UAE’s New Law on Accounting and Auditing

Unveiling the Impact

In this edition of our newsletter, we are excited to announce a development that ushers in a new era, in the financial landscape of the United Arab Emirates. The Federal Law No. 41/2023 on the Regulation of the Accounting and Auditing Profession (the “Law”). This groundbreaking law represents a cornerstone in the UAEs commitment to excellence and transparency providing a framework to strengthen integrity, accountability and professionalism within the accounting and auditing sector.

Law Overview: What Changes and Why It Matters

Regulatory Enhancements and Professional Standards

• The Advent of Mandatory Professional Licenses: The introduction of mandatory Professional Licenses marks a significant elevation in the standards expected of practitioners. This move ensures that only qualified professionals can practice, thereby enhancing the quality of financial services available to businesses like ours.
• The Ministry of Economy’s Pivotal Role: The Ministry of Economy will play a central role in regulating the profession, from issuing licenses to establishing professional standards. This consolidation of responsibilities is expected to streamline processes and enhance compliance.
• Inclusion of Foreign Accounting Entities: Under the mandatory licensing system, whereby individuals and legal entities are required to secure appropriate licenses from the Ministry to engage in any accounting or auditing activities. This licensing not only pertains to domestic entities but also extends to foreign accounting office’s operating within the UAE, underlining the law’s comprehensive reach.
• The Mandate for Professional Integrity under a written Pledge: A commitment to professional integrity is mandated under the new law; upon obtaining their license, practitioners are obligated to submit a written pledge to uphold the highest ethical standards, safeguard client confidentiality, and adhere strictly to the legal and regulatory framework established by the State.
• Amendments, Suspensions, and Re-licensing: Moreover, the law addresses procedures for amending license data, temporary suspensions, cancellations, and the potential for re-licensing post-cancellation, setting clear protocols for maintaining the professional registry. It also outlines the prerequisites for mergers and acquisitions within the industry, insisting on prior Ministry approval, and establishes the need for specific accreditation for those offering audit and review services to public companies and investment funds. This structured approach ensures that the profession maintains a standard of excellence and accountability, crucial for sustaining confidence among stakeholders in the financial services sector.
• Reporting changes to the data of a Professional license: Furthermore, the Law mandates that any changes to the data of a Professional License must be reported to the Ministry, and it describes the circumstances under which a license can be temporarily suspended, such as when a Chartered Accountant faces impediments that prevent them from practicing their profession.
• Obtaining license from the Economic Department: The Law touches on the issuance of Economic Licenses for accounting offices, which is a prerequisite for commencing professional activities. This includes a verification process by the Competent Entity in every Emirate, ensuring that the Ministry’s approval is secured.

Obligations of the Profession Practitioner

• Diligence in Practice: The Chartered Accountant’s Responsibilities: Article 16 mandates that Chartered Accountants must exercise due professional care in their duties, verifying the accuracy of financial data and preparing reports either personally or via supervised personnel. They are also required to practice exclusively through licensed entities, ensuring compliance with all relevant laws and regulations.
• Accounting Offices: Upholding Operational Standards: Accounting Offices must implement robust internal audit systems that adhere to professional ethics and standards. They are responsible for maintaining the integrity of their service delivery, including the application of quality control measures and ongoing staff development.
• Risk Mitigation Measures under professional liability insurance: The Law obligates accounting entities to secure professional liability insurance, further emphasizing the importance of risk management within the profession.
• Prohibitions for Accounting and Auditing Practitioners as Stipulated in Article 17: The Law establishes clear prohibitions for practitioners in the accounting and auditing profession, ensuring the upholding of professional standards and ethical conduct. Key prohibitions include:
• Practicing Without License: Practitioners are prohibited from engaging in professional activities without a valid license. This includes periods when their license is temporarily suspended or if they are under arrest following a court judgment or committee decision.
• Conflict with Professional Conduct: Engaging in trade or any professional activities that contradict the code of professional conduct or the dignity and traditions of the profession is strictly forbidden.
• Independence in Professional Duties: Practitioners must avoid any contracts or activities that could compromise their independence, particularly in roles demanding impartiality.
• Financial Transactions and Interests: The law prohibits practitioners from purchasing securities from, or selling them to, their clients. They must not have any financial transactions or interests that could be seen as conflicts of interest with their clients, including board members, executives, or significant shareholders of client companies.
• Restrictions on Business Relationships and Activities: Practitioners are restricted from being involved in the management or establishment of a firm they have serviced, or from acting as a partner or agent of any key personnel within a client firm. They must not engage in any activities outside the defined scope of their profession.
• Maintaining records for 10 years: The requirement for accounting offices to maintain records for a minimum of ten years reinforces the emphasis on data security and long-term accountability, a critical aspect for businesses relying on accurate financial reporting.

Accountability and Discipline Measures for the Profession Practitioners

• Disciplinary Sanctions (Article 20): Accounting Offices and Chartered Accountants that violate professional duties, standards, or ethics, or commit prohibited acts under the Law, face disciplinary actions. These sanctions can range from written warnings to fines (between AED 10,000 and AED 1,000,000), suspension of professional licenses (for one month to three years), or even license cancellation. Multiple sanctions can be imposed concurrently if necessary.
• Accountability Procedures (Article 21): The Ministry refers violations to the Professional Compliance Committee, which then reviews and decides on appropriate measures. This Committee also informs public prosecution about any criminal offenses involved. Notably, disciplinary actions are independent of any court judgments, ensuring that practitioners can be held accountable even if they withdraw from the profession within five years.
• Professional Compliance Committee (Article 22): This Committee, formed by a Ministerial decision, comprises experts in the field. It evaluates violations, imposes disciplinary sanctions, and can recommend criminal proceedings if necessary. It also provides opinions on offenses by accredited accounting offices before they are referred for prosecution.
• Grievance and Reporting Procedures (Articles 23 and 24): Practitioners can file grievances against disciplinary sanctions, which are reviewed by a specially appointed committee. Decisions of the grievance committee can be appealed in the Court of Appeal. Furthermore, any person aware of a violation of the Law must report it to the Ministry or Public Prosecution, as outlined in the Implementing Regulation.
• Civil Liability (Article 25): Individuals or entities suffering damages due to the activities or services of Chartered Accountants or Accounting Offices have the right to claim civil compensation. This provision underscores the accountability of professionals for their actions and services.
• Penalties for Misconduct (Articles 27 and 28): Severe penalties, including imprisonment and substantial fines, are set for various offences. These include providing false statements to obtain a Professional License, practicing without a license, and breach of duty during suspension. Additionally, penalties cover misconduct like signing false reports, disclosing confidential information, and facilitating financial offences.
• Public Disclosure (Article 29): The Ministry may publicly disclose the outcomes of its control and inspection activities, decisions of committees, and final court judgments against practitioners, enhancing transparency in the profession.
• Legal Proceedings Notification (Article 30): Judicial authorities are required to inform the Ministry about any civil or criminal judgments against accounting practitioners, ensuring that the regulatory body is fully informed of legal outcomes.
• Establishing Professional Standards (Article 33): The Minister is responsible for setting the profession’s standards, including ethics, within six months from the enforcement of the Law, ensuring the profession adheres to high and consistent standards. Preparing for Implementation.

In conclusion, the Law establishes a comprehensive framework to ensure accountability and uphold ethical standards in the accounting and auditing profession. With its stringent disciplinary sanctions, robust procedures for handling violations, and the oversight of the Professional Compliance Committee, the law reinforces a culture of integrity and transparency. The provisions for civil liability, severe penalties for misconduct, and public disclosure mechanisms further safeguard public interest and enhance trust in the profession, marking a significant step forward in regulatory excellence in the UAE.

• Awareness and Training: Businesses and professionals must familiarize themselves with the details of the Law. Training sessions and workshops will be instrumental in ensuring everyone is up to date with the new requirements.
• Reviewing Internal Policies: It’s crucial to review and update internal policies and procedures to align with the new regulations, especially concerning data maintenance, professional conduct, and licensing requirements.
• Proactive Compliance: Staying ahead of the compliance curve will mitigate risks and streamline the transition to the new regulatory environment.

Author’s Bio:

Nikhat Sardar Khan (FCIArb)(RICS)
LinkedIn: https://www.linkedin.com/in/nikhatskhan