Audit risk is a growing concern for businesses operating in the UAE’s evolving regulatory environment. Whether you’re a mainland company, a free zone entity, or part of a multinational group, understanding key audit risks is essential not only for compliance but also for operational and financial integrity.
From financial misstatements to weak internal controls and tax exposure, businesses must take proactive steps to identify and manage these risks before they lead to costly consequences.
Here’s a breakdown of the top audit risks UAE businesses should be aware of — and how to mitigate them.
1. Inadequate Internal Controls
Many audit findings arise from poor segregation of duties, lack of documentation, or informal authorization procedures. These gaps increase the likelihood of:
- Fraud and asset misappropriation
- Inaccurate financial reporting
- Audit qualifications or adverse findings
What to do: Implement and test internal controls regularly. Clearly define approval limits, access roles, and dual-check processes across departments.
2. Improper Revenue Recognition
Incorrect or premature recognition of revenue is a red flag for auditors. It can occur due to:
- Recording sales before delivery or completion
- Applying incorrect accounting standards (e.g., IFRS 15)
- Inflating revenue to meet targets
What to do: Ensure revenue is recognized based on delivery/performance, not billing. Align accounting practices with IFRS and industry-specific standards.
3. Non-Compliance with UAE Corporate Tax Regulations
With the introduction of Corporate Tax in the UAE, many businesses are exposed to audit risks due to:
- Incomplete tax registration
- Incorrect taxable income calculations
- Lack of supporting documentation for deductions
- Transfer pricing non-compliance
What to do: Conduct a tax impact assessment and maintain all records in line with Federal Decree-Law No. 47 of 2022. Ensure your related-party transactions follow the arm’s length principle.
4. VAT Errors and FTA Exposure
VAT-related audit risks include:
- Over- or under-claiming input VAT
- Errors in output VAT calculation
- Missed filings or late returns
- Inadequate recordkeeping for FTA audits
What to do: Reconcile your VAT returns regularly, maintain full backup for claims, and conduct VAT health checks to ensure compliance with FTA expectations.
5. Unreliable Inventory Valuation
Inventory overstatement or incorrect valuation methods can distort gross profit margins and mislead stakeholders. Common errors include:
- Inaccurate stock counts
- Using outdated or inconsistent cost methods (e.g., FIFO vs. weighted average)
- Poor documentation of stock movement
What to do: Adopt consistent inventory valuation policies and integrate inventory systems with your accounting software. Conduct periodic physical stock counts.
6. Cash Handling & Expense Reimbursements
Manual handling of cash or lack of proper documentation for petty cash and reimbursements are often cited in audit reports. Risks include:
- Unauthorized payments
- Inconsistent reimbursement policies
- Misuse of company funds
What to do: Use formal expense claim processes, require receipts for all reimbursements, and audit petty cash regularly.
7. AML/CFT Non-Compliance (for DNFBPs and FIs)
Many businesses in regulated sectors face audit risk due to poor AML/CFT practices. Issues include:
- Incomplete risk assessments
- Missing KYC documents
- No internal controls for transaction monitoring
- Lack of awareness on STR/DPMSR reporting
What to do: Maintain AML policies, conduct training, and ensure compliance with Ministry of Economy and Central Bank regulations. Use platforms for real-time screening and reporting.
8. Inadequate Documentation & Audit Readiness
Poor recordkeeping or unavailability of supporting documents during the audit process can delay reporting and result in audit reservations.
What to do: Ensure proper filing of invoices, contracts, reconciliations, and board resolutions. Prepare an audit file in advance every financial year.
