Accounting is a part of every business. For example, it helps companies track their expenses to ensure efficient financial management. In addition, the gradual deployment of the accounting cycle enables companies to provide potential stakeholder investors with better insights and quantitative information on state auditors’ monetary assets. To this end, people in business across the UAE must ensure compliance with global accounting standards to improve the clarity and accuracy of financial records.
However, almost all authorities in the United Arab Emirates require you to provide financial statements every time you renew your license. For this, companies need to consider auditing to generate performance reports for their companies. In addition, when you need a loan to meet your requirements with the company, the bank will look for a copy of your company’s processed financial accounts. However, suppliers in the UAE will also require financial account details to help you access credit facilities.
Definition and types of Accounting standards
Accounting standards are the principles established for preparing financial reports. Rules are mainly used to record how transactions are performed. It provides creditors, lenders, and investors with leverage and financial information.
Basic accounting is much needed for companies operating in UAE or anywhere. Accountants must update financial records constantly; otherwise, there are too many accounts to handle. In addition, companies must install accounting software to handle all financial transactions in and out of the company. They manage regularly process receipts, payments, refunds, and all dues to maintain the company’s financial health.
Many in the UAE need clarification on recent revisions to the design and format of financial records management. In addition, some accounting standards are used internationally.
Different Types of Accounting Procedures
Many in the UAE need clarification on recent revisions to the design and format of financial records management. Some accounting standards are used internationally. Let’s understand the recommended standards for managing journals and creating financial statements.
Therefore, companies employ different formats and rules to manage their accounting records. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) are the most widely used bookkeeping principles.
International Financial Reporting Standards (IFRS)
The International Accounting Standards Board, known as IASB, has announced International Financial Reporting Standards (IFRS) as the international accounting standard for accomplishing financial management tasks and activities. It processes certain types of events and transactions for financial reporting purposes. International Financial Reporting Standards (IFRS) explain how accountants work comprehensively to maintain records. The principles aim to ensure a common language understood by people in business in UAE and accountancy firms worldwide.
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles include all the basic principles and rules that deal with corporate accounting management’s accounting complexities and regularities. Furthermore, Generally Accepted Accounting Principles are the basis for accounting methods approved and used by the Financial Accounting Standards Board (FASB). The publication of GAAP requires extensive accounting services as it is used to manage balance sheets, revenue recognition, joint estimates for different classifications of items, and public disclosures.
IFRS is a mandatory accounting standard in UAE
The Securities and Commodities Authority (SCA) requires these companies to comply with the IFRS (International Financial Reporting Standards) stipulated by the Central Bank of the UAE. Therefore, all companies legally listed on the Abu Dhabi Securities Exchange since 2003 should file IFRS financial statements.
While it is not binding on businesses not listed on the exchanges mentioned above, it is recommended that IFRS be implemented as soon as possible to avoid complications and ensure transparency. However, sometimes business people need clarification when deciding what to consider for their financial regulatory compliance.
Differences between IFRS and UAE GAAP
All companies follow accounting standards well. The main goal is to help you understand the different and recommended international standards for managing business accounts to comply with UAE regulations. There are a variety of accounting practices in the UAE. Each has its benefits. It can take time to choose what is best for your company. All business looks great when financial planning is at its best.
Principle-based versus rule-based
IFRS is principles-based, providing a framework of guidelines that companies should follow while reporting their financial statements. In addition, IFRS focuses on the substance of transactions and events, not just their legal form.
On the other hand, UAE GAAP is rules-based, which means it provides specific rules and procedures that companies must follow in preparing their financial statements. It mainly looks forward to the legal form of transactions rather than their substance.
IFRS broadly defines assets, allowing companies to recognize trademarks, goodwill, and patents. However, UAE GAAP has a stricter definition of assets, limited to recognizing tangible assets such as land, buildings, and equipment.
There are notable differences in the treatment of inventories between GAAP and IFRS, and this is the most striking specific difference. IFRS regulations prohibit the use of last-in-first-out (LIFO) inventory accounting techniques. GAAP regulations allow LIFO. Both systems support the weighted average cost and first-in-first-out (FIFO) methods. GAAP does not allow inventory write-offs; however, they are permitted under certain circumstances under IFRS.
IFRS and UAE GAAP have different revenue recognition rules. IFRS focuses on transferring risk and reward, while UAE GAAP focuses on transferring ownership. This difference could result in some variation in the revenue recognition timing and impact margins.
IFRS requires companies to recognize most leases on their balance sheet, regardless of the lease term or the nature of the asset. UAE GAAP is more tolerant, allowing companies to differentiate some leases as operating leases, which are not recognized on the balance sheet.
Companies operating in UAE must understand the differences between IFRS and UAE GAAP. Companies must carefully evaluate their options and choose the accounting standard that best suits their business needs and goals. Top-ranked auditing firms in the UAE provide the best services and accounts-related advice to ensure the accuracy of record keeping and compliance of your business with standards.
The Importance of Using Different Accounting Practices
Accountants in the UAE perform various Golden Rules Of Accounting practices for different business purposes. A single accounting practice cannot meet industry standards and compliance requirements. Hence, other accounting practices are introduced to meet specific needs. The most common reasons for adopting other accounting practices are,
Compliance with International Accounting Standards
The UAE is an important global business center, so businesses are obliged to comply with International Accounting Standards. Therefore, accounting practices must be adjusted accordingly.
Meet the requirements of specific industries.
Different industries have unique accounting requirements, and accounting practice should be based on this. For example, a retail store will have sales audits and accounting practices not required in other industries.
Adapt to regulation changes.
Developing countries’ Tax and accounting regulations are always changing. Therefore, you need to create different accounting practices to keep up with the regulatory changes constantly country.
Enterprise size and its finacreateanagement
According to the enterprise size, the accounting should be changed according to the industry. If it has the financial structure of a cross-border transaction, it should also consider changes in accounting practices.
Improved financial reporting
Companies can use different accounting practices to improve their financial reporting capabilities and provide stakeholders with more detailed and accurate information.
Best accounting practices for UAE companies depend on various factors, including the type or size and type of the company, its financial reporting needs, and any legal or regulatory requirements that must be met. Therefore, companies should consult an experienced accountant to determine which method best suits their needs.
Outsourcing a firm’s accounting in the UAE is the best way to decrease costs and take advantage of professional services. Understanding the different accounting practices in the UAE will help people in business choose the most suitable ones for their needs.