Financial Data
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Financial Ratio Analysis Guide for European Auditors — free PDF
ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.
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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.
ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.
ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.
Financial Ratio Analysis in UAE — ISA 520 / ISA 570
Financial ratio analysis for audits in the United Arab Emirates is governed by ISA 520 and ISA 570 as adopted by the Securities and Commodities Authority (SCA) and applicable across the UAE's various regulatory jurisdictions. The UAE's audit environment is shaped by the coexistence of multiple regulatory frameworks: the SCA regulates listed companies on the Abu Dhabi Securities Exchange and the Dubai Financial Market, while the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) operate as independent financial free zones with their own regulatory authorities. UAE auditors must navigate a financial reporting landscape where IFRS is mandated for listed companies and widely adopted by other entities, though some businesses prepare accounts under local accounting requirements. The UAE's economy, characterised by its reliance on hydrocarbons, real estate, tourism, and financial services, creates industry-specific ratio analysis considerations that auditors must understand and incorporate into their analytical procedures.
Regulatory Context — SCA / IAASB
The SCA has progressively strengthened its oversight of audit quality in the UAE, including the examination of analytical procedures performed by auditors of listed companies. While the UAE does not have the same depth of published inspection findings as some mature regulatory jurisdictions, the SCA has communicated expectations to audit firms regarding the quality of analytical procedures. The UAE's adoption of international standards means that ISA 520 and ISA 570 apply in full, and auditors are expected to meet the same quality standards as in other jurisdictions adopting ISA. The DIFC and ADGM have their own regulatory bodies, the Dubai Financial Services Authority (DFSA) and the Financial Services Regulatory Authority (FSRA) respectively, which conduct inspections of auditors registered in their jurisdictions. The Ministry of Economy has also played a role in the regulation of auditors practising outside the free zones, including the licensing and oversight of audit firms through Federal Decree-Law No. 12 of 2014 on the Regulation of the Auditing Profession.
Practical Guidance for UAE
UAE auditors face specific challenges in obtaining industry benchmark data for ratio analysis. While the UAE does not have a centralised public database comparable to those in European jurisdictions, several data sources are available. The UAE Central Bank publishes financial stability reports and banking sector statistics. The Federal Competitiveness and Statistics Centre publishes economic data including sectoral GDP and trade statistics. The DIFC and ADGM publish data relevant to entities operating within their respective free zones. Commercial data providers such as Dun & Bradstreet Middle East and Moody's offer company-level financial data for UAE entities. When performing ratio analysis, auditors should consider the specific characteristics of the UAE business environment, including the absence of corporate income tax historically (now introduced as federal corporate tax from June 2023), the impact of free zone incentives on entity structures and financial ratios, the significance of related party transactions within family-owned conglomerates, and the influence of government-related entities on industry benchmarks.
Audit Expectations
UAE auditors are expected to apply ISA 520 and ISA 570 with the same rigour as in any jurisdiction adopting international standards. This includes developing precise expectations for financial ratios using reliable data, setting investigation thresholds linked to materiality, systematically investigating variances, and documenting the entire analytical procedure. For going concern assessments, auditors should evaluate financial ratio indicators of distress in the context of the UAE's specific economic and legal environment. The SCA has indicated that it expects auditors of listed companies to perform robust going concern assessments that consider both financial indicators and the entity's operating environment. Auditors should be alert to going concern indicators specific to the UAE, including dependency on government contracts or subsidies, concentration of revenue in cyclical sectors such as real estate and hospitality, and the impact of oil price volatility on entities directly or indirectly dependent on hydrocarbon revenues.
UAE-Specific Considerations
The UAE's insolvency framework has undergone significant modernisation with the enactment of Federal Decree-Law No. 9 of 2016 on Bankruptcy (subsequently amended), which replaced the limited insolvency provisions of the Commercial Transactions Law. The bankruptcy law provides for preventive composition (allowing entities to restructure debts while continuing operations), restructuring proceedings, and liquidation. The DIFC has its own insolvency regime under DIFC Law No. 1 of 2019, and the ADGM follows the ADGM Insolvency Regulations 2015. For going concern ratio analysis, auditors should evaluate liquidity and solvency ratios in the context of these frameworks, considering the availability of restructuring mechanisms that may support the going concern basis for entities in financial distress. The introduction of federal corporate tax at nine percent for taxable income exceeding AED 375,000 from financial years starting on or after 1 June 2023 represents a significant change to the UAE business environment, affecting post-tax profitability ratios and requiring auditors to establish new baselines for ratio analysis. The UAE's VAT system, introduced in January 2018 at five percent, also affects working capital ratios and should be considered in ratio trend analysis for periods spanning the introduction.
Common Inspection Findings
Ratio expectations were not based on external benchmark data, with auditors relying solely on prior-year comparisons in a rapidly evolving economic environment.
The impact of the UAE corporate tax introduction on post-tax profitability ratios was not considered in period-over-period ratio analysis.
Going concern ratio analysis did not reference the specific insolvency provisions of Federal Decree-Law No. 9 of 2016 on Bankruptcy.
Related party transaction volumes were not considered when evaluating profitability and efficiency ratios for entities within conglomerate structures.
Industry-specific factors such as oil price sensitivity and real estate market cycles were not reflected in the ratio expectations for entities in those sectors.
The distinction between mainland and free zone entity financial characteristics was not considered when selecting benchmark data for ratio comparison.