ICFR and the Ever-Evolving UAE Regulatory Landscape

HLB HAMT Team

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HLB HAMT - Accounting Firm in UAE

Phone:- +971 4 327 7775
Mobile:- +971 55 807 4568
WhatsApp:- +971 56 219 1607
Email:- dubai@hlbhamt.com

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    What is ICFR and Why Does it Matter in the UAE?

    ICFR refers to a comprehensive framework encompassing policies, procedures, and controls designed to ensure the accuracy and completeness of a company’s financial statements. Think of it as a robust system of safeguards that minimizes the risk of errors or misstatements.

    The UAE boasts a thriving and interconnected economy, attracting significant foreign investment. A strong ICFR framework demonstrates a company’s commitment to international best practices and financial transparency. This fosters investor confidence, facilitates access to capital, and strengthens the company’s reputation.

    UAE Laws Mandating ICFR Compliance

    Several UAE regulations emphasize the importance of ICFR. Key regulations include:

    • The UAE Commercial Companies Law (2022): This law mandates all companies to maintain proper accounting records and prepare financial statements that accurately reflect their financial position and performance. This remains the foundation for accurate financial reporting for all businesses in the UAE.
    • The Securities and Commodities Authority (SCA): The SCA, the UAE’s financial market regulator, has specific requirements for listed companies. The SCA’s Governance Code (latest version as of May 31, 2024) mandates listed companies to comply with International Financial Reporting Standards (IFRS) and maintain effective internal controls over financial reporting.

    Additional Considerations for Specific Entities:

    • Abu Dhabi Accountability Authority (ADAA): For government entities in Abu Dhabi (directly or with more than 25% government capital), ADAA Law Number 1 of 2017 (be aware, a newer regulation might be in place) remains in effect and mandates a strong internal control framework with external auditor evaluation. It’s crucial to check for any updates or superseding regulations issued by ADAA after 2017 (e.g., ADAA resolution no.88 of 2021, if applicable).

    Recent Regulatory Developments:

    • SCA Decision No.2/R.M. of 2024: Be sure to research and understand the specific requirements outlined in this recent SCA decision (as of May 31, 2024) as it might impact ICFR requirements for listed companies.
    • Insurance Authority Circular No. 21 of 2019: While not directly mandating ICFR, this circular issued by the Insurance Authority might indirectly influence internal control practices for insurance companies in the UAE. It’s advisable to review this circular to ensure your ICFR framework aligns with any relevant insurance-specific regulations.
    • Federal Decree-Law No. 56 of 2023: This recent decree law might introduce new requirements or considerations for ICFR compliance. A thorough review of this decree is recommended to ensure your company adheres to all relevant regulations.

    The ICFR Implementation Journey

    While the specifics may vary depending on your company’s existing internal controls and applicable regulations, the general ICFR implementation journey typically involves these steps:

    1. Understanding Regulations and Framework Adoption: Identify the relevant regulations and select an ICFR framework aligned with best practices.
    2. Process Mapping and Documentation: Document all financial reporting processes, encompassing business and support functions, information technology controls, and entity-level risk management controls.
    3. Risk and Control Matrix Development: Develop a detailed matrix that identifies risks associated with each process and outlines the corresponding controls in place to mitigate those risks.
    4. Control Testing: Evaluate the design and effectiveness of the implemented controls through ongoing testing procedures.
    5. Gap Analysis and Improvement Roadmap: Identify any gaps between the current framework and regulatory requirements or industry best practices. Develop a roadmap to address these gaps and continuously improve the ICFR framework.
    6. Regulatory Reporting: Prepare and submit reports in accordance with the specific requirements of the relevant regulatory bodies.

    Beyond the Core: The Evolving Regulatory Landscape

    The UAE’s regulatory landscape is constantly evolving, and keeping up with the latest developments is crucial for companies operating in the region. Here are some recent trends and potential future directions:

    • Focus on Technology: Regulatory bodies are increasingly emphasizing the role of technology in strengthening internal controls. This could include the use of data analytics, automation tools, and blockchain for secure record keeping.
    • Cybersecurity Concerns: Growing awareness of cyber threats could lead to stricter regulations on cybersecurity controls within ICFR frameworks. Companies may need to implement robust measures to protect their financial data from cyberattacks.
    • Sustainability Reporting: The UAE is increasingly promoting sustainable business practices. Regulations may emerge that require companies to integrate environmental, social, and governance (ESG) factors into their reporting, potentially impacting ICFR requirements.

    Internal Audit’s Role in the ICFR Journey

    The recent regulatory developments, including SCA Decision No. 2/R.M. of 2024 and Federal Decree-Law No. 56 of 2023, highlight the dynamic nature of ICFR requirements. HLB HAMT’s internal audit team is dedicated to staying abreast of these changes and ensuring our company remains compliant.

    Here’s how we contribute to a robust ICFR framework:

    • Understanding Regulatory Requirements: We work collaboratively across the organization to ensure a comprehensive understanding of the applicable regulatory landscape.
    • Framework Implementation and Testing: We assist in implementing and testing the effectiveness of the ICFR framework, ensuring it aligns with industry best practices.
    • Identifying and Addressing Gaps: We continuously evaluate the framework, identifying areas for improvement and recommending appropriate actions.

    Conclusion

    A well-designed and implemented ICFR framework is not just a regulatory requirement; it’s an investment in transparency and trust. By working collaboratively across the organization and with our Internal Audit team, your company can navigate the evolving regulatory landscape and achieve a robust ICFR framework that fosters investor confidence and strengthens your financial reporting practices.

    HLB HAMT to Assist!

    Navigating the complexities of ICFR can be challenging, but you don’t have to do it alone. HLB HAMT is here to assist your company every step of the way. Our experienced team of internal auditors is well-versed in the latest regulatory requirements and best practices, ensuring that your ICFR framework is both compliant and effective. Let us help you build a robust system of internal controls that enhances transparency, fosters investor confidence, and strengthens your financial reporting practices.

    For any related assistance or queries, call our experts at +971 4 327 7775 or email dubai@hlbhamt.com to schedule a consultation.

     

     

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