Analytical Review Tool — UAE

Analytical Review Under ISA 520 in the United Arab Emirates

The United Arab Emirates applies ISA 520 Analytical Procedures as part of the International Standards on Auditing framework adopted for use in the UAE. The UAE has rapidly modernised its audit regulatory framework in recent years, driven by the Securities and Commodities Authority (SCA), the Abu Dhabi Accountability Authority (ADAA), and the regulatory bodies within the financial free zones, including the Dubai Financial Services Authority (DFSA) in the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM). The UAE Audit Profession Law (Federal Law No. 12 of 2014 on the Regulation of the Auditing Profession, as amended) governs the licensing and regulation of auditors practicing in the UAE, and the Ministry of Economy (MoE) is responsible for licensing audit firms. ISA 520 applies to all statutory and regulatory audit engagements in the UAE, requiring auditors to design and perform analytical procedures as substantive procedures where appropriate, and to perform analytical procedures near the end of the audit to form an overall conclusion. The UAE's mandatory adoption of IFRS for all entities creates a uniform financial reporting base that simplifies certain aspects of analytical procedures, as auditors do not need to contend with multiple financial reporting frameworks within the UAE jurisdiction. However, the diverse economic landscape of the UAE — encompassing oil and gas, real estate development, construction, trading, hospitality, financial services, and free zone operations — creates a wide range of entity-specific analytical considerations that auditors must address.

SCA and ADAA Regulatory Expectations

The SCA oversees the financial reporting and audit quality of entities listed on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM). The SCA has progressively enhanced its oversight of audit quality, including the review of analytical procedures as part of its financial reporting supervision programme. The SCA has issued regulations requiring entities to file audited IFRS financial statements within prescribed timeframes and has examined the quality of audits performed on listed entities. ADAA, the Abu Dhabi Accountability Authority, exercises audit oversight of government entities and government-related entities in Abu Dhabi, applying ISAs in its work and expecting external auditors of government-related entities to comply with ISAs to a high standard. The DFSA and FSRA, as regulators of the DIFC and ADGM financial free zones respectively, impose additional audit quality expectations on firms operating within their jurisdictions. Regulatory expectations regarding analytical procedures focus on the rigour with which auditors develop expectations, the independence and reliability of data used, the thoroughness of investigation into significant differences, and the quality of documentation. The growing sophistication of UAE regulatory oversight means that auditors must expect increasing scrutiny of their analytical procedures methodology and execution. The SCA has issued circulars requiring audit firms to demonstrate adequate quality control measures, and the ADAA's expectations for government entity audits create a high standard that influences practice across the broader UAE audit market.

IFRS Adoption and Analytical Review Implications

The UAE's mandatory adoption of IFRS for virtually all entities creates a consistent financial reporting framework that has significant implications for analytical procedures. Unlike jurisdictions with multiple financial reporting frameworks, UAE auditors can develop analytical methodologies based on a single set of accounting standards, enabling more consistent benchmarking and trend analysis across entities and sectors. However, the transition from previous reporting practices to full IFRS compliance, which occurred at different times for different entity types and sectors, means that historical data may not always be directly comparable for trend analysis. The recent introduction of new IFRS standards — including IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, and IFRS 16 Leases — has affected financial statement presentation and measurement in ways that impact analytical procedures. Auditors must understand the impact of these standards on the specific entity's financial data when developing expectations and interpreting analytical results. The introduction of UAE Corporate Tax under Federal Decree-Law No. 47 of 2022, effective for financial years beginning on or after 1 June 2023, has created new financial statement line items and relationships that auditors must factor into their analytical procedures, including current and deferred tax balances, effective tax rates, and the impact of tax on profitability ratios. For entities in qualifying free zones that benefit from a zero percent tax rate on qualifying income, the interaction between tax-exempt and taxable activities affects the analytical profile of the entity.

Free Zone and Industry-Specific Considerations

The UAE's extensive network of free zones, including JAFZA, DAFZA, DMCC, ADGM, DIFC, and numerous others, hosts thousands of entities with diverse business models that create specific analytical review considerations. Free zone entities often operate as trading intermediaries, regional holding companies, or service providers, with financial profiles that may differ significantly from mainland entities. Auditors must understand the specific free zone regulations, licensing conditions, and operational models when developing analytical expectations. For the real estate development sector, which is a major component of the UAE economy, analytical procedures must consider the cyclical nature of the property market, the impact of off-plan sales regulations (including RERA escrow requirements in Dubai), and the specific revenue recognition patterns under IFRS 15 for development projects. For oil and gas entities, analytical expectations should reflect commodity price movements, production sharing arrangements, and the impact of OPEC production quotas on revenue and profitability. The hospitality and tourism sector requires consideration of occupancy rates, average daily rates, and seasonal patterns that drive revenue and profitability trends. The introduction of VAT at five percent in January 2018 created a structural change in cost and pricing dynamics that affects comparative analytical procedures for periods spanning the pre- and post-VAT eras. Auditors should also consider the impact of the UAE's economic diversification strategy (UAE Vision 2031) on entity-level financial trends, as government investment programmes and regulatory changes may create sector-specific growth or contraction patterns that should be reflected in analytical expectations.

Common Inspection Findings — SCA (Securities and Commodities Authority) / ADAA (Abu Dhabi Accountability Authority)

The following are typical findings from SCA (Securities and Commodities Authority) / ADAA (Abu Dhabi Accountability Authority) inspections relating to analytical procedures:

Analytical expectations developed based on general entity knowledge without incorporating independent data sources or entity-specific operational metrics

Insufficient investigation of significant differences between expected and recorded amounts — management explanations accepted without corroborating procedures

Documentation of analytical procedures does not clearly demonstrate the methodology, data sources, threshold, and evaluation process

Limited consideration of the impact of new IFRS standards and UAE corporate tax on analytical expectations and comparative analysis

Over-reliance on prior-year financial data for expectation development without adjusting for known changes in the entity's operations, regulatory environment, or economic conditions