic Audit

Specialized Audits

Investigation-focused audit to detect and analyze fraud, embezzlement, or financial irregularities, often used in legal proceedings.

Free Zone Audit

Specialized Audits

Statutory audit specifically for companies registered in UAE free zones, with requirements varying by free zone authority.

G

Going Concern

Audit Fundamentals

The assumption that an entity will continue to operate for the foreseeable future and has neither intention nor need to liquidate or curtail operations.

GAAP

Financial Reporting

Generally Accepted Accounting Principles - a set of accounting standards and procedures. UAE entities may use UAE GAAP or IFRS.

Goodwill

Financial Reporting

An intangible asset representing the excess of purchase price over fair value of identifiable net assets acquired in a business combination.

Gross Profit

Financial Reporting

Revenue minus cost of goods sold, representing profit before operating expenses, interest, and taxes.

Gross Margin

Financial Metrics & Ratios

Gross profit as a percentage of revenue, indicating pricing strategy effectiveness and production efficiency.

I

Internal Audit

Audit Fundamentals

An independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It evaluates the effectiveness of risk management, control, and governance processes.

Independent Auditor

Audit Fundamentals

An external auditor who has no financial or business relationship with the company being audited, ensuring objectivity and impartiality in the audit process.

Inherent Risk

Audit Fundamentals

The susceptibility of an account balance or class of transactions to material misstatement, assuming there are no related internal controls.

Income Statement

Financial Reporting

A financial statement showing revenues, expenses, and profit or loss over a specific period. Also known as Profit & Loss Statement (P&L).

IFRS

Financial Reporting

International Financial Reporting Standards - globally accepted accounting standards used by many UAE companies, especially in DIFC and by listed entities.

Intangible Assets

Financial Reporting

Non-physical assets with economic value, such as patents, trademarks, goodwill, and software licenses.

Inventory

Financial Reporting

Goods and materials held by a business for sale or use in production. Valued using methods like FIFO, LIFO, or weighted average.

Inquiry

Audit Procedures

Seeking information from knowledgeable persons inside or outside the entity, used in combination with other audit procedures.

Inspection

Audit Procedures

Examining records or documents, whether internal or external, in paper or electronic form, or physical examination of assets.

Internal Controls

Corporate Governance

Processes and procedures implemented by management to ensure integrity of financial reporting, compliance with laws, and efficiency of operations.

Input VAT

VAT & Tax

VAT paid on purchases and expenses, which can typically be reclaimed by VAT-registered businesses.

IT Audit

Specialized Audits

Examination of information technology infrastructure, policies, and operations to assess security, controls, and compliance.

Inventory Turnover

Financial Metrics & Ratios

Cost of goods sold divided by average inventory, showing how quickly inventory is sold and replaced.

J

JAFZA

UAE Regulations & Compliance

Jebel Ali Free Zone Authority - one of the oldest and largest free zones in Dubai, with specific audit and compliance requirements.

K

KYC

UAE Regulations & Compliance

Know Your Customer - the process of verifying the identity of clients and assessing their suitability and risks, required under UAE AML regulations.

L

LLC

UAE Regulations & Compliance

Limited Liability Company - the most common business structure in UAE mainland, requiring at least one shareholder and mandatory annual audits.

Liabilities

Financial Reporting

Financial obligations or debts owed by a business to creditors, suppliers, or other parties. Classified as current or non-current.

Long-term Liabilities

Financial Reporting

Obligations not due for payment within one year, such as long-term loans, bonds payable, and deferred tax liabilities.

M

Materiality

Audit Fundamentals

The magnitude of an omission or misstatement that, individually or in aggregate, could reasonably influence the economic decisions of users based on the financial statements.

Material Misstatement

Audit Fundamentals

An error or fraud in financial statements that is significant enough to impact the decision-making of users relying on those statements.

Ministry of Economy

UAE Regulations & Compliance

The UAE government authority responsible for licensing and regulating auditors and ensuring compliance with commercial laws and regulations.

Mainland Company

UAE Regulations & Compliance

A company registered with the DED operating outside free zones. Required to have annual audits and can conduct business anywhere in the UAE.

N

Notes to Financial Statements

Financial Reporting

Detailed explanations and disclosures accompanying financial statements, providing additional context and information about accounting policies and specific line items.

Net Profit

Financial Reporting

The bottom line profit after all revenues, expenses, interest, and taxes have been accounted for. Also known as net income or net earnings.

Net Profit Margin

Financial Metrics & Ratios

Net profit as a percentage of revenue, showing overall profitability after all expenses.

O

Operating Profit

Financial Reporting

Gross profit minus operating expenses, showing profit from core business operations before interest and taxes. Also known as EBIT.

Observation

Audit Procedures

Watching a process or procedure being performed by entity personnel, such as observing inventory counts or control procedures.

Output VAT

VAT & Tax

VAT charged on sales and revenues, which must be paid to the Federal Tax Authority.

Operational Audit

Specialized Audits

Review of organizational procedures and methods to evaluate efficiency, effectiveness, and economy of operations.

P

Physical Verification

Audit Procedures

Direct inspection and counting of tangible assets like inventory, cash, or fixed assets to confirm their existence and condition.

Q

Qualified Opinion

Audit Fundamentals

An audit opinion issued when the auditor finds material misstatements or cannot obtain sufficient evidence for certain items, but these issues are not pervasive enough to require an adverse opinion.

Quick Ratio

Financial Metrics & Ratios

Also called acid-test ratio, measures ability to meet short-term obligations using most liquid assets (excluding inventory).

R

RERA

UAE Regulations & Compliance

Real Estate Regulatory Agency - Dubai authority regulating real estate sector, requiring specific audit reports for property developers and community associations.

RERA Audit

UAE Regulations & Compliance

Specialized audit required for real estate developers and homeowner associations in Dubai, focusing on escrow accounts and fund utilization.

Revenue Recognition

Financial Reporting

The accounting principle determining when revenue should be recorded in financial statements, typically when earned and realizable.

Retained Earnings

Financial Reporting

Cumulative net income retained in the business after dividends have been distributed to shareholders.

Reconciliation

Audit Procedures

Comparing two sets of records to ensure they agree, such as bank statement reconciliation or intercompany account reconciliation.

Reperformance

Audit Procedures

Independent execution of procedures or controls by the auditor to verify they were performed correctly by the client.

Recalculation

Audit Procedures

Checking mathematical accuracy of documents or records, such as recalculating depreciation or invoice totals.

Risk Management

Corporate Governance

The process of identifying, assessing, and controlling threats to an organization's capital, earnings, and operations.

Risk Assessment

Corporate Governance

The systematic process of identifying and analyzing potential risks that could negatively impact the organization's ability to achieve objectives.

Review Engagement

Specialized Audits

Limited assurance engagement providing moderate assurance that financial statements are free from material misstatement, less extensive than audit.

Return on Assets

Financial Metrics & Ratios

Net income divided by total assets (ROA), measuring how efficiently a company uses assets to generate profit.

Return on Equity

Financial Metrics & Ratios

Net income divided by shareholders' equity (ROE), measuring profitability relative to shareholders' investment.

S

Statutory Audit

Audit Fundamentals

A legally required audit of the accuracy of a company's financial records and statements. In the UAE, all mainland companies must undergo statutory audits annually.

Statement of Changes in Equity

Financial Reporting

A financial statement showing movements in equity components during the reporting period, including retained earnings, reserves, and share capital.

Substantive Testing

Audit Procedures

Audit procedures designed to detect material misstatements in account balances and transactions, including tests of details and analytical procedures.

Sampling

Audit Procedures

The selection of a subset of items from a population to draw conclusions about the entire population, used when testing 100% is impractical.

Segregation of Duties

Corporate Governance

A key internal control requiring different people to perform different stages of a transaction to prevent fraud and error.

Sustainability Audit

Specialized Audits

Evaluation of environmental, social, and governance (ESG) performance and reporting, increasingly important for stakeholders.

Stock Audit

Specialized Audits

Physical verification and valuation of inventory to ensure accuracy of stock records and identify discrepancies or obsolescence.

T

Trade License

UAE Regulations & Compliance

A permit issued by the DED or free zone authority allowing a business to operate in the UAE. Must be renewed annually and requires audited accounts for mainland companies.

Test of Details

Audit Procedures

Audit procedures that examine individual transactions, account balances, or disclosures to obtain evidence about their accuracy and completeness.

Tracing

Audit Procedures

Following a transaction from its source document through the accounting system to ensure completeness of recording.

Tax Invoice

VAT & Tax

An invoice meeting specific FTA requirements that allows the recipient to claim input VAT, must include VAT registration number and VAT amount.

Tax Residency

VAT & Tax

Status determining where a business or individual is liable to pay taxes, based on incorporation, management location, or other factors.

Transfer Pricing

VAT & Tax

Pricing of transactions between related parties, must follow arm's length principle to prevent profit shifting and tax evasion.

Tax Treaty

VAT & Tax

Agreement between countries to avoid double taxation and prevent tax evasion, affecting withholding tax rates and residency rules.

Tax Return

VAT & Tax

Formal declaration of income, expenses, and other tax information filed with tax authorities to determine tax liability.

U

Unqualified Opinion

Audit Fundamentals

Also known as a "clean opinion," this indicates the auditor found no material misstatements and the financial statements fairly present the financial position in accordance with accounting standards.

UAE Cabinet Resolution No. 57

UAE Regulations & Compliance

Regulation governing transfer pricing documentation and country-by-country reporting requirements for multinational enterprises in the UAE.

Ultimate Beneficial Owner

UAE Regulations & Compliance

The individual(s) who ultimately own or control a company. UAE regulations require UBO disclosure for all registered entities.

UBO

UAE Regulations & Compliance

Ultimate Beneficial Owner - the natural person who ultimately owns or controls more than 25% of a company or exercises control through other means.

V

Vouching

Audit Procedures

Examining source documents and records to verify the validity and accuracy of recorded transactions.

VAT

VAT & Tax

Value Added Tax - an indirect tax levied at 5% in the UAE on most goods and services, introduced on January 1, 2018.

VAT Audit

VAT & Tax

Examination of a business's VAT records and returns to ensure compliance with UAE VAT regulations and accurate tax reporting.

VAT Return

VAT & Tax

Periodic report submitted to FTA showing VAT collected and paid, typically filed quarterly or monthly depending on turnover.

W

Working Capital

Financial Reporting

The difference between current assets and current liabilities, indicating a company's short-term financial health and operational efficiency.

Walkthrough

Audit Procedures

Following a transaction through the entire accounting system from origination to financial statement presentation to understand processes and controls.

Whistleblower

Corporate Governance

A person who reports misconduct, fraud, or illegal activities within an organization to authorities or management.

Withholding Tax

VAT & Tax

Tax deducted at source from payments made to non-residents for services, royalties, or other income.

Z

Zero-Rated Supply

VAT & Tax

Goods or services subject to 0% VAT but allowing input VAT recovery, such as exports, international transportation, and certain food items.

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Browse by Category

Audit Fundamentals

Core audit concepts and methodologies

25 terms

UAE Regulations & Compliance

UAE-specific regulatory requirements and compliance terms

21 terms

Financial Reporting

Financial statements and reporting standards

32 terms

Audit Procedures

Methods and techniques used in auditing

16 terms

Corporate Governance

Governance structures and risk management

12 terms

VAT & Tax

Value Added Tax and taxation terms

14 terms

Specialized Audits

Specific types of audit engagements

10 terms

Financial Metrics & Ratios

Key performance indicators and financial ratios

10 terms

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About This Glossary

This comprehensive audit and financial glossary is maintained by Farahat & Co, one of Dubai's leading audit firms with 37 years of experience. Our team of Ministry-approved auditors and CPA/CA certified professionals have compiled these definitions to help businesses, students, and professionals understand the complex terminology used in auditing, accounting, and financial compliance in the UAE.

All definitions are specifically tailored for the UAE business environment, incorporating references to UAE Federal Law No. 32 of 2021, VAT regulations, RERA requirements, free zone compliance, and international standards like IFRS. We regularly update this glossary to reflect changes in regulations and accounting standards.

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