Common Legal and Financial Audit Mistakes to Avoid in Dubai
What goes wrong before the auditor arrives, and what it costs when someone asks for the file.
Seven failures that turn a Dubai audit into a problem later: an unreviewed legal file, an auditor who cannot sign for the entity, skipped free zone filings, the Economic Substance position, records that will not support a corporate tax return, stale corporate registers, and findings closed without fixing the document behind them.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
An audit rarely causes problems in the year it is signed. It causes them later, when a bank, an acquirer, a regulator or the Federal Tax Authority asks for the file and the answer to an obvious question is not in it. The signature was obtained; the record behind it was never built.
These are the failures we see most often in Dubai, and what each one costs.
1. Treating the audit as a finance exercise
Accounts are prepared by the finance team, so the audit is handed to the finance team, and the legal side of the file is assembled by whoever has time. The result is a set of financial statements that do not reconcile with the company's own documents: revenue recognised under a contract that was never signed, a lease reflected in the accounts that expired, a related-party balance with no agreement behind it, an intra-group transfer with no board approval.
An auditor tests figures against evidence. Where the evidence is a legal document, the quality of the audit is limited by the quality of the legal file. Reviewing contracts, licences, corporate authorities and regulatory filings before the auditor starts is the cheapest part of the whole exercise.
2. Appointing an auditor who is not eligible to sign
Eligibility is jurisdiction-specific. An auditor signing the accounts of a mainland company must be registered to practise for that purpose in the UAE; the DIFC and ADGM each maintain their own requirements for auditors of entities registered with them, and certain regulated firms face further conditions imposed by their regulator. Appointing a firm that cannot sign for the entity in question means the audit has to be redone, usually against a filing deadline.
The appointment itself is also a corporate act. Under Federal Decree-Law No. 32 of 2021 on Commercial Companies the auditor is appointed by the shareholders, and an appointment made by management without the necessary resolution is open to challenge.
3. Assuming a free zone entity is outside the obligations
Free zone registration is not an exemption from accounting and filing. The relevant registrar sets its own requirements for maintaining accounting records, having accounts audited and filing them, and a company that has quietly skipped several years discovers the backlog when it tries to renew, restructure or sell. Reconstructing several years of records at once is far more expensive than producing them annually, and any acquirer will price the gap.
4. Getting the Economic Substance position wrong in both directions
The Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024. Two opposite mistakes follow from that.
The first is continuing to prepare notifications and reports that are no longer required. The second, and the expensive one, is assuming the cancellation wiped the slate. Obligations for financial years from 2019 to 2022 remain, and so does exposure for notifications and reports that were not filed or were filed incorrectly in those years. Any audit or transaction review covering that period should establish what was actually submitted rather than what someone remembers submitting.
5. Records that will not support the corporate tax return
Corporate tax was introduced by Federal Decree-Law No. 47 of 2022 and applies to financial years starting on or after 1 June 2023, at 0% on taxable income up to AED 375,000 and 9% above. The return is only as defensible as the records behind it. Where a business claims a relief or a preferential treatment, the conditions for it have to be evidenced — transfer pricing documentation for related-party dealings, substantiation of any exempt income, and the contracts that establish where and how revenue was earned. An audit is the natural point at which to test whether that evidence exists, and it is frequently the point at which nobody looks.
6. Corporate records that no longer match reality
The share register, the register of beneficial owners, board and shareholder minutes, and the powers of attorney on file all drift. Shares transfer and the register is not updated; a manager leaves and his power of attorney is not revoked; a resolution authorising a bank facility was never passed. Each of these is easy to fix while it is small. In due diligence, they are the findings that reduce a price.
7. Closing a finding without fixing the cause
An audit finding is closed when the underlying document is corrected — the agreement signed, the resolution passed, the register updated, the filing made — not when the report is issued with a note. Where a finding suggests something more serious, such as unexplained transactions or payments that do not match their stated purpose, there may be a separate reporting obligation, and our financial crime team advises on how to handle that before it becomes an enforcement matter.
Doing it in the right order
A clean audit is largely a documentation problem solved in advance: know which rules apply to the entity as registered, appoint a firm eligible to sign for it, put the legal file in order before fieldwork starts, and treat each finding as a document to be repaired rather than a paragraph to be worded around.
Our legal and financial audit practice carries out pre-audit reviews and remediation for companies across the mainland, the DIFC and ADGM. For a single question rather than a full review, our legal consultation service in Dubai is the quicker route, and audit support for property developers sits alongside the work of our real estate advisory team on project account reporting.
Disclaimer: this article is for general information only and does not constitute legal advice. Readers should obtain advice on their own circumstances before acting on anything set out above.
