The global economic crisis has placed greater importance on the need for strong corporate governance, internal auditing and risk management procedures. Corporate governance is a key factor in sustaining economic growth, and as conditions change, so too must risk management priorities. Thus, internal auditors should consider, firstly, whether they are aligned with the strategy and direction of the company. By focusing on the firm’s long-term strategy, understanding the impact of short-term initiatives on this strategy, and aligning themselves accordingly, internal auditors will be better able to address risk management activities throughout the organisation. Risk may drive strategic decisions, be a cause of uncertainty or simply be embedded within an organisation. An enterprise-wide approach to risk management enables consideration of the potential impact of all types of risks on processes and services. For all firms, there is a need to understand the risks being taken when seeking to achieve objectives and attain the desired level of reward. Organisations must understand the overall level of risk embedded within their activities.
The reform of insolvency and creditor-debtor regimes can improve economic efficiency and strengthen market resilience in times of crisis. Reforming insolvency laws to provide a clearer and more transparent means for a company to reorganise would benefit the national economy by reducing the costs of capital for UAE companies over the medium to long term. A bankruptcy law is already in place. However, it has not been tested by any company, leading to legal uncertainty about how it could be applied in practice. Best practice corporate governance provisions can play an important role in enhancing the confidence of investors.
The Commercial Companies Laws do not currently specify any accounting standards framework for the preparation of financial statements. The Central Bank of the UAE has made it mandatory for banks to prepare their accounts as per International Financial Reporting Standards (IFRS). Listed companies prepare their accounts as per IFRS. In the absence of any specific standards framework in the UAE, most practising firms apply IFRS in the preparation of financial statements, and apply International Standards of Auditing while auditing financial statements. The Real Estate Regulatory Agency (RERA) of the Land Department also recommends that the financial statements of buildings owners’ associations should be prepared as per IFRS. Dubai's Jointly Owned Property Law (Law No. 27 of 2007) establishes a framework for the development and sub-division of developments into such units and common parts, with the sub-division known as “jointly owned property”.
Each development in Dubai comprises of not only a number of units, but also common use areas designed for the unit owners. The law states that an owners’ association (OA) being made up of all the unit owners is responsible for not only the management but also the operation and maintenance of the common areas. For each development, the developer must file a “jointly owned property declaration” with the Land Department. RERA has made it mandatory to submit the annual audited financial statements of OAs.
Under the Strata Law, OAs must appoint an auditor at the first AGM. At the end of the financial year, the auditor will evaluate the annual financial statements, and can give guidance to the board during the initial transition phase. The Strata Law accounts for this and provides OAs with the power to hold a lien on the property of those who have not paid their respective charges. If homeowners are able to successfully navigate the numerous financial and legal implications of the Strata Law, they will be able to take greater control over the management of their properties. The OA management is also responsible for the collection of service charges from owners. The Strata Law does not allow for non-payments of service charges to be written off. An issue, therefore, may arise if it is difficult to find an owner for non-payment.
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