How Proper Legal and Financial Audit Structuring Saves Millions
Licences, contracts, employment entitlements and related-party balances, and why the timing of a finding decides its cost.
What a legal and financial audit covers in the UAE, the findings that change a price, and how to scope the exercise so it produces a fix list rather than a report.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
The same defect costs different amounts depending on when it is found. A supply agreement that auto-renews on terms nobody has read since it was signed is a drafting note if it turns up during a planned review, a price adjustment if it turns up in a buyer’s data room, and a claim if it turns up after completion. Legal and financial audit work is worth what it is worth because it moves findings earlier in that sequence, while there is still someone to negotiate with and something to fix.
That is the practical case for auditing a company’s legal and financial position deliberately, rather than waiting for a transaction, a regulator or a dispute to do it involuntarily.
What a legal audit actually examines
A legal audit is a file-by-file reconciliation of what a company says about itself against what its documents show. In the UAE the standard scope covers:
- Corporate standing. Trade licence, activities actually carried on against activities licensed, memorandum and articles as amended, registers of shareholders and directors, and the registrar’s record. Mainland entities are governed by Federal Decree-Law No. 32 of 2021 on Commercial Companies; free zone entities answer to their own registrar; DIFC and ADGM companies answer to their own statutes and courts.
- Contracts. Signing authority, change-of-control clauses, termination and renewal mechanics, exclusivity, liability caps, governing law and the dispute clause. Commercial dealings sit under Federal Decree-Law No. 50 of 2022 on Commercial Transactions, which replaced Federal Law No. 18 of 1993, so older contracts drafted against the previous statute are worth a second reading.
- Employment. Contracts, end-of-service entitlements, and whether the documentation reflects Federal Decree-Law No. 33 of 2021, which replaced Federal Law No. 8 of 1980. Unrecorded entitlements are among the most common quiet liabilities on a UAE balance sheet.
- Regulatory and licensing. Sector permissions, conditions attached to them, and the filings each one requires.
- Data. What personal data the business holds and on what basis, under Federal Decree-Law No. 45 of 2021 on personal data protection — and, for DIFC and ADGM entities, under those jurisdictions’ own data protection regimes rather than the federal one.
- Disputes. Live proceedings, threatened claims, and the correspondence that has not yet become either.
The financial side, and where the two meet
The financial audit tests whether the numbers are supported. The legal audit tests whether the arrangements behind the numbers exist in enforceable form. Neither is much use without the other, and the gaps between them are where money is usually lost.
Three overlaps repay attention. Related-party balances are the first: an intra-group loan shown as an asset needs a loan agreement, a repayment term and evidence the money moved, or it is an assertion. Revenue recognition is the second: where a contract lets the customer terminate, adjust volumes or claim service credits, the accounting treatment has to match what the contract actually permits. Provisions are the third: a legal audit will find claims, indemnities and guarantees that have never reached the accounts, and a financial audit will find provisions whose legal basis nobody can now explain.
Corporate tax has raised the cost of a loose file
Corporate tax under Federal Decree-Law No. 47 of 2022 applies to financial years starting on or after 1 June 2023, at 0% on taxable income up to AED 375,000 and 9% above. VAT has applied at 5% under Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 18 of 2022. The practical effect on audit work is that arrangements which used to be internal bookkeeping now have to stand up as documents: management charges between group companies, cost-sharing, staff seconded across entities, interest on shareholder loans. If the only record is a journal entry, the audit finding is not a tidiness point.
One obligation has been withdrawn and is still being over-serviced. The Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024. Filings remain relevant only for the financial years 2019 to 2022, which is a due diligence question about the past rather than an ongoing compliance task.
Where the money actually is
Findings that change a price or avoid a loss tend to come from a short list. Activities carried on outside the scope of the licence. Contracts signed by someone whose authority cannot be evidenced. Change-of-control clauses that let a key customer walk away on the transaction the seller is trying to complete. Employment entitlements accrued but not provided for. Assets, particularly trade marks and software, registered in a founder’s name rather than the company’s. Group structures where the entity that holds the contracts is not the entity that holds the licence. Each of these is cheap to correct in advance and expensive to argue about later.
A further category is jurisdictional. Where a contract names DIFC or ADGM courts, or names arbitration under Federal Law No. 6 of 2018 as amended, the clause should be read against how the business is actually organised. Dubai Decree No. 34 of 2021 abolished the DIFC-LCIA and moved its caseload to DIAC, and ADCCAC was restructured as arbitrateAD from 2024. An audit should therefore flag every contract that still names an institution under an identity it no longer has, together with the group entity that is party to it. Our legal consultation team is often asked to look at exactly these clauses first, because they determine where every other finding would be litigated.
Scoping the exercise so it finishes
Audits fail by being either too broad to complete or too narrow to be worth reading. A workable scope is set by materiality and by risk: every contract above a stated value, every regulated activity, every entity in the group regardless of size, and a sample below the threshold to test whether the file is generally reliable. Agree in advance who owns each finding, what a remediation plan looks like, and which items must be closed before the next filing or transaction rather than merely logged.
The output should be a list of specific defects with a named owner and a date, not a narrative report. A legal and financial audit that ends in a document nobody acts on has cost money and saved none.
Related services: we advise on legal and financial audit scoping, execution and remediation for UAE mainland, free zone, DIFC and ADGM entities.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
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