JAFZA Audit Services Guide: Jebel Ali Free Zone Requirements

Operating in JAFZA but confused about whether your AED 950K revenue company actually needs an audit, and worried about accidentally missing the filing deadline for your critical 6-month license renewal window? Jebel Ali Free Zone Authority (JAFZA)—the UAE's largest and oldest free zone with 8,000+ companies—has specific audit requirements based on revenue thresholds, but many business owners misunderstand the AED 1 million mandatory audit rule, the difference between JAFZA-registered versus Ministry-approved auditors, and the significant penalties for non-compliance that can block license renewal.

With 37 years as JAFZA-registered and Ministry-approved auditors serving 28,000+ UAE businesses (including 1,500+ JAFZA companies across logistics, trading, manufacturing, and services sectors), Farahat & Co brings unparalleled expertise in navigating JAFZA's pragmatic yet specific compliance requirements. Our specialized JAFZA audit team understands the zone's business-friendly approach while ensuring full regulatory compliance.

This comprehensive JAFZA audit guide explains:

• AED 1 million revenue threshold: when mandatory audit applies (and when it doesn't)
• JAFZA-registered auditor requirements and verification process
• 6-month filing deadline from financial year-end and what happens if you miss it
• IFRS vs. IFRS for SMEs: which standard applies to JAFZA companies
• Annual return filing procedures through JAFZA online portal
• Penalties for late filing and non-compliance (AED 2,000-15,000 range)
• Corporate Tax implications: qualifying income eligibility for JAFZA free zone companies
• Voluntary audit benefits (even if below AED 1M threshold): banking relationships, tenders, investor credibility

Whether you're a logistics company in JAFZ One with AED 15M revenue, a trading entity in South Zone at AED 800K revenue deciding on voluntary audit, or a manufacturing business planning expansion and budgeting compliance costs, this detailed guide—based on 1,500+ actual JAFZA audits—ensures you understand exactly what's required and how to maintain good standing with JAFZA. For help selecting an auditor, explore our top JAFZA-approved audit firms in Dubai.

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JAFZA Audit Requirements: The AED 1 Million Rule Explained

Mandatory Audit Threshold

Revenue-Based Requirement:

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Important Clarifications:

Revenue = Gross Revenue Before Expenses

• Includes ALL income sources (sales, services, other income)
• NOT net profit
• NOT after deducting costs
• Example: AED 1.2M sales with AED 900K costs = AED 1.2M revenue (audit required)

Threshold Applies to Consolidated Group

• If you have multiple JAFZA entities under common ownership
• Combined revenue determines audit requirement
• Can't split operations to avoid audit threshold

First-Year Companies

• Projected revenue basis (from business plan)
• If you estimate > AED 1M, plan for audit from day one
• JAFZA may request audit even in year 1 if activities suggest > AED 1M

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JAFZA-Registered Auditor Requirements

Who Can Audit JAFZA Companies?

Mandatory Qualifications:

JAFZA Registration:

• Auditor must be registered with JAFZA as approved service provider
• Separate from general Ministry approval
• JAFZA maintains specific approved auditor list

UAE Ministry of Economy Approval:

• Must hold current MOE auditor registration
• Certificate number required on audit report

Professional Indemnity Insurance:

• Minimum coverage as specified by JAFZA
• Current policy required

How to Verify JAFZA Auditor Approval:

Method 1: JAFZA Portal

1. Log into JAFZA business portal
2. Navigate to "Service Providers"
3. Filter by "Audit & Accounting Services"
4. Verify firm appears on official list

Method 2: Request Documentation Ask prospective auditor for:

• JAFZA service provider certificate (current year)
• MOE auditor registration certificate
• Professional indemnity insurance certificate
• Recent JAFZA audit reports (redacted client names)

Method 3: Contact JAFZA Directly

• Email: business.services@jafza.ae
• Request confirmation of auditor's approved status
• 1-2 business day response typical

Red Flags - Non-Approved Auditors:

⚠️ Warning Signs:

• Hesitant to show JAFZA registration certificate
• Says they're "in process" of getting JAFZA approval
• Significantly lower fees than market (may lack proper approvals)
• Not familiar with JAFZA online filing portal
• Cannot provide JAFZA portal login credentials

Consequence of Using Non-Approved Auditor:

• JAFZA will reject your audit report
• Must redo entire audit with approved firm (double cost!)
• May miss filing deadline → penalties
• License renewal blocked until compliant filing

Our Recommendation: Before signing engagement letter, independently verify auditor's JAFZA registration status. Don't rely solely on auditor's claims.

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Voluntary Audit: Why Companies Below AED 1M Choose to Audit Anyway

Even if you're below the AED 1 million threshold, voluntary audit provides significant benefits:

Banking Benefits:

UAE Banks Increasingly Require Audited Financials:

• Credit facilities: Most banks require audited statements for facilities > AED 250K
• Overdraft facilities: Even small ODs often need audited financials
• Trade finance: Letter of credit, bank guarantees almost always require audit
• Account opening: Some banks require audit for corporate accounts (especially international banks)

Example: Company with AED 850K revenue (no mandatory audit) applies for AED 400K working capital facility. Bank requests audited financials. Without audit, application rejected or requires personal guarantees.

Tender Participation:

Many RFPs Require Audited Financials:

• Government tenders (federal and local)
• Large corporate procurement processes
• International company supply agreements
• Vendor pre-qualification systems

Cost: AED 8,000-12,000 typical for voluntary audit Benefit: Access to tenders worth AED millions

Investor & Partnership Credibility:

Audited Financials Signal Professionalism:

• Due diligence processes for partnerships
• Investor presentations
• Franchise applications
• M&A opportunities

Unaudited statements often questioned or discounted by sophisticated investors.

Internal Control Benefits:

Audit Process Identifies Issues:

• Accounting errors caught and corrected
• Internal control weaknesses highlighted
• Best practice recommendations received
• Financial reporting improvement

Example: Voluntary audit of AED 720K revenue trading company identified:

• AED 45K inventory obsolescence not recorded
• Missing VAT input claims totaling AED 18K (recoverable)
• IFRS 16 lease liability omission
• Audit fee: AED 9,500 | Issues fixed value: AED 63K+

Corporate Tax Preparation:

2023 Onwards - Corporate Tax Applies:

• Even small companies need strong financials for tax compliance
• FTA may request audited financials during tax assessments
• Audit trail demonstrates compliance and reduces tax dispute risk

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JAFZA Filing Deadlines & Penalties

Annual Return Filing Deadline

Timeline: 6 Months from Financial Year-End

Common Year-End Dates & Deadlines:

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What to File:

• Annual return form (online through JAFZA portal)
• Audited financial statements (if revenue ≥ AED 1M)
• OR Management accounts (if revenue < AED 1M)
• Beneficial ownership declaration (UBO)
• Activity license renewal application (if applicable)

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Late Filing Penalties

JAFZA Penalty Structure (2025):

Initial Late Filing Penalty:

• AED 2,000 upon first day of delay

Escalating Penalties:

• Additional AED 500 per week for continued non-compliance
• Maximum penalty: AED 15,000 total

Timeline Example:

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Beyond Monetary Penalties:

License Renewal Impact:

• License renewal application BLOCKED until compliant filing
• Cannot add new activities or make license amendments
• Cannot renew or apply for employee visas
• Cannot transfer sponsorship for employees
• Bank may freeze account pending JAFZA compliance confirmation

Reputational Impact:

• Marked as "non-compliant" in JAFZA system
• May affect future JAFZA service applications
• Due diligence checks reveal compliance issues
• Supplier credit checks may flag JAFZA non-compliance

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Grace Period Reality

No Official Grace Period, But Practical Considerations:

JAFZA's Approach:

• No formal grace period stated in regulations
• Penalties theoretically start immediately after deadline
• In practice, JAFZA may show leniency for:
  • First-time late filers (if only 1-2 weeks late)
  • Valid reasons (auditor issues, force majeure)
  • Companies with long good-standing history

Can Penalties Be Waived?

Possible Waiver Scenarios:

• Auditor resignation/illness close to deadline (documented proof required)
• JAFZA portal technical issues preventing filing (documented complaints)
• Force majeure events (natural disasters, government mandates)

Success Rate: Approximately 5-10% of waiver requests approved

Evidence Required:

• Formal waiver request letter
• Supporting documentation (auditor resignation letter, system screenshots, etc.)
• Explanation of steps taken to comply
• Commitment to timely filing going forward

Our Recommendation: Don't count on penalty waiver. Build in buffer time and file at least 2-3 weeks before deadline.

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Real-World JAFZA Audit Case Studies

Case Study 1: Logistics Company - First-Time Mandatory Audit (Revenue Just Crossed AED 1M)

Company Profile:

• Industry: Freight forwarding and logistics
• Annual Revenue: AED 1.15M (first year crossing threshold)
• Employees: 8
• Year-End: December 31, 2024
• Location: JAFZ South Zone

Challenge: Company operated 3 years without audit (revenue AED 600K, AED 850K, AED 1.15M). Suddenly required to conduct first audit for 2024. Owner concerns:

• Never had audit before—what to expect?
• Accounting records "good enough" or need improvement?
• What if auditor finds material errors?
• Tight budget (startup still breaking even)

Audit Preparation Timeline:

September 2024 (3 months before year-end):

• Contacted Farahat & Co for first-time audit consultation
• Conducted accounting readiness review
• Identified 6 areas needing improvement:
  • Bank reconciliations 4 months behind
  • No fixed asset register maintained
  • Revenue recognition timing issues (booking on invoice date vs. service delivery)
  • Missing IFRS 16 lease accounting (office lease)
  • Related party transactions with owner not disclosed
  • VAT reconciliation discrepancies

October-December 2024:

• Implemented corrective measures:
  • Caught up all bank reconciliations
  • Created fixed asset register (AED 180K assets identified)
  • Corrected revenue recognition policy (shifted AED 35K to deferred revenue)
  • Implemented IFRS 16 for office lease (AED 216K lease liability)
  • Prepared related party transaction register

January 2025 (post-year-end):

• Audit fieldwork: 8 days (vs. 12-15 typical for first-time audit of this size)
• Clean audit opinion achieved
• Only 2 minor adjustments required (total AED 8K)

Results:

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Owner Quote: "We were nervous about our first audit, but the 3-month preparation window made all the difference. We fixed issues proactively, and the audit was smooth. Audit fee was 35% below what I budgeted!"

Key Success Factors:

• Early auditor engagement (3 months before year-end)
• Proactive accounting cleanup before audit
• Implemented IFRS requirements in advance
• Dedicated internal resource to support auditor

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Case Study 2: Trading Company - Late Filing Penalty Avoided (Express Audit)

Company Profile:

• Industry: Electronics trading
• Annual Revenue: AED 4.8M
• Employees: 12
• Year-End: March 31, 2024
• JAFZA Deadline: September 30, 2024

Crisis Situation:

Early September 2024 (25 days before deadline): Company realized they had major problem:

• Previous auditor suddenly closed practice (partner retired)
• No alternative auditor engaged yet
• Accounting records disorganized (8 months of transactions in backlog)
• Bank reconciliations not done since March
• Inventory count never conducted

Emergency Response:

Day 1 (Sept 5):

• Contacted Farahat & Co for emergency express audit
• Provided access to all available records
• Agreed to dedicate full-time staff member to audit support

Days 2-10 (Sept 6-15):

• Dedicated 2 accountants (one from Farahat & Co, one internal) to catch up bookkeeping
• Worked extended hours including weekend
• Completed missing months of bookkeeping
• Conducted physical inventory count (AED 680K inventory)
• Completed bank reconciliations

Days 11-20 (Sept 16-25):

• Intensive audit fieldwork (10 consecutive days)
• Same-day response to all auditor queries
• Director available for sign-offs immediately
• Adjusted 6 accounting items (total net impact: AED 42K)

Day 21 (Sept 26):

• Draft audit report received
• Minor adjustments implemented same day

Day 22 (Sept 27):

• Final audit report signed
• Uploaded to JAFZA portal electronically
• Filed 3 days before deadline!

Costs & Savings:

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What If They Missed Deadline:

• Initial penalty: AED 2,000
• Escalating weekly: AED 500/week
• If 4 weeks late: AED 4,000+ total penalties
• License renewal blocked for 4 weeks
• Savings by making deadline: AED 4K+ penalties + business continuity

Lesson Learned: Company now engages auditor in June (4 months before deadline) and maintains monthly bookkeeping. Following year audit cost: AED 19,500 (56% savings vs. emergency audit).

Owner Quote: "Cutting it that close was incredibly stressful and expensive. Never again! Now we plan ahead and keep books current monthly. The extra AED 10K we paid for express service taught us a AED 10K lesson about preparation!"

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Case Study 3: Manufacturing Company - Voluntary Audit Unlocks Bank Facility

Company Profile:

• Industry: Aluminum fabrication
• Annual Revenue: AED 880K (below AED 1M threshold)
• Employees: 15
• Year-End: June 30, 2024
• No mandatory audit requirement

Business Need:

July 2024: Company secured major new contract:

• Contract value: AED 2.4M (first major contract)
• Requires AED 600K upfront for raw materials
• Payment terms: 90 days after delivery
• Cash flow gap: AED 600K needed for 120+ days

Bank Facility Application:

Approached 3 UAE banks for working capital facility:

• Requested: AED 600K overdraft facility
• Initial applications: All banks requested audited financial statements
• Problem: Company had no audit (not required by JAFZA)

Owner's Options:

Option 1: Personal Guarantee/Collateral

• Mortgage personal villa (valued AED 1.8M)
• Risk: Lose family home if business fails

Option 2: Give Up Contract

• Can't fund AED 600K upfront
• Lose transformational opportunity

Option 3: Voluntary Audit

• Get audit even though not JAFZA-required
• Present audited financials to banks
• Cost: AED 11,000

Decision: Chose Voluntary Audit

August 2024:

• Engaged Farahat & Co for voluntary audit
• Audit completed in 12 days
• Clean audit opinion
• Audit fee: AED 11,000

Bank Facility Outcome:

September 2024:

• Submitted audited financials to 3 banks
• Received 2 facility offers:

Bank A Offer:

• AED 600K overdraft
• 8.5% interest rate
• Against 25% cash collateral (AED 150K)
• Personal guarantee (limited to facility amount)
• No property mortgage required!

Bank B Offer:

• AED 750K overdraft
• 9.0% interest rate
• Against receivables assignment
• Personal guarantee

Selected Bank A offer

Financial Impact:

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ROI on Voluntary Audit:

• Cost: AED 11,000
• Enabled profit: AED 340,000
• ROI: 3,000%

Ongoing Benefit:

• Company now has established banking relationship
• Secured additional contracts using same facility
• 2025 revenue projected: AED 3.2M (now ABOVE threshold, audit mandatory anyway)
• Already have audit process in place (smooth transition)

Owner Quote: "Best AED 11K I ever spent. Without that audit, I would have either risked my family home or passed on the contract that transformed our business. Now we're a AED 3M+ company with strong banking relationships!"

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JAFZA vs Other Free Zones: Comprehensive Audit Comparison

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Key Observations:

JAFZA's Advantages:

• Most flexible threshold (AED 1M revenue)
• Lower audit costs than DMCC/DIFC
• Pragmatic enforcement approach
• Mature free zone with established processes

When to Choose Other Zones:

• DMCC: Commodity trading focus, close to JLT/Marina
• DIFC: Financial services requiring DFSA licensing
• Dubai South: Logistics focus, close to Al Maktoum Airport
• DAFZA: Aviation industry focus

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JAFZA Filing Process: Step-by-Step Guide

Electronic Filing via JAFZA Portal

Phase 1: Preparation (30-60 days before deadline)

Week 1-2: Engage Auditor

• ☐ Verify auditor's JAFZA registration status
• ☐ Sign engagement letter
• ☐ Provide prior year financials (if applicable)
• ☐ Schedule audit timeline

Week 3-4: Pre-Audit Work

• ☐ Complete year-end closing entries
• ☐ Reconcile all bank accounts as of year-end
• ☐ Update fixed asset register
• ☐ Prepare related party transaction register
• ☐ Review IFRS accounting policies

Phase 2: Audit (2-3 weeks)

Auditor Fieldwork:

• Understanding business operations
• Testing transactions (sales, purchases, expenses)
• Bank confirmations
• Inventory verification (if applicable)
• Related party transaction testing
• IFRS compliance review

Your Responsibilities:

• Respond to auditor requests within 24-48 hours
• Provide complete documentation
• Arrange director meetings as needed
• Resolve queries promptly

Phase 3: Finalization (1 week)

Final Steps:

• ☐ Review draft audit report
• ☐ Discuss/implement proposed adjustments
• ☐ Sign management representation letter
• ☐ Obtain signed final audit report
• ☐ Prepare final financial statements

Phase 4: JAFZA Portal Filing (1-2 days)

Step-by-Step Filing:

1. Log into JAFZA Portal

   • URL: www.jafza.ae (business portal)
   • Use your company login credentials

2. Navigate to Annual Returns

   • Click "Services" menu
   • Select "Annual Return Filing"

3. Complete Online Form

   • Confirm company details
   • Enter financial year-end date
   • Declare revenue (for audit threshold determination)
   • Update beneficial ownership information (UBO)
   • Confirm business activities

4. Upload Required Documents

   • Audited financial statements (PDF)
   • Audit report (signed original - PDF)
   • Management accounts (if no audit required)
   • Board resolution approving financials (if applicable)

5. Pay Filing Fees

   • Filing fee: AED 1,000-2,500 (based on license type)
   • Online payment via credit card or direct debit

6. Submit Application

   • Review all information
   • Click "Submit"
   • Receive submission confirmation number

7. Track Status

   • Monitor application status in portal
   • JAFZA typically reviews within 3-5 business days
   • May request additional information

8. Receive Approval

   • Approval notification via email and portal
   • Download approval certificate
   • License renewal (if applicable) processed automatically

Common Filing Issues & Solutions:

Issue 1: PDF Upload Errors

• Solution: Ensure PDFs are properly formatted, not scanned, under 10MB size

Issue 2: Beneficial Ownership Mismatch

• Solution: Update UBO information first (separate process), then file annual return

Issue 3: Payment Failures

• Solution: Use UAE-issued credit card, ensure sufficient limit, try different browser

Issue 4: Missing Documents

• Solution: Check requirements list, ensure all pages signed/stamped by auditor

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JAFZA Audit Costs: Detailed Breakdown

Typical Audit Fee Ranges (2025 Market Rates)

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Factors Increasing Cost (+25-50%):

First-Time Audit:

• No prior year comparatives
• Accounting systems may need cleanup
• More extensive testing required
• Typical premium: +30-40%

Complex Operations:

• Multi-entity structures
• Commodity trading with complex contracts
• Manufacturing with inventory (WIP, finished goods)
• Related party transactions across jurisdictions
• Typical premium: +25-35%

Tight Deadlines:

• Engagement within 30 days of filing deadline
• Express/rush service required
• Weekend/overtime work needed
• Typical premium: +40-50%

Poor Record-Keeping:

• Backlog of unrecorded transactions
• Missing bank reconciliations
• Incomplete documentation
• Auditor must assist with bookkeeping
• Additional cost: AED 5K-15K+

Factors Reducing Cost (-15-30%):

Well-Organized Records:

• Monthly bookkeeping current
• All reconciliations complete
• Clean chart of accounts
• Strong internal controls
• Typical discount: -15-20%

Simple Operations:

• Straightforward trading or services
• Single-entity structure
• No complex IFRS areas
• Minimal related party transactions
• Typical discount: -15-25%

Multi-Year Engagement:

• Commit to 2-3 year audit relationship
• Build auditor familiarity with business
• Streamlined year 2 onwards
• Typical discount: -20-30% from year 2

Early Engagement:

• Engage auditor 90+ days before deadline
• Allow normal scheduling (not rush)
• Time for efficient planning
• Typical discount: -10-15%

What's Included in Audit Fee:

Standard Inclusions:

• Statutory audit per JAFZA requirements
• IFRS-compliant financial statements
• Audit report signed by JAFZA-approved auditor
• JAFZA portal filing assistance
• One round of draft review/revisions
• Management representation letter
• Basic IFRS consulting during audit

NOT Included (Additional Fees):

Additional Services:

• Bookkeeping/accounting services
• VAT return preparation
• Corporate tax return (when applicable)
• ESR reporting (if relevant activities)
• Transfer pricing documentation
• Internal audit services
• Business advisory/consulting

Typical Additional Costs:

• Bookkeeping catchup: AED 3K-12K (depending on backlog)
• VAT compliance review: AED 2K-5K
• ESR preparation: AED 5K-12K
• Transfer pricing: AED 8K-25K

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Frequently Asked Questions

1. I have two JAFZA companies with revenue AED 700K each (total AED 1.4M). Do I need audit for both?

It depends on ownership structure and relationship between companies.

Scenario A: Commonly Controlled (Same Shareholders)

If both companies have the same beneficial owners and are managed as a group:

• Yes, combined revenue exceeds AED 1M
• JAFZA may require consolidated audit
• Or separate audits for each entity
• Cannot avoid audit by splitting operations

Example:

• Company A: Electronics Trading - AED 700K - Owner: Mr. Ahmed (100%)
• Company B: Electronics Services - AED 700K - Owner: Mr. Ahmed (100%)
• JAFZA position: Related entities, combined AED 1.4M, audit required for both

Scenario B: Independent Ownership/Operations

If companies have different owners and genuinely separate businesses:

• Each assessed independently
• Company A: AED 700K → no mandatory audit
• Company B: AED 700K → no mandatory audit

However, Consider:

• JAFZA may investigate if activities appear coordinated
• Related party transactions between companies must be disclosed (if audited voluntarily)
• Corporate tax implications: FTA may view as associated enterprises

Best Practice: If combined revenue > AED 1M and common ownership, budget for audit of both companies to avoid disputes with JAFZA. Cost: AED 20K-30K for both (packaged rate).

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2. Can I switch from calendar year (Dec 31) to financial year (March 31) to get more time for audit?

Yes, you can change financial year-end, but it's a formal process with JAFZA approval required.

Change Process:

Step 1: JAFZA Application

• Submit financial year-end change request through JAFZA portal
• Provide business justification for change
• Pay administrative fee (typically AED 500-1,000)

Step 2: JAFZA Approval

• JAFZA reviews request (typically 5-10 business days)
• Approval granted if valid business reason provided

Step 3: Transition Period Audit

• Must audit the transition period
• Example: Changing Dec 31 → March 31 in 2025:
  • Previous period: Jan 1, 2024 - Dec 31, 2024 (12 months)
  • Transition period: Jan 1, 2025 - March 31, 2025 (3 months)
  • Both periods require audit if revenue > AED 1M

Costs:

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Valid Reasons JAFZA Typically Accepts: Align with parent company year-end (for consolidation) Seasonal business (better to close after busy season) Align with other group entities Tax planning considerations

Reasons JAFZA Typically Rejects: Just to delay filing/get more time Frequent changes (changed recently) No legitimate business reason

Impact on Filing Deadline:

Example Timeline:

• Old year-end: Dec 31, 2024 → File by June 30, 2025
• Change approved: New year-end March 31
• Transition period: Jan 1 - March 31, 2025 → File by Sept 30, 2025 (gains 3 months)
• New ongoing deadline: March 31, 2026 → File by Sept 30, 2026

Our Recommendation: Only change year-end if you have genuine business reason (alignment with parent, seasonality, etc.). Don't change solely to gain filing time—better to improve processes and engage auditor earlier. Year-end changes create additional audit costs and administrative work.

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3. JAFZA audit report found an error. Do I have to restate previous years?

It depends on the materiality and nature of the error.

ISA 710 & IAS 8 - Prior Period Errors:

Material Error Discovered:

Option 1: Restate Comparatives (Required if Material)

If error affects prior year and is material:

• Must restate prior year figures in current year financial statements
• Disclose nature of error and correction in notes
• Comparative figures adjusted
• "Restated" label added to prior year column

Example:

• 2024 audit discovers inventory overstatement in 2023: AED 120K
• 2023 revenue was AED 2.5M, profit AED 180K
• AED 120K error = 67% of prior profit = MATERIAL
• Must restate 2023 comparatives in 2024 financial statements

2024 Financial Statements:

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Note disclosure explains: "2023 figures restated due to inventory overvaluation of AED 120K identified in 2024."

Option 2: Current Year Adjustment (If Immaterial)

If error is immaterial:

• Adjust in current year only
• No restatement of comparatives
• Disclose if necessary for clarity

Example:

• 2024 audit discovers 2023 expense omission: AED 8K
• 2023 revenue AED 5M, profit AED 600K
• AED 8K = 1.3% of prior profit = IMMATERIAL
• Adjust in 2024, no restatement required

Materiality Guidelines:

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Do You Need to Refile with JAFZA?

Prior Year Already Filed:

If Restatement Required:

• Notify JAFZA of error and restatement
• Typically do NOT need to refile prior year
• Restatement appears in CURRENT year comparatives
• JAFZA filing: Current year shows both original and restated prior figures

Exception - Severe Material Error:

• If error is extremely material (> 50% of prior figures)
• Or affects license eligibility, legal compliance
• JAFZA may request amended prior year filing
• Rare - only in severe cases

Cost Implications:

Restatement Work:

• Additional audit work to audit the restatement: AED 2K-5K
• If full prior year re-audit needed: AED 8K-15K+ (rare)
• JAFZA refiling fee (if required): AED 500-1,000

Our Recommendation: Discuss materiality with auditor when error discovered. Most errors are immaterial or handled via current year restatement. Only severe errors require JAFZA notification and potential refiling. Focus on implementing controls to prevent recurrence.

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4. Can I use the same auditor year after year, or must I rotate?

JAFZA does not mandate audit firm rotation, but UAE regulations have specific requirements.

UAE Audit Firm Rotation Rules:

Federal Law No. 32 of 2021 (Commercial Companies Law):

Mandatory Rotation:

• Public Joint Stock Companies (PJSC): Must rotate audit firm every 5 years maximum
• Other companies (LLC, FZE, FZ-LLC): NO mandatory rotation
• Most JAFZA companies are FZE or FZ-LLC → no rotation requirement

Best Practice vs. Mandatory:

International Best Practice (Not Mandatory for JAFZA):

• Audit firm rotation every 5-7 years
• Audit partner rotation every 3-5 years
• Enhances independence and fresh perspective

Actual Practice in JAFZA:

• 60%+ of companies use same auditor 3+ consecutive years
• 35% use same auditor 5-10 years
• 5% change auditor annually (usually for cost reasons)

Advantages of Auditor Continuity:

Cost Savings:

• Year 1 audit: AED 20,000 (learning curve, first-time)
• Year 2 audit: AED 16,000 (-20% efficiency gain)
• Year 3+ audit: AED 14,500 (-27% from year 1)

Efficiency:

• Auditor understands your business
• Less time explaining transactions
• Faster audit completion (12 days vs. 18 days first year)

Relationship Value:

• Year-round IFRS consultation
• Proactive advice on new regulations
• Priority scheduling
• Better service level

Advantages of Auditor Rotation:

Fresh Perspective:

• New auditor may identify issues previous auditor missed
• Different approach/methodology
• Challenge status quo

Independence:

• Reduce familiarity threat
• Avoid complacency
• Enhanced stakeholder confidence (if you have investors)

Competitive Pricing:

• Opportunity to re-bid audit fee
• Market competition keeps costs in check

When Should You Change Auditors?

Good Reasons to Switch: Poor service quality (missed deadlines, errors, unresponsive) Significant fee increase without justification Auditor loses JAFZA registration Your business complexity increased, need bigger firm Your business simplified, can use smaller firm Investor/bank requires Big 4 or specific firm After 7-10 years (fresh perspective)

Poor Reasons to Switch: Auditor found errors (that's their job!) Auditor requires adjustments you disagree with (they're usually right) Shopping for "easier" audit (red flag behavior) Slightly cheaper fee from unknown firm (verify JAFZA approval!)

Proper Transition Process:

If Changing Auditors:

Step 1: Formal Disengagement (30 days before you need new audit)

• Notify current auditor in writing
• Request all files/papers
• Close out any open items

Step 2: Engage New Auditor

• Verify JAFZA registration
• Provide previous years' audit reports
• Sign new engagement letter

Step 3: Auditor Communication

• New auditor contacts previous auditor (professional requirement)
• Discusses any issues, concerns
• Ensures smooth transition

Step 4: Expect Higher Year 1 Cost

• New auditor learning curve
• Budget +20-30% vs. continuing auditor cost
• Returns to normal from year 2

Our Recommendation: If your current auditor provides good service at fair pricing, stay with them for 5-7 years minimum. Continuity benefits outweigh rotation benefits for most JAFZA SMEs. Rotate only if service issues or after extended period (7-10 years).

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5. What are the most common JAFZA audit findings?

Based on 1,500+ JAFZA audits conducted by Farahat & Co, here are the top 10 issues:

1. IFRS 16 Lease Accounting (48% of audits)

Issue: Office/warehouse lease not recorded as right-of-use asset

Example:

• Company pays AED 150K annual warehouse rent in JAFZ South
• Lease term: 3 years (AED 450K total commitment)
• Should recognize: ROU Asset AED 421K, Lease Liability AED 421K (present value)
• Most companies still expense monthly rent (pre-IFRS 16 method)

Fix: Implement IFRS 16 lease accounting, record ROU asset and lease liability

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2. Revenue Recognition Timing - IFRS 15 (35% of audits)

Issue: Recognizing revenue before performance obligation satisfied

Example - Trading Company:

• Goods shipped from China to customer (UAE destination)
• Terms: FOB destination (risk passes upon delivery to customer)
• Company books revenue when ship departs China
• Should recognize: Revenue only when goods arrive at customer UAE warehouse
• Timing difference: 14-21 days

Impact: AED 180K revenue recognized in December should be deferred to January

Fix: Understand Incoterms, recognize revenue when control transfers per IFRS 15

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3. Related Party Transactions Not Disclosed (31%)

Issue: Transactions with shareholders, group companies, directors not disclosed

Example:

• JAFZA company purchases inventory from shareholder's other company (mainland): AED 680K annual
• Transaction terms: 90-day credit (vs. 30-day terms with third parties)
• IAS 24 requires disclosure of:
  • Related party relationship
  • Transaction amount
  • Outstanding balance
  • Terms comparison

Fix: Maintain related party register, disclose all RPTs in financial statement notes

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4. Inventory Valuation Issues (28%)

Issue: Inventory not valued at lower of cost or net realizable value

Example - Logistics Company with Spare Parts Inventory:

• Spare parts inventory: AED 120K (at cost)
• Items include:
  • AED 35K obsolete parts (for equipment no longer owned)
  • AED 15K slow-moving items (no usage in 18 months)
• Net realizable value: AED 70K
• Should write down: AED 50K provision for obsolescence

Fix: Regular inventory age analysis, write down obsolete/slow-moving items to NRV

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5. Foreign Exchange Revaluation Missing (24%)

Issue: Foreign currency balances not revalued at year-end

Example:

• USD bank account: $200,000

• Opening rate (Jan 1): AED 3.6725/USD

• Closing rate (Dec 31): AED 3.6650/USD

• Exchange loss: AED 1,500 not recorded

• Accounts receivable (Euro): EUR 50,000

• Opening rate: AED 4.15/EUR

• Closing rate: AED 4.08/EUR

• Exchange loss: AED 3,500 not recorded

Total FX loss missed: AED 5,000

Fix: Revalue ALL foreign currency monetary items at year-end spot rates (IAS 21)

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6. VAT Reconciliation Gaps (22%)

Issue: VAT per returns doesn't match VAT per financial statements

Example:

• Output VAT per VAT returns (sum of 4 quarters): AED 285K
• Output VAT per financials (sales × 5%): AED 298K
• Unexplained difference: AED 13K

Common Causes:

• Zero-rated sales recorded as standard-rated in accounts
• Manual VAT return adjustments not recorded in accounts
• Timing differences not tracked
• Exempt supplies incorrectly classified

Fix: Monthly VAT reconciliation (returns vs. accounts), document all differences

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7. Provisions & Accruals Incomplete (19%)

Issue: Year-end expenses not accrued

Common Missing Accruals:

• ☐ Audit fee for current year (AED 18K typically)
• ☐ Gratuity provision (end-of-service benefits for 12 employees: AED 45K)
• ☐ December utilities (bill received January): AED 8K
• ☐ 13th month bonus accrual: AED 35K
• ☐ Annual JAFZA license renewal fee: AED 15K

Total understated expenses: AED 121K

Impact: Profit overstated by AED 121K (24% overstatement for AED 500K profit company)

Fix: Review post-year-end invoices, accrue expenses based on service period

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8. Fixed Asset Depreciation Errors (18%)

Issue: Depreciation calculated incorrectly

Examples:

• Inconsistent method: Policy says "straight-line" but using reducing balance
• Not prorated: Asset purchased March 31, full year depreciation charged (should be 9 months)
• Wrong useful life: IT equipment depreciated over 5 years (industry norm: 3 years)
• Disposed assets: Asset sold in June, but full year depreciation charged

Fix: Document depreciation policy clearly, apply consistently, review annually

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9. Bank Reconciliations Outstanding Items (15%)

Issue: Old unreconciled items not investigated

Example Bank Reconciliation:

• Balance per bank: AED 385,000
• Balance per books: AED 372,000
• Unreconciled items:
  • Checks issued 14 months ago (never presented): AED 18,000
  • Unidentified deposit (6 months old): AED 9,000
  • Bank charges not recorded: AED 1,200

Problem: Items > 90 days old should be investigated and resolved

Fix:

• Stale checks (> 12 months): Reverse entry, contact payee
• Unidentified deposits: Investigate with bank, record properly
• Bank charges: Record monthly from bank statements

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10. Corporate Tax Readiness - Deferred Tax (12%)

Issue (New - 2024/2025): Companies not preparing for corporate tax, deferred tax not calculated

Background:

• UAE Corporate Tax effective from June 1, 2023 (tax year 2024 onwards)
• JAFZA companies: Qualifying income eligible for 0% tax
• Non-qualifying income: 9% tax
• Deferred tax accounting required (IAS 12)

Example: Company has temporary differences:

• Accelerated tax depreciation vs. accounting: AED 60K
• Provisions not deductible until paid: AED 35K
• Net deferred tax liability: (AED 60K - AED 35K) × 9% = AED 2,250

Many JAFZA audits 2024/2025: Deferred tax not calculated, not recorded

Fix:

• Determine qualifying vs. non-qualifying income
• Calculate temporary differences
• Record deferred tax assets/liabilities
• Engage tax advisor if complex

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Prevention Strategy:

80% of these issues are preventable through:

Monthly accounting close

• Don't wait until year-end
• Reconcile banks monthly
• Accrue expenses monthly
• Review unusual items immediately

IFRS training

• Invest in training for finance staff
• Understand IFRS 15, 16, IAS 24, IAS 21
• Farahat & Co offers IFRS workshops for clients

Quarterly pre-audit reviews

• Engage auditor for quarterly check-ins (optional service)
• Identify issues early
• Correct before year-end
• Typical cost: AED 2K-3K per quarter, saves AED 10K+ in audit adjustments/delays

Proper accounting software

• Use recognized software (QuickBooks, Zoho Books, Tally, SAP)
• Avoid Excel-only bookkeeping
• Software enforces controls, automates FX, generates proper reports

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Conclusion

JAFZA audit requirements balance business-friendly thresholds (AED 1M revenue) with robust compliance standards, making it one of the UAE's most practical free zones for SMEs and growing businesses. Success requires understanding the revenue threshold, engaging JAFZA-approved auditors, maintaining proper IFRS-compliant accounting, and filing within the 6-month deadline to avoid penalties and ensure seamless license renewal.

Your JAFZA Audit Success Formula:

Know your threshold (Revenue ≥ AED 1M = mandatory audit) Verify auditor JAFZA registration (don't assume!) Engage early (60-90 days before deadline for smooth audit) Maintain monthly bookkeeping (prevent year-end scramble) Understand IFRS (especially IFRS 15 & 16, IAS 24, IAS 21) File 30+ days before deadline (avoid last-minute stress and potential delays) Budget appropriately (AED 12K-35K typical, depending on size) Consider voluntary audit (even if < AED 1M) if seeking bank facilities or tenders

At Farahat & Co, we're JAFZA-registered and Ministry-approved auditors with:

• 37 years of UAE audit experience across all free zones
• 1,500+ JAFZA audits completed (logistics, trading, manufacturing, services)
• Deep understanding of JAFZA's practical, business-friendly approach
• Fixed-fee pricing with no surprises
• Same-day JAFZA portal filing support
• Voluntary audit packages for companies below AED 1M threshold
• Express audit services available for urgent situations

Ready for your JAFZA audit? Contact us today for a free consultation and competitive quote. Our specialized JAFZA audit team ensures efficient, cost-effective audits that meet all requirements while maintaining your focus on growing your business.

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