Global Compliance

Auditing rules and regulations for companies incorporated in ADGM

Introduction

Abu Dhabi Global Market (ADGM) is a global financial center for national and international financial and non-financial institutions. ADGM was established pursuant to several federal laws and cabinet resolutions such as Federal Law Number 8 of 2004 regarding Financial Free Zones; Federal Decree Number 15 of 2013 regarding establishments of Financial Free Zone in the Emirates of Abu Dhabi. Functioning with active collaboration with other International Financial Centers, global institutions and regulators, ADGM develops and supports member institutions with the regulatory framework, legal jurisdiction and attractive business environment they need for sustainable business growth.The Cabinet Resolution Number 4 of 2013 concerning the Determination of the Location and Area of Abu Dhabi International Market, and Abu Dhabi Law Number 4 of 2013 for Abu Dhabi Global Market. ADGM has promulgated numerous rules and regulations governing companies undertaking financial activities as also, the non-financial activities. The General Rulebook (the Rulebook) issued by Financial Services Regulatory Authority regulates auditing for financial companies, whereas, Companies Regulations 2015, governs auditing principles for non-financial companies. This practical note guides and assists the readers to comprehend the mandatory auditing rules and regulations for companies incorporated in ADGM. As aforementioned, auditing rules for financial companies differs from the companies undertaking non-financial activities. Through this note, our readers would be easily able to discern the auditing principles for relevant company.

What are the laws that govern auditing in ADGM?

In accordance with Article 9 of the ADGM Law, the Board of Directors should appoint one or more independent auditors who will audit the accounts and financial statements of ADGM and all the entities established in the ADGM. Auditor/s is further obliged to submit audit reports to the Board of Directors. Auditor so appointed by Board of Directors will have the authority to inspect the records, books, and data of ADGM and ADGM authorities.

ADGM has recently issued an amendment to the Companies Regulations, 2015 (the Regulations) which has made several changes with regards to rules for mandatory auditing in the companies. Article 447 of the Companies Regulations mandates all the commercial companies to audit their accounts and financial statements in accordance with the procedures laid down by the ADGM authority, considering the type of entity.

What are the conditions laid down by the Regulations in accordance to which companies can seek exemption under article 477?

There are several conditions laid down by the Regulations in accordance to which companies can seek exemption under Article 447 are as under:-

A basic understanding towards Appointing an Auditor/s

• The company shall qualify as a small one.
• In case the company is a subsidiary undertaking.
• If the parent company is established in ADGM;
• If the company is listed on the recognized investment exchange.
• If the company is a financial entity.

  What are the core Rights of an Auditor?

  Certain core rights are vested in an auditor to enable him to carry out his duties without hindrances. Below is a list of rights that an auditor possesses;-

  General Right to obtain Information- he has the right to access the company’s books, accounts at all times. As also, require company’s personnel to provide any information or explanation as he may deem necessary.

  Right to obtain Information Overseas- if the holding company has a subsidiary company which is not incorporated in the ADGM, the auditor can obtain information from personnel of the subsidiary company.

  Right for Resolutions and Meetings- auditor has right to receive any or all communications in relation to any written resolution passed by the company.

  Right to Sign on Audit Report- auditor authorized to input his name and signature on the report. Auditing and the Duties that go along with it

  The auditor, while preparing the report must perform necessary responsibilities including ascertaining whether the company has maintained an adequate record for accounts; whether company’s accounts are in consonance with this Regulation. If the company fails to prepare proper account, the auditor must prepare a report and submit the same to the directors. If the auditor fails to seek necessary information for preparing accounts, he must outline it clearly in his annual auditor report.

  strong>Drafting an Auditor Report

  The auditor should prepare a report for the company’s members to post inspecting the annual accounts of the company during the tenure of his office. The report must include an introduction mentioning the inspected annual accounts and the accounting standard applied for inspection; It should include the state of affairs of the company, in case of the individual balance sheet; It should reflect the Profit and loss account for the fiscal year; Statement mentioning that the accounts prepared in accordance with these Regulations; Shall give reference to any matter, which auditor deem necessary to highlight for members and director’s attention.

  The General Rulebook and its clauses

  a) According to Article 3.3.13 of the Rulebook, an authorized person should maintain an internal audit with an additional responsibility of monitoring the systems and controls in the company.

  b) An authorized person should, at all times, ensure that the auditor has all the relevant information and unlimited access required for inspecting the accounting records.

  c) Every authorized person must proper accounting records for six (6) years from the date to which they relate. As also, the accounts are under the inspection of internal auditor at all reasonable times.

  d) The authorized person must obtain a written confirmation from the auditor that post the end of fiscal year; there is no change in the financial position of the authorized person.

  Clauses pertaining to appointing an Auditor as per the General rulebook.

  a) Each authorized person must notify the regulator for the selection of an auditor in the manner prescribed by the regulator.

  b) The authorized person must, at all times, ensure that the place of the auditor is always filled and ensure that the auditor replacement can take up when the vacancy arises.

  c) The authorized person must comply with the requirement of the regulator, should he request to replace the auditor of the company.

  d) The Authorized Person must consider whether or not there is any personal or other relationship between the employees of the company and the auditor while conducting the audit.

  Clauses pertaining to co-operating and coordinating with Auditors asper the general rulebook

  The authorized person is required to take reasonable steps in order to ensure that the company is performing the following duties:

   

  Crucial criteria’s pertaining to Audit Report asper the general rulebook

  a) All the necessary documents were inspected;

  b) It must specify PRU, PIN, and MIR has been appropriately reconciled with accounts;

  c) The capital resources were calculated as per PRU rules;

  d) The capital resources exceed the capital requirement pursuant to PRU rules;

  e) An authorized person has maintained proper records as per PRU rules.

  Glossary

  • An auditor must be appointed for each fiscal year unless the board of directors is of the opinion that there is no requirement for auditing accounts of the company.
  • The appointment of the auditor must be made before the end of 28 days period beginning with the end of the time allowed providing copies of annual accounts or if earlier, the day on which the copies of yearly statements were sent.
  • The directors are authorized to appoint the auditors any time before first-period f appointing auditors; a period in which company did not have any auditor; fill a casual vacancy in the office of auditor.
  • Members of the company may also appoint the auditor by an ordinary resolution if the directors of the company failed to select the auditor during the period.
  • If during the set period, the company failed to appoint the auditor according to Article 457 of the Regulation, the registrar of the company can nominate the auditor in order to fill the vacancy.
    • Providing adequate information to the auditor at all times;
    • Provide the auditor the right of access at all given point in time to all relevant records and accounts;
    • Allowing auditor to makes copies of documents;
    • Allow auditor to perform his task independently;
    • Report to the auditor any matter which can have a significant impact on the position of the company.
    • The auditor must prepare a financial statement on authorized person’s statement of accounts pursuant to international standards of auditing;
    • The authorized person should submit the reports within four (4) months of the fiscal year-end.
    • The report should include the following vital particulars:
    • Financial Free Zone Law: Federal Law Number 8 of 2004 on Financial Free Zone
    • ADGM Law: Abu Dhabi Law Number 4 of 2013 for Abu Dhabi Global Market.
    • Financial Company: the company established in ADGM undertaking financial activities.
    • Non-Financial Company: the company incorporated in ADGM undertaking non-financial activities.
    • Financial Services: activities and services carried out by the licensed Financial ADGM companies.
    • Board of Directors: Board of Directors of Global Market or unless the context otherwise suggests.
    • FSRA: Financial Services Regulatory Authority of ADGM
    • Authorized Person: a person who is allowed to conduct financial activities in accordance with General Rulebook of FSRA.
    • Federal Decree Number 15 of 2013 regarding establishments of Financial Free Zone in the Emirates of Abu Dhabi;
    • Cabinet Resolution Number 4 of 2013 concerning the Determination of the Location and Area of Abu Dhabi International Market.