There are different rules and legislations present in the UAE for different companies. Factors such as Company License, Company Structure etc. decide the various standards of the company. Therefore, the auditing standards for various companies are different as well. Companies need to keep all requirements in check in order to not face trials and penalties in their future.
Private companies have different audit standards compared to public companies. These standards are less strict comparatively and that is due to disclosure requirements. They have fewer complex regulations as they must deal with a lot already and can’t handle the added burden of audits.
GAAP (Generally Accepted Accounting Principles) is necessary
GAAP is a must for companies in public and Private sector and it needs to be fulfilled.
It is to be kept in mind by the companies that they do not have to avoid the gap no matter whether they come in the public sector or the private sector. In both the cases, GAAP is a must and it should be fulfilled properly as well. Every company must present the GAAP-compliant audited financial statements. Private companies need to comply to GAAP to satisfy lenders, insurance companies, other shareholders etc. Private companies often do not issue audited financial statements because they must reduce their taxes as much as they can. Tax Returns and unaudited statements are prepared for this reason.
The Financial Accounting Standards Board (FASB) issues GAAP standards for the public. They were especially created for the private and non-profit organizations. The main reason behind this was to ensure that companies follow GAAP standards, but it ended up being complex and economically costly for smaller companies. The main reason behind this was to make sure that the companies may follow the standards of GAAP, but it came out to be more complex and of more economic costs for the companies especially the smaller companies. Therefore, the Private Company Council (PCC) was created so that areas where GAAP is irrelevant for private companies, the changes can be made to that area.
This was created for the companies which are not too big or of medium sized so that they can use this tool in case they are not subjected to GAAP. This makes it easier for smaller companies to process their accounting work efficiently and gradually. It’s a lot like GAAP but the hot-button issues have been removed.
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The financial statements of small companies do not conform with GAAP; therefore, they prepare financial statements in cash or other cash modified basis. Some companies even disclose the financial statements in ways that do not comply with GAAP. companies even disclose the financial statements in different ways which surely do not comply with GAAP. This is less expensive, and they are not viewed as a burden along with allowing few disclosures due to the simplicity.
GAAP is more complex for the small or private businesses due to the employee stock option obligation. Companies had to report the employee stock and calculating the intrinsic value (the difference b/w the strike price of the stock and the market price of the stock) of the employee is quite complex. Most private companies do not have such information available with them as they have no idea about the stock rate of the market. The companies with outstanding warrants will then have to hire the experts for calculation of such values.
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