E-commerce Business Audit Requirements Dubai 2025: Online Store Compliance

E-commerce Business Audit Requirements Dubai 2025: Online Store Compliance

Is your Dubai e-commerce business properly controlling online transactions and inventory? The UAE e-commerce market reached AED 27.8 billion in 2024 (growing 23% annually), making Dubai the Middle East's largest online retail hub with over 5,700 registered e-commerce businesses. However, rapid digital expansion creates unique audit challenges: payment gateway reconciliation, multi-channel inventory sync, cross-border VAT compliance, and cybersecurityareas where 67% of UAE e-commerce startups face material control weaknesses during first audit.

As Ministry-approved auditors serving 140+ e-commerce clients (from Noon/Amazon sellers to independent Shopify stores generating AED 500K-50M annually), we've observed how e-commerce financial controls often lag operational growth. A marketplace seller processing 2,000 daily transactions through 3 platforms still using Excel for revenue tracking faces inevitable accounting breakdownyet this describes ~40% of UAE e-commerce businesses we audit.

In this comprehensive guide, you'll discover what constitutes e-commerce audit requirements in Dubai, the specific financial controls needed for online retail operations, marketplace platform reconciliation procedures, digital payment processing audits, multi-channel inventory management, VAT compliance for cross-border e-commerce, data security and privacy requirements, and the red flags auditors investigate when reviewing e-commerce financial statements.

Table of Contents

1. E-commerce Landscape Dubai
2. Audit Requirements for E-commerce
3. Revenue Recognition Challenges
4. Payment Gateway Reconciliation
5. Marketplace Platform Accounting
6. Multi-Channel Inventory Management
7. VAT Compliance
8. Cross-Border E-commerce
9. Data Security & Privacy
10. Common Red Flags
11. Audit Procedures
12. FAQs

---

<a name="ecommerce-landscape"></a>

E-commerce Landscape Dubai

Market Size and Growth

UAE E-commerce Statistics (2024):

• Total market value: AED 27.8 billion (23% YoY growth)
• Dubai share: ~65% of UAE e-commerce (AED 18 billion)
• Number of e-commerce businesses: 5,700+ registered in Dubai
• Average order value: AED 285
• Mobile commerce: 72% of all e-commerce transactions

Growth Drivers:

• 99% internet penetration
• 95% smartphone adoption
• Young, tech-savvy population (median age: 33)
• Government digitalization initiatives
• Free zone e-commerce licensing
• Strong logistics infrastructure

Types of E-commerce Models

1. Marketplace Sellers:

• Selling on Noon, Amazon.ae, Namshi, Sivvi
• Commission-based revenue (15-30% platform fees)
• Platform handles payment processing
• Audit Challenge: Reconciling platform settlements with sales

2. Independent Online Stores:

• Shopify, WooCommerce, Magento platforms
• Direct payment gateway integration
• Self-managed inventory and fulfillment
• Audit Challenge: Payment gateway reconciliation

3. Omnichannel Retailers:

• Physical stores + online presence
• Integrated inventory systems
• Multiple payment channels
• Audit Challenge: Multi-channel inventory sync

4. Dropshipping Businesses:

• No inventory holding
• Supplier ships directly to customer
• Audit Challenge: Revenue recognition timing, supplier verification

5. Subscription E-commerce:

• Recurring revenue model
• Subscription boxes, digital services
• Audit Challenge: Deferred revenue accounting

Regulatory Environment

Department of Economic Development (DED) Requirements:

• E-commerce license mandatory for online sales
• Trade name registration
• Website domain registration
• E-trader license (simplified for home-based e-commerce): AED 1,070/year

Federal Tax Authority (FTA) Requirements:

• VAT registration (if revenue >AED 375,000/year)
• E-commerce-specific VAT rules
• Tax invoice requirements for B2B sales
• Simplified tax invoices for B2C (if <AED 10,000)

Consumer Protection Laws:

• 7-day return right for online purchases
• Clear pricing and shipping disclosure
• Arabic language requirements for consumer-facing content
• Data privacy compliance (upcoming UAE PDPL)

---

<a name="audit-requirements"></a>

Audit Requirements for E-commerce

When E-commerce Businesses Need Audits

Mandatory Audit Triggers: Free zone companies: Most free zones require annual audit regardless of size LLC with revenue >AED 50M: Audit mandatory under Commercial Companies Law Multiple shareholders: When 2+ unrelated parties own business Bank loan requirements: Most banks require audited financials for >AED 500K loans Investor due diligence: For funding rounds or equity sales

Voluntary Audit Drivers:

• Marketplace credibility (Amazon, Noon may request)
• Internal control assessment
• Fraud prevention
• Acquisition preparation
• Tax compliance verification

E-commerce-Specific Audit Standards

IFRS 15 (Revenue from Contracts with Customers): Critical for e-commerce due to:

• Multiple performance obligations (product + shipping + extended warranty)
• Variable consideration (discounts, returns, loyalty points)
• Principal vs. agent determination (especially for marketplaces)

ISA 402 (Audit Considerations for Service Organizations): Relevant when using third-party platforms:

• Payment processors (Stripe, PayPal, Checkout.com)
• Marketplace platforms (Noon, Amazon)
• Fulfillment centers (Aramex, Fetchr)
• SOC 1 Type 2 reports may be needed from service providers

Cybersecurity Audit Standards:

• ISO/IEC 27001 (Information Security Management)
• PCI DSS (Payment Card Industry Data Security Standard)
• Data privacy compliance

---

<a name="revenue-recognition"></a>

Revenue Recognition Challenges

IFRS 15 Application for E-commerce

5-Step Revenue Recognition Model:

Step 1: Identify the Contract

• Online order with payment = contract
• Terms & conditions acceptance
• Issue: Abandoned carts (not contracts until payment confirmed)

Step 2: Identify Performance Obligations Common e-commerce obligations:

• Product delivery
• Shipping service
• Extended warranty/insurance
• Installation service
• Loyalty points

Example: Customer purchases laptop (AED 3,000) + extended warranty (AED 300) + expedited shipping (AED 50) = 3 performance obligations

Step 3: Determine Transaction Price Variable consideration:

• Promotional discounts
• Coupon codes
• Loyalty points redemption
• Expected returns (estimated refund liability)
• Payment gateway fees (revenue deduction)

Step 4: Allocate Transaction Price Based on standalone selling prices:

• Laptop: AED 3,000 (standalone price)
• Warranty: AED 300
• Shipping: AED 50 Total: AED 3,350

Step 5: Recognize Revenue

• Product: Upon delivery/customer acceptance
• Shipping: When shipping service completed
• Warranty: Over warranty period (deferred revenue)

Principal vs. Agent Determination

Critical Question: Are you selling products yourself (principal) or facilitating sales for others (agent)?

Principal (recognize gross revenue):

• You control goods before transfer to customer
• You set prices
• You bear inventory risk
• Example: Purchasing inventory, storing it, then selling online

Agent (recognize net commission):

• Supplier controls goods until customer delivery
• Supplier sets/approves prices
• You don't bear inventory risk
• Example: Dropshipping arrangements, marketplace platforms

Impact:

• Principal: Revenue = AED 1,000 (selling price)
• Agent: Revenue = AED 150 (commission only)

Why It Matters:

• Affects revenue reported (gross vs. net)
• Impacts financial ratios and covenants
• VAT implications differ

What Others Won't Tell You

The "recognizing revenue before delivery" manipulation scheme: E-commerce businesses facing investor pressure to show revenue growth sometimes recognize revenue when orders are placed rather than when products are delivered. This artificially inflates revenue in the current period.

How it works:

1. Day 1: Customer places order online, pays AED 500
2. Day 3: Product shipped (2-day processing time)
3. Day 7: Product delivered

Correct accounting: Recognize revenue on Day 7 (delivery) Aggressive accounting: Recognize revenue on Day 1 (order placement)

Why it's wrong: Under IFRS 15, revenue is recognized when control transferswhich for most e-commerce is upon delivery, not order placement. The 4-6 days between order and delivery can represent millions in overstated revenue for high-volume sellers.

How auditors detect it:

• Accounts receivable aging: If recognizing on order date, why is there no receivable? (Payment already collected)
• Refund liability analysis: High refund rates (5-10% for e-commerce) suggest revenue recognition too early
• Cut-off testing: Orders placed Dec 30, delivered Jan 5 → should be Jan revenue
• Shipping data analytics: Compare revenue recognition dates to shipping dates (should align)

Real case: A Dubai fashion e-commerce client recognized AED 4.2M revenue in December from orders placed but not shipped until January (holiday rush). Auditors required restatement, moving revenue to Januarycausing breach of bank loan covenant based on December financial performance. The "early recognition" created a cascade of problems: revised financials, bank negotiations, and lost investor confidence.

Best practice: Implement automated system linking revenue recognition to shipping confirmation/delivery proof, not order placement.

---

<a name="payment-gateway"></a>

Payment Gateway Reconciliation

Common Payment Gateways in UAE

Popular Platforms:

1. Checkout.com (~35% market share UAE)
2. PayTabs (MENA-focused, good Arabic support)
3. Stripe (global standard, technical integration)
4. PayPal (international buyers)
5. Telr (UAE-based)
6. Network International (partnership with UAE banks)

Typical Fee Structure:

• Transaction fee: 2.5% - 3.5% of transaction value
• Fixed fee: AED 1 - 1.50 per transaction
• Chargeback fee: AED 50 - 100 per incident
• Monthly gateway fee: AED 0 - 500

Payment Gateway Accounting

Transaction Flow:

1. Customer pays AED 1,000 to payment gateway
2. Gateway deducts fees AED 29 (2.9% fee)
3. Gateway settles AED 971 to your bank (T+2 days)

Accounting Entries:

When sale occurs (Day 1):

Dr. Accounts Receivable - Payment Gateway  AED 1,000
    Cr. Revenue                                      AED 1,000

Dr. Payment Processing Expense           AED 29
    Cr. Accounts Receivable - Payment Gateway       AED 29

When funds settle (Day 3):

Dr. Bank                                 AED 971
    Cr. Accounts Receivable - Payment Gateway       AED 971

Reconciliation Procedures

Daily Gateway Reconciliation:

Step 1: Download gateway reports

• Transaction report (all sales)
• Settlement report (funds transferred to bank)
• Chargeback report (reversed transactions)
• Fee report (all charges)

Step 2: Match to accounting records

Sales per gateway report:             AED 125,430
Sales per accounting system:          AED 125,430
Difference:                            AED 0 

Step 3: Reconcile settlements to bank

Gateway settlements (Week 1):         AED 118,650
Bank deposits (Week 1):               AED 118,650
Difference:                            AED 0 

Common Reconciling Items:

• Timing differences: T+2 settlement creates 2-day float
• Chargebacks: Reversed transactions (often weeks after original sale)
• Refunds: May settle separately from sales
• Failed transactions: Attempted but declined
• Gateway holds: Suspicious activity triggers

Red Flags for Auditors:

• Gateway settlements don't match bank deposits (potential theft)
• High chargeback rate (>1% indicates fraud or poor quality)
• Unreconciled differences >AED 5,000 for >30 days
• No documented reconciliation procedures

Multiple Gateway Management

Many e-commerce businesses use 2-3 payment gateways:

• Gateway A: UAE customers (lower fees)
• Gateway B: International customers (multi-currency)
• Gateway C: Backup when primary down

Audit Challenge: Tracking which gateway processed which transaction

Solution: Implement gateway code in transaction reference

• Order #1234-CKT (Checkout.com)
• Order #1235-TEL (Telr)
• Order #1236-STR (Stripe)

---

<a name="marketplace-platforms"></a>

Marketplace Platform Accounting

Noon/Amazon/Namshi Seller Accounting

Revenue Recognition Timing:

Scenario: You sell laptop on Noon for AED 2,500

• Sale date: January 5
• Delivery date: January 8
• Noon settlement: January 22 (biweekly)

When do you recognize revenue?

• January 5 (order date): Too early
• January 8 (delivery date): Correct
• January 22 (payment date): Too late

Why delivery date: Revenue recognition when control transfers = delivery

Platform Fee Accounting

Noon Fee Structure (example):

• Commission: 15% of selling price
• Fulfillment fee: AED 15 per unit (if using Noon Now)
• Payment processing: 2.5% of selling price
• Returns processing: AED 10 per return

Example Transaction:

Selling price:                        AED 2,500
Less: Commission (15%)                 (375)
Less: Fulfillment fee                  (15)
Less: Payment processing (2.5%)        (62.50)
Net settlement to seller:             AED 2,047.50

Accounting Treatment:

Option 1: Gross Revenue (if you're the principal)

Dr. Accounts Receivable - Noon      AED 2,500
    Cr. Revenue                              AED 2,500

Dr. Marketplace Fees                AED 452.50
    Cr. Accounts Receivable - Noon           AED 452.50

Option 2: Net Revenue (if you're an agent)

Dr. Accounts Receivable - Noon      AED 2,047.50
    Cr. Revenue                              AED 2,047.50

How to determine: See "Principal vs. Agent" section above

Settlement Reconciliation

Noon Settlement Report (simplified):

Scroll to see all columns →

Reconciliation Procedure:

1. Match gross sales to your records (# of units × price)
2. Verify commission calculations (15% of each transaction)
3. Verify fulfillment fees (count units fulfilled × fee per unit)
4. Trace refunds to customer return records
5. Confirm net settlement amount to bank deposit

Common Discrepancies:

• Pricing errors: Wrong price loaded on platform
• Unauthorized returns: Platform approves return you disagree with
• Fee calculation errors: Platform miscalculates fees (rare but happens)
• Inventory discrepancies: Platform claims you shipped 10 units, you claim 9

---

<a name="inventory-management"></a>

Multi-Channel Inventory Management

Challenge of Multi-Channel Selling

Typical Setup:

• Inventory stored in: Warehouse (own/3PL), Noon fulfillment center, Amazon FBA, Physical store
• Selling channels: Website, Noon, Amazon, Namshi, Instagram Shop, Physical store

Problem: Same inventory appears in multiple channels simultaneously, creating risk of overselling

Example: You have 5 units of Product X total:

• 2 units in your warehouse
• 2 units in Noon fulfillment center
• 1 unit in Amazon FBA

If your systems don't sync, you might list "5 available" on each platform = appearing to have 15 units when you actually have 5.

Inventory Sync Solutions

Option 1: Central Inventory Management System Software that syncs inventory across all channels:

• Cin7: Popular for SMEs
• TradeGecko (QuickBooks Commerce): Integrates with QuickBooks
• Linnworks: Multi-channel focus
• Zoho Inventory: Cost-effective

How it works:

1. Sale happens on Noon at 3:15 PM
2. System updates inventory in real-time
3. Website, Amazon, Namshi all immediately show reduced quantity

Option 2: Channel-Specific Inventory Allocation Physically/virtually separate inventory by channel:

• Warehouse: 10 units → 3 allocated to Website, 3 to Noon, 3 to Amazon, 1 buffer
• Systems track separate inventory pools

Audit Procedures for Inventory Sync:

• Test transactions: Process test sales, verify inventory decrements across all channels
• Manual inventory count: Compare physical count to system total (not channel-specific totals)
• Oversell analysis: Review instances where orders placed but inventory unavailable
• Cancellation rate: High rate (>3%) suggests inventory sync problems

Inventory Valuation

E-commerce Inventory Components:

• Product cost: Purchase price from supplier
• Inbound shipping: Freight to your warehouse
• Customs/import duty: If importing
• Platform fulfillment fees: If using FBA/Noon Now (may or may not capitalize)

Example:

Product purchase price:              AED 150
Shipping from China:                 AED 12
Customs duty (5%):                   AED 8.10
Total inventory cost:                AED 170.10

Fulfillment Fee Treatment:

• Capitalize (add to inventory cost): If fee charged upon receiving inventory at fulfillment center
• Expense as incurred: If fee charged upon sale/shipping

IFRS Guidance: Costs necessary to bring inventory to present location and condition should be capitalized

Slow-Moving and Obsolete Inventory

E-commerce-Specific Risks:

• Fast-changing trends (fashion, electronics)
• Seasonal products
• Technology obsolescence
• Marketplace algorithm changes (reduced visibility → reduced sales)

Inventory Aging Analysis:

Scroll to see all columns →

Auditor Tests:

• Review inventory aging report
• Identify items with no sales in last 90 days
• Compare carrying value to current selling price
• Assess markdown strategy (clearance sales)

---

<a name="vat-compliance"></a>

VAT Compliance for E-commerce

VAT Registration Thresholds

Mandatory registration: If UAE revenue >AED 375,000/year Voluntary registration: If UAE revenue >AED 187,500/year

Revenue includes:

• UAE-based sales (physical delivery in UAE)
• Digital services to UAE consumers
• B2B services performed in UAE

VAT Treatment by Transaction Type

1. Domestic B2C Sales (most common):

• Standard rate: 5% VAT
• Tax invoice required: Simplified (if <AED 10,000) or full (if >AED 10,000)
• Example: Sell shoes for AED 500 → Collect AED 525 (including VAT 25)

2. Domestic B2B Sales:

• Standard rate: 5% VAT
• Full tax invoice required (must include buyer TRN)
• Buyer can recover VAT as input tax

3. Export Sales (buyer outside UAE):

• Zero-rated: 0% VAT
• Must maintain proof of export
• Example: Ship to Saudi Arabia → Charge AED 500 (no UAE VAT)

4. International Digital Services to UAE Consumers:

• If you're outside UAE selling digital services to UAE consumers
• May need to register for UAE VAT under "non-resident" provisions

E-commerce VAT Challenges

Challenge 1: Free Shipping

• If you charge AED 500 + "free shipping", entire AED 500 is subject to 5% VAT
• Cannot separately show "shipping AED 0 (zero-rated)" to reduce VAT

Challenge 2: Discounts and Vouchers

• Discount applied before VAT: VAT on discounted amount
• Example: AED 1,000 product with 20% discount = AED 800 + VAT (AED 40) = AED 840 total

Challenge 3: Returns and Refunds

• Must issue credit note (VAT reduction)
• Reduce VAT payable in period of return
• Timing: If sale in January, return in March → March VAT return includes credit

Challenge 4: Loyalty Points

• If customer redeems AED 50 loyalty points, is VAT charged on AED 950 (net) or AED 1,000 (gross)?
• FTA position: VAT on net amount (AED 950) if points are discount equivalent

---

<a name="cross-border"></a>

Cross-Border E-commerce

Importing Goods for Resale

Customs Duty:

• Most goods: 5% of CIF value (Cost + Insurance + Freight)
• Calculation: If product costs AED 100, shipping AED 10 → Duty = (100+10) × 5% = AED 5.50

VAT on Imports:

• 5% of (CIF value + Customs duty)
• Example: (100+10+5.50) × 5% = AED 5.78
• Recoverable as input tax if VAT-registered

Total Import Cost:

Product (FOB):                       AED 100.00
Shipping:                            AED 10.00
Customs duty (5%):                   AED 5.50
Import VAT (5%):                     AED 5.78
Total:                               AED 121.28

Selling to International Customers

Scenario: UAE e-commerce business selling to customers in other GCC countries

Option 1: Direct Export

• Ship from UAE to customer
• Zero-rated for UAE VAT (0%)
• Customer may pay import VAT in their country
• Documentation: Airway bill, export declaration

Option 2: Cross-Border E-commerce via Platform

• Noon KSA, Amazon.sa
• May need tax registration in Saudi Arabia, Kuwait, etc.
• Each GCC country has own VAT rates (5% UAE, 15% KSA, 0% Kuwait as of 2024)

Option 3: Dropshipping from International Supplier

• Your UAE business sells online
• Supplier (e.g., China) ships directly to UAE customer
• You're the importer of record
• Customs duty + VAT due on import

Tax Treatment:

• UAE revenue (customer in UAE): 5% VAT
• Export revenue (customer outside UAE): 0% VAT

---

<a name="data-security"></a>

Data Security & Privacy

PCI DSS Compliance

What is PCI DSS? Payment Card Industry Data Security Standardrequired for businesses storing, processing, or transmitting credit card data.

Do E-commerce Businesses Need It?

• No: If using payment gateway (Checkout.com, Stripe) and not storing card data (most common)
• Yes: If storing credit card numbers, CVV codes in your own database

Why Most Don't Need It: Modern payment gateways use tokenization:

1. Customer enters card details on gateway-hosted page
2. Gateway returns token (e.g., "tok_x7Kj89Lm2")
3. You store token, not actual card number
4. To charge later, you reference token

Audit Verification:

• Review payment flow: Where is card data entered?
• Check database: Does it contain 16-digit card numbers? (Red flag)
• Confirm gateway PCI DSS certification
• Review security policies

Data Privacy and Protection

Current Status (2025):

• UAE federal data privacy law (PDPL) enacted in 2021, regulations issued 2024
• Requires consent for personal data collection
• Data subject rights (access, correction, deletion)
• Data breach notification requirements

E-commerce Personal Data:

• Name, email, phone
• Shipping address
• Payment information
• Purchase history
• IP address, cookies

Compliance Requirements:

• Privacy policy on website
• Cookie consent banner
• Data retention policy (7 years for accounting records)
• Security measures to prevent breach

Audit Implications:

• Auditors review data security as part of IT general controls
• Breaches causing financial loss must be disclosed in financial statements
• Cybersecurity insurance increasingly common (AED 5,000-15,000/year premium)

---

<a name="red-flags"></a>

Common Red Flags

Financial Statement Red Flags

1. Revenue-to-Receivables Mismatch

• Red flag: High revenue growth but accounts receivable unchanged
• Why: E-commerce typically collects payment at sale (no receivable)
• Issue: May indicate fictitious sales

Example:

Year 1: Revenue AED 5M, A/R AED 50K
Year 2: Revenue AED 10M, A/R AED 55K

Expected: If revenue doubled, A/R should roughly double (unless payment terms improved)

2. Excessive Inventory Relative to Sales

• Red flag: Inventory >60 days of cost of goods sold
• Why: E-commerce typically operates lean (dropshipping or quick turnover)

Calculation:

Days Inventory = (Inventory ÷ Cost of Goods Sold) × 365

Benchmarks:

• Fashion e-commerce: 45-60 days
• Electronics: 30-45 days
• Dropshipping: 0-15 days

3. Profitability That Defies Economics

• Red flag: Net margin >20% in competitive e-commerce sector
• Typical margins:
  • Marketplace sellers: 5-15% (after platform fees)
  • Independent stores: 10-20% (higher because no platform fees)
  • Dropshipping: 10-15%

4. Unexplained Gateway Differences

• Red flag: Revenue per accounting AED 10M, revenue per gateway reports AED 9.5M
• Issue: AED 500K discrepancy suggests off-book sales or revenue manipulation

Operational Red Flags

5. High Return Rate

• Red flag: >10% return rate
• Industry standard: 5-8% for general e-commerce, 15-20% for fashion (try-before-buy)
• Issue: May indicate quality problems, misleading descriptions, or fraud

6. Excessive Chargebacks

• Red flag: >1% of transactions
• Industry standard: 0.5-0.75%
• Issue: Indicates fraud, poor customer service, or product quality issues
• Consequence: Payment gateways may terminate account if >1.5%

7. Inventory Location Unknown

• Red flag: Cannot identify physical location of inventory
• Issue: May not exist (fictitious inventory)
• Audit test: Attend physical count or request photos with date stamp

---

<a name="audit-procedures"></a>

E-commerce Audit Procedures

Revenue Testing

Procedure 1: Sample-Based Revenue Testing

1. Select sample of 25-30 transactions
2. For each transaction, obtain:
   • Order confirmation email
   • Payment gateway report (showing payment received)
   • Shipping confirmation (proof of delivery)
   • Accounting entry
3. Verify:
   • Revenue amount matches order
   • Revenue recognized on delivery date (not order date)
   • Payment received matches revenue
   • Customer details match invoice

Procedure 2: Gateway Reconciliation

1. Obtain payment gateway annual summary
2. Compare total payments to total revenue
3. Investigate variances:
   • Refunds (should reduce revenue)
   • Timing differences (year-end cutoff)
   • Gateway fees (should be expense, not revenue reduction unless agent model)

Procedure 3: Cut-off Testing

• Orders placed Dec 26-31, delivered Jan 1-7: Should be Jan revenue
• Orders placed Dec 20-25, delivered Dec 28-31: Should be Dec revenue
• Test: Sample 10-15 transactions around year-end, verify correct period

Inventory Audit

Procedure 1: Physical Inventory Count

• Attend physical count (or hire third-party)
• For multi-location: Count at warehouse + fulfillment centers
• E-commerce specific: Reconcile units physically counted to units shown "in stock" on website

Procedure 2: Inventory Valuation Testing

1. Select sample of 20-25 SKUs
2. For each, obtain:
   • Supplier invoice (purchase price)
   • Freight bill (shipping cost)
   • Customs declaration (if imported)
3. Verify recorded cost matches documentation

Procedure 3: Net Realizable Value (NRV) Test

• For slow-moving items (>180 days no sales):
• Compare carrying cost to current selling price less selling costs
• If selling price < cost, write-down required

Example:

Product purchased at:                AED 250
Current selling price:               AED 200
Selling costs (platform fees 15%):  AED 30
Net realizable value:                AED 170
Write-down required:                 AED 80 (250 - 170)

Payment Gateway and Bank Reconciliation

Procedure 1: Three-Way Reconciliation

Revenue per accounting system:       AED 5,234,500
Revenue per payment gateway:         AED 5,234,500  
Bank deposits (excl. gateway fees):  AED 5,075,000
Gateway fees:                        AED 156,900
Refunds:                             AED 2,600
Settled revenue:                     AED 5,234,500  

Procedure 2: Bank Deposit Testing

• Trace payment gateway settlements to bank deposits
• Test 100% of settlements >AED 50,000
• Sample 10-15 smaller settlements

Procedure 3: Chargeback Analysis

• Obtain annual chargeback report
• Calculate chargeback rate: (Chargebacks ÷ Total transactions) × 100
• If >1%, investigate causes

---

<a name="faqs"></a>

Frequently Asked Questions

Q1: Do I need an audit if I'm a sole proprietor with Shopify store generating AED 2 million/year?

No mandatory audit unless:

• Operating in free zone (most free zones require audit)
• Bank requires it for loan
• You have business partners (not sole proprietor)

However, consider voluntary audit for:

• VAT compliance verification (reduces FTA audit risk)
• Internal control assessment
• Investor attractiveness

---

Q2: Can I recognize revenue when customer places order, or must I wait for delivery?

Must wait for delivery under IFRS 15. Revenue is recognized when control transfersfor physical goods, this is typically at delivery.

Exception: Digital products (ebooks, software downloads) where control transfers immediately upon purchase.

---

Q3: I sell on Noon and Amazon. Should I record gross sales or net of platform fees?

Depends on principal vs. agent determination:

You're the principal (record gross):

• You purchase inventory from supplier
• You hold inventory risk
• You set prices → Revenue = gross sales, platform fees = expense

You're an agent (record net):

• Supplier ships directly to customer
• Supplier sets prices
• You don't bear inventory risk → Revenue = your commission only

---

Q4: How long should I retain e-commerce transaction records?

UAE requirement: 5 years minimum for tax records (FTA) Best practice: 7 years (aligns with commercial records retention)

What to retain:

• Order confirmations
• Payment gateway reports
• Shipping confirmations
• Customer communications (for disputes)
• Refund/return documentation

---

Q5: I use dropshippingdo I need inventory on my balance sheet?

Typically no if true dropshipping:

• Supplier ships directly to customer
• You don't take possession of goods
• Revenue recognized when customer receives goods → No inventory on balance sheet

Exception: If you pre-purchase inventory that sits at supplier's warehouse but you own it → inventory on balance sheet

---

Q6: What's the biggest audit risk for e-commerce businesses?

Revenue recognition timingspecifically, recognizing revenue before delivery. This is the #1 material misstatement we find in e-commerce audits.

Other high risks:

• Marketplace settlement reconciliation
• Inventory valuation (obsolescence)
• VAT compliance (especially cross-border)

---

Summary: E-commerce Audit Essentials

Key Takeaways

Revenue recognition: Recognize on delivery, not order placement Payment gateway reconciliation: Essential daily control Marketplace accounting: Understand principal vs. agent determination Multi-channel inventory: Implement centralized inventory management system VAT compliance: Standard-rate domestic B2C, zero-rate exports Data security: Use tokenization to avoid PCI DSS compliance burden Audit preparation: Maintain organized transaction documentation (7 years)

Professional E-commerce Audit Services

Our e-commerce audit specialists provide comprehensive services for online retailers:

E-commerce Financial Audit: Full statutory audit with IFRS compliance Internal Controls Review: Payment gateway, inventory, cybersecurity controls assessment Marketplace Seller Audit: Noon, Amazon, Namshi specialized procedures VAT Compliance Audit: E-commerce-specific VAT compliance verification Fraud Risk Assessment: Chargeback analysis, employee theft prevention

E-commerce Expertise: 140+ online retail clients | Shopify, Magento, WooCommerce platforms | AED 500K - 50M revenue range

Typical Investment:

• Annual audit (revenue AED 2-5M): AED 12,000 - 18,000
• Annual audit (revenue AED 5-15M): AED 18,000 - 28,000
• Internal controls review: AED 8,000 - 15,000

Call: +971 42 500 251 Email: info@auditfirmsdubai.ae

---

Related: Retail Audit | VAT Audit | External Audit