New UAE Audit Requirements for 2025: What Changed?

The UAE Commercial Companies Law (Federal Law No. 32 of 2021) continues to evolve, with several important updates coming into effect in 2025. Whether you're a CFO, business owner, or finance manager, understanding these changes is critical to maintaining compliance and avoiding penalties. Working with professional external audit services that stay current with regulatory updates ensures your business remains compliant throughout these transitions.

Key Changes for 2025

1. Enhanced Ministry Approval Process for Auditors

The Ministry of Economy has strengthened the auditor approval process. Starting January 2025, all auditors must:

• Complete mandatory continuing professional education (CPE) of 40 hours annually
• Submit quality control review reports every 3 years
• Maintain professional indemnity insurance of minimum AED 2 million
• Register with the newly established UAE Audit Oversight Board

Impact: Businesses should verify their auditor's current approval status and updated credentials before engagement.

2. Expanded Audit Report Disclosures

Audit reports must now include additional disclosures:

• Key audit matters (KAM) for companies with revenue exceeding AED 50 million
• Auditor independence confirmation statement
• Details of non-audit services provided (if any)
• Going concern assessment period extended from 12 to 18 months

Impact: Expect more comprehensive audit reports and potentially longer audit timelines to accommodate enhanced procedures.

3. Stricter Filing Deadlines

Filing deadlines with the Department of Economic Development (DED) have been tightened:

• Large companies (revenue > AED 100M): 90 days from year-end
• Medium companies (AED 10-100M): 120 days from year-end
• Small companies (< AED 10M): 150 days from year-end

Late filing penalties increased to AED 10,000 for first offense, escalating to AED 50,000 for repeat violations.

Impact: Start your audit planning earlier. We recommend engaging auditors 4-6 weeks before year-end to ensure timely completion.

4. Beneficial Ownership Transparency

All UAE companies must now maintain and file beneficial ownership registers identifying:

• Ultimate beneficial owners (UBOs) with 25% or more ownership
• Control through other means (voting rights, board appointments)
• Complex ownership structures must be documented transparently

Auditors are required to verify beneficial ownership disclosures.

Impact: Update your corporate governance documentation and ensure shareholder registers reflect ultimate beneficial ownership.

5. Sustainability Reporting Requirements

Large companies and certain industries must now include sustainability disclosures:

• Environmental impact reporting for manufacturing, real estate, and energy sectors
• Social responsibility initiatives
• Governance practices beyond financial controls

While not yet mandatory for all companies, sustainability reporting is expected to expand to mid-sized companies by 2026.

Impact: Consider proactive implementation of sustainability metrics tracking to stay ahead of regulatory requirements.

Industry-Specific Changes

Real Estate

• RERA audits must now include explicit confirmation of escrow account compliance
• Service charge fund audits require enhanced disclosure to unit owners

Healthcare

• DHA license holders face stricter revenue cycle audit requirements
• Medical inventory valuation procedures strengthened

Financial Services

• DFSA and FSRA entities have enhanced regulatory reporting requirements
• Increased focus on AML/CFT controls during audits through comprehensive due diligence services

How to Prepare for 2025 Audits

1. Verify Auditor Credentials: Confirm your auditor's updated Ministry approval
2. Update Documentation: Ensure beneficial ownership registers are current
3. Start Planning Early: Engage auditors 4-6 weeks before year-end
4. Organize Records: Use our 50-point audit preparation checklist
5. Address Prior Findings: Resolve any outstanding issues from previous audits

Detailed Analysis of Key Changes

Change #1: Enhanced Auditor Approval Process - Deep Dive

What's Really Changing:

Continuing Professional Education (CPE):

• Before 2025: 20 hours annually (informal enforcement)
• From 2025: 40 hours annually (strict monitoring)
• Breakdown: 24 hours technical (audit, accounting), 8 hours ethics, 8 hours industry/soft skills
• Verification: Digital tracking system, certificates submitted annually
• Non-compliance: Suspension of Ministry approval

Quality Control Reviews:

• What it is: Independent review of audit firm's quality control systems
• Frequency: Every 3 years (previously: no requirement)
• Performed by: UAE Audit Oversight Board inspectors
• Focus: Audit file documentation, independence, technical competence
• Cost: AED 15,000-45,000 per review (borne by audit firms)

Professional Indemnity Insurance:

• Minimum: AED 2M (up from AED 1M)
• Why: Protects clients if auditor negligence causes losses
• Verification: Annual submission of policy to Ministry
• Impact on fees: Audit fees may increase 3-7% to cover higher insurance costs

UAE Audit Oversight Board Registration:

• New entity: Similar to PCAOB (US) or FRC (UK)
• Purpose: Regulatory oversight of audit profession
• Requirements: Annual registration fee (AED 5,000-20,000 depending on firm size), compliance reporting

What This Means for Businesses: Higher quality audits (better-trained auditors) Greater protection (insurance requirement) Slightly higher audit fees (5-10% increase expected) Need to verify auditor registration status

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Change #2: Expanded Audit Report Disclosures - What to Expect

Key Audit Matters (KAM):

What are KAMs? Significant matters auditors determine were most important in the audit. Think of it as "auditor highlights" beyond the standard opinion.

Typical KAMs:

• Revenue recognition for complex contracts
• Inventory valuation and obsolescence
• Recoverability of receivables
• Goodwill impairment testing
• Related party transactions

Example KAM Disclosure: "Revenue Recognition from Long-Term Construction Contracts: The company recognizes AED 45M annually from construction contracts using percentage-of-completion method. This is a KAM because: (1) Revenue recognition involves significant judgment in estimating total contract costs (2) Represents 68% of total revenue (3) History of cost overruns in prior years Our audit procedures included reviewing project budgets, testing cost accumulation, and validating percentage completion calculations."

Impact:

• More transparency for stakeholders
• Longer audit reports (2-3 pages vs. 1 page previously)
• May highlight sensitive business areas
• Investors/lenders will scrutinize KAMs

Auditor Independence Statement: Explicit confirmation that auditor has no conflicts of interest, with disclosure of:

• Non-audit services provided and fees
• Relationships with company
• Rotation of engagement partners (every 5 years)

Going Concern Assessment (12 → 18 months):

• Auditors must now assess 18 months forward (vs. 12 months previously)
• More focus on cash flow projections
• Enhanced disclosure if substantial doubt exists
• Particularly important in current economic environment

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Change #3: Stricter Filing Deadlines - The Math

Previous Deadlines (pre-2025):

• All companies: 9 months from year-end (270 days)
• Grace period: Informal 30-day tolerance

New 2025 Deadlines:

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Example Timeline for Dec 31, 2024 Year-End:

• Large company: Deadline April 1, 2025 (vs. September 30, 2025 previously)
• Medium company: Deadline April 30, 2025 (vs. September 30, 2025)
• Small company: Deadline May 31, 2025 (vs. September 30, 2025)

Penalty Structure:

• 1-30 days late: AED 10,000
• 31-60 days late: AED 25,000
• 61-90 days late: AED 50,000
• 90+ days late: AED 50,000 + potential license suspension

Practical Implications:

• Start audit planning in November/December (for Dec year-end)
• Engage auditor 4-6 weeks before year-end
• Complete year-end procedures faster
• Budget extra time for KAM disclosures

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Timeline for Implementation

Q1 2025 (January - March):

• January 1, 2025: New CPE requirements for auditors effective
• January 15, 2025: UAE Audit Oversight Board registration opens
• February 1, 2025: Insurance requirement (AED 2M minimum) effective
• March 1, 2025: Enhanced audit report disclosures mandatory (KAM, independence, going concern)

Q2 2025 (April - June):

• April 1, 2025: New filing deadlines effective (large companies first)
• April 30, 2025: Medium company filing deadline
• May 31, 2025: Small company filing deadline
• June 1, 2025: Beneficial ownership verification requirements mandatory

Q3-Q4 2025 (July - December):

• September 1, 2025: First quality control reviews commence
• October 1, 2025: Sustainability reporting guidance issued (for 2026 implementation)

2026 and Beyond:

• January 1, 2026: Sustainability reporting (phase 1) - large companies only
• January 1, 2027: Sustainability reporting (phase 2) - mid-sized companies

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Case Study: Successful 2025 Compliance Implementation

Company Profile:

• Industry: Manufacturing (food processing)
• Revenue: AED 120M (Large company)
• Employees: 280
• Year-End: December 31
• Previous audit completion: September (9 months)

Challenge: New filing deadline: April 1, 2025 (90 days) - a 180-day reduction from previous practice.

Implementation Strategy:

Phase 1: Planning (October 2024)

• Engaged auditor in October (vs. usual January engagement)
• Conducted pre-audit review to identify issues
• Implemented monthly close procedures
• Trained finance team on new requirements

Phase 2: Year-End Procedures (January 2025)

• Completed physical inventory count January 2-3
• Closed books by January 10 (vs. January 31 previously)
• Draft financials ready January 15
• All audit schedules prepared before audit started

Phase 3: Audit Execution (January-February 2025)

• Audit commenced January 20
• Fieldwork: 15 days (vs. 25 days previously)
• KAM identification: Revenue recognition, inventory valuation
• Draft report: February 15

Phase 4: Finalization (March 2025)

• Management review: February 15-25
• Minor adjustments: February 26-28
• Final report issued: March 5
• Filed with DED: March 10

Results: Filed 22 days early (March 10 vs. April 1 deadline) Audit completed 25 days faster than prior year Zero late filing penalties Positioned as compliance leader in industry

Cost-Benefit:

• Additional preparation cost: AED 18,000 (consultant, early engagement)
• Audit fee increase: AED 8,500 (compressed timeline, KAM requirements)
• Total incremental cost: AED 26,500
• Avoided penalty: AED 10,000 minimum
• Competitive advantage: Priceless

Key Success Factors:

1. Early planning (started 3 months before year-end)
2. Monthly close procedures (accelerated year-end close)
3. Finance team training (understood new requirements)
4. Proactive auditor engagement (collaborative approach)

Quote from CFO: "The compressed timeline seemed impossible at first, but with proper planning and our auditor's guidance, we not only met the deadline but improved our overall financial close process. What felt like a burden became a catalyst for operational improvement."

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Penalties for Non-Compliance

Administrative Fines:

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Other Consequences:

• Trade License Suspension: 30-90 days for serious violations
• Director Liability: Personal fines for directors in cases of deliberate non-compliance
• Government Tender Ineligibility: Barred from participating for 1-3 years
• Banking Restrictions: Difficulty obtaining loans or credit facilities
• Reputational Damage: Public disclosure of violations

Example: Company with Dec 31, 2024 year-end missed April 1, 2025 deadline by 45 days:

• Late filing penalty: AED 25,000
• Auditor used unregistered firm: AED 15,000
• Total: AED 40,000 + 45 days of non-compliance status

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Frequently Asked Questions (FAQs)

1. How do I verify my auditor is compliant with 2025 requirements?

Answer: Ask your auditor to provide:

1. UAE Audit Oversight Board Registration Certificate

• Verify registration number at [Oversight Board Portal]
• Check validity period (annual renewal required)

2. CPE Completion Certificate (40 hours)

• Request proof of 2024-2025 CPE completion
• Verify breakdown: 24 hours technical, 8 hours ethics, 8 hours other

3. Professional Indemnity Insurance Policy

• Minimum AED 2M coverage
• Verify policy is current and covers audit work
• Check insurer is reputable

4. Quality Control Review Status

• If firm has had review, request summary results
• If due in 2025, confirm scheduled date

Red Flags: Auditor cannot provide registration number Insurance coverage below AED 2M Evasive about CPE completion Firm not aware of Oversight Board requirements

Timeline: Verify these credentials BEFORE engaging auditor (ideally November-December for Dec year-end).

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2. What are Key Audit Matters (KAM) and will they reveal sensitive business information?

Answer: What KAMs Are: Matters auditors determine most significant in your audit - typically 2-5 items that required substantial audit attention.

Common KAMs:

• Revenue recognition (especially for complex contracts)
• Asset valuations (inventory, goodwill, fixed assets)
• Provisions and estimates (warranty, legal, bad debts)
• Related party transactions
• Going concern assessments

What KAMs Disclose:

• Why the matter is significant
• How auditors addressed it
• Reference to financial statement note

What KAMs DON'T Disclose:

• Specific amounts (unless already in financial statements)
• Proprietary business strategies
• Competitive sensitive information
• Internal operational details

Example KAM: "Inventory Valuation - AED 15M KAM: Inventory represents 42% of total assets and includes slow-moving items requiring judgment in obsolescence provisions. Audit Response: We tested physical counts, reviewed aging analysis, examined sales of inventory post-year-end, and validated management's obsolescence methodology."

Can You Influence KAMs?

• No - KAMs are auditor's determination
• Yes - Improve processes to minimize audit concerns
• Discussion: Auditors typically discuss draft KAMs before finalizing

Stakeholder Perspective:

• Positive: KAMs demonstrate audit rigor and transparency
• Investors appreciate: Understanding key business/audit risks
• Banks may ask: Questions about KAM areas

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3. Our company revenue is AED 95M - are we "Large" or "Medium" for filing deadline purposes?

Answer: Classification Determination:

You are "Medium" (120-day deadline):

• Revenue: AED 95M
• Threshold: Large = revenue > AED 100M
• Your deadline: 120 days from year-end

For Dec 31, 2024 year-end:

• Filing deadline: April 30, 2025 (not April 1)

Threshold Timing:

• Based on current year revenue (being audited)
• Not prior year revenue

Close to Threshold Strategy: If your revenue is near AED 100M:

• At AED 95-99M: Budget for medium deadline (120 days) but prepare for large (90 days) in case you exceed AED 100M
• At AED 100-105M: Assume large company deadline (90 days)

Example Scenario:

• 2024 Revenue: AED 98M → Medium company → 120-day deadline (April 30, 2025)
• 2025 Revenue projection: AED 108M → Plan for large company deadline (90 days) for 2025 audit

Pro Tip: If you're within 10% of the AED 100M threshold, start planning as if you're a large company to avoid surprises.

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4. We have a complex ownership structure - what does beneficial ownership verification require?

Answer: Auditor's Role in UBO Verification:

Auditors must verify and confirm:

1. Company maintains beneficial ownership register
2. Register accurately reflects UBOs (25%+ ownership or control)
3. Documentation supports UBO identification
4. Complex structures properly traced to natural persons

What Auditors Will Request:

Corporate Structure Charts:

• Ownership percentages at each level
• Identification of all intermediate entities
• Ultimate tracing to natural persons

Supporting Documentation:

• Shareholder agreements
• Trust deeds (if applicable)
• Voting rights agreements
• Board appointment powers
• Passport copies of UBOs
• Proof of address for UBOs

Example - Complex Structure:

YourCo LLC (UAE)
  ↑ 60% owned by
HoldCo Limited (BVI)
  ↑ 80% owned by
Parent Inc (Cayman)
  ↑ 100% owned by
Mr. Ahmed Al Mansouri (Natural Person)

UBO: Mr. Ahmed Al Mansouri (60% × 80% × 100% = 48% indirect ownership)

What Auditors Verify:

• Documentation shows chain from YourCo → Mr. Al Mansouri
• Percentages verified against share registers
• Mr. Al Mansouri's identity confirmed (passport, address)

Common Issues: Missing documentation for intermediate entities Ownership percentages don't reconcile UBO register shows entity instead of natural person Trusts or foundations without clear beneficiary identification

Preparation Steps:

1. Map complete ownership structure to natural persons
2. Gather all incorporation documents for chain
3. Obtain UBO passport copies and address proof
4. Document any complex arrangements (trusts, voting agreements)
5. Update UBO register before audit starts

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5. Do sustainability reporting requirements apply to our company?

Answer: 2025-2026 Phased Implementation:

Phase 1 (January 1, 2026) - MANDATORY for: Large companies (revenue > AED 100M) Listed companies Specific industries:

• Manufacturing (all sizes)
• Real estate development (all sizes)
• Energy and utilities
• Transportation and logistics

Phase 2 (January 1, 2027) - MANDATORY for: Medium companies (revenue AED 10-100M) in above industries Financial services sector

Phase 3 (TBD, likely 2028+) - May expand to: All medium-sized companies Large small companies (AED 5-10M revenue)

What Sustainability Reporting Includes:

Environmental:

• Carbon emissions (Scope 1, 2, and eventually 3)
• Energy consumption and efficiency
• Water usage
• Waste management
• Environmental compliance

Social:

• Employee welfare and safety
• Diversity and inclusion metrics
• Community engagement
• Labor practices

Governance:

• Board composition and diversity
• Executive compensation disclosure
• Anti-corruption policies
• Stakeholder engagement

Reporting Framework: Likely aligned with GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board).

Action Plan if It Applies to You:

2025 (Preparation Year):

• Designate sustainability reporting lead
• Conduct baseline assessment of current data availability
• Implement data collection systems
• Review international frameworks (GRI, SASB)
• Consider engaging sustainability consultant

Early 2026:

• Complete first sustainability report
• Obtain limited assurance (auditor review) if required
• File with regulators

Even if Not Mandatory: Consider voluntary sustainability reporting for:

• ESG-focused investors
• International clients requiring supplier sustainability data
• Competitive differentiation
• Preparation for eventual mandate

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6. What happens if we can't meet the new deadlines?

Answer: Options if Deadline is Unrealistic:

Option 1: Extension Request

• DED may grant extensions in exceptional circumstances
• Requirements:
  • Valid business reason (not just "we're not ready")
  • Examples: Natural disaster, system failure, auditor resignation
  • Formal application with supporting evidence
  • Applied for BEFORE deadline passes
• Success rate: Low (10-20% approval) - DED is strict
• Extension granted: Typically 30 days maximum

Option 2: Change Year-End

• If your year-end is flexible, consider changing it
• Example: Change from Dec 31 to March 31
  • Shifts deadline from April 1 to June 30 (90 days from Mar 31)
  • Gives more calendar time for audit
  • Avoids peak audit season (Jan-Mar)
• Requirements:
  • Board resolution
  • Notification to DED
  • Auditor agreement
  • Tax implications consideration

Option 3: Accelerated Close Process

• Invest in faster close procedures:
  • Monthly close discipline
  • Automation of reconciliations
  • Pre-year-end audit work
  • Additional temporary staff
• Cost: AED 20,000-50,000 for process improvement
• Benefit: Sustainable faster closes ongoing

Option 4: Accept Penalty and File Late

• Not recommended but sometimes unavoidable
• Penalties: AED 10,000-50,000 depending on delay
• Consequences: Compliance record, potential banking issues
• When this happens: Disclose proactively to DED, file as soon as possible

Prevention Strategy:

1. Start Now: Begin 2025 audit planning in Q4 2024
2. Engage Early: Select and engage auditor by November
3. Pre-Close: Complete pre-audit work in December
4. Fast Close: Close books within 10 days of year-end
5. Audit Ready: Have all schedules prepared before audit starts

Example Timeline for Dec 31, 2024 Year-End (Large Company - 90-day deadline):

• November 2024: Engage auditor, plan audit
• December 2024: Pre-audit procedures, interim testing
• January 1-10, 2025: Year-end close, prepare audit schedules
• January 15 - February 10: Audit fieldwork
• February 15-25: Draft report review
• March 1-5: Finalize and issue report
• March 10: File with DED
• April 1: Deadline (filed 22 days early!)

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Next Steps: Your 2025 Compliance Action Plan

Immediate Actions (This Month): ☐ Verify your auditor's 2025 compliance credentials ☐ Determine your company classification (Small/Medium/Large) ☐ Calculate your specific filing deadline ☐ Review beneficial ownership register completeness

Short-Term (Next 1-2 Months): ☐ Engage or reconfirm auditor for upcoming year-end ☐ Conduct pre-audit internal review ☐ Update corporate governance documentation ☐ Implement monthly close procedures if not already in place

Medium-Term (Next 3-6 Months): ☐ Complete beneficial ownership verification documentation ☐ Prepare for enhanced audit report disclosures (identify likely KAMs) ☐ Consider sustainability reporting readiness if applicable ☐ Train finance team on new requirements

Long-Term (Ongoing): ☐ Maintain audit-ready status year-round ☐ Monitor regulatory updates from Ministry of Economy ☐ Continuous improvement of financial close process ☐ Annual review of auditor performance and compliance

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Conclusion

2025 brings the most significant changes to UAE audit requirements in a decade. While the compressed timelines and enhanced disclosures require adjustment, they ultimately strengthen financial reporting quality and protect stakeholders.

Key Takeaways:

1. Start early: November-December planning is critical for Dec year-ends
2. Verify auditor: Ensure your auditor meets all 2025 requirements
3. Know your deadline: Large (90 days), Medium (120 days), Small (150 days)
4. Prepare for KAMs: Expect more transparency in audit reports
5. UBO documentation: Get beneficial ownership register complete NOW
6. Invest in process: Faster close procedures pay long-term dividends

At Farahat & Co, we've updated our audit methodology to fully comply with all 2025 requirements. Our team of Ministry-approved auditors has completed enhanced CPE, obtained UAE Audit Oversight Board registration, and implemented new audit report formats including KAM disclosures.

We can help you:

• Navigate the new requirements smoothly
• Meet compressed deadlines without stress
• Prepare comprehensive beneficial ownership documentation
• Understand and prepare for likely KAMs in your audit report
• Implement faster financial close procedures
• Assess sustainability reporting readiness

Contact us for a complimentary 2025 compliance readiness assessment: [Schedule Consultation] | Call: +971-X-XXX-XXXX | Email: audit@farahatco.com

Disclaimer: This guide reflects requirements as of January 2025. Regulatory requirements may be updated. Consult with your auditor and legal advisor for specific guidance.

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