ADGM’s new Auditors’ Framework was enacted on 25 August 2021 and came into force on 1 December 2021. The Framework provides enhanced powers for the Registration Authority (RA) in several areas. Rules 8, 11, 16 and Parts 9 and 10 of the Companies Regulations (Auditors) Rules 2021 cover these enhanced powers of the RA in detail.
We recommend firms and principals review the new framework found here: Commercial Legislation - Rulebook.
Some of the key changes the new regime brings in are highlighted below.
- Custom registration requirements
The international and supportive business environment ADGM offers to entities is a key reason for the growth of the financial centre. The size, nature and complexity of these entities has meant that not all audit firms are likely to have the appropriate experience and know-how to carry out and deliver high-quality audits for these entities.
As part of eligibility checks during the registration process, the RA will ensure applicant audit firms meet the additional criteria required from firms who wish to apply for permits, in order to conduct audits of more complex firms, e.g., financial services firms.
- Targeted controls to enhance audit quality
The new framework contains specific requirements to ensure ADGM registered audit firms comply with the International Standards on Auditing, as well as ethical and independence rules.
In line with international standards, there are restrictions on non-audit services provided. The RA will ensure its registered audit firms are placing ethics at the forefront of all activities, with particular focus on conflicts, independence, and fee dependency amongst other things.
- The role of the Responsible Individual (RI)
Ultimately responsibility for the quality of the audit lies with the engagement principal. ADGM entities should have access to audit firms that are suitable for the size, sector and complexity of their organisation.
As part of eligibility checks to register RIs, the RA will ensure audit principals have sufficient experience and qualifications relevant to the audits the RI is leading. The RA will require evidence of previous experience in the sector and record of continuing professional development to demonstrate eligibility.
- Role and powers of the RA
The new framework provides the RA, as the Competent Authority in ADGM, further responsibilities and powers. International equivalence is at the heart of these enhancements.
Audit quality monitoring will be an integral part of the RA’s oversight function. In addition, the RA will have the power to sanction audit firms and principals where necessary.
The framework includes comprehensive monitoring and enforcement provisions, with investigation and sanctioning powers. These are in line with international standards as well as IOSCO’s Enhanced Multilateral Memorandum of Understanding requirements.
The RA is committed to conduct itself in a transparent, objective and proportionate risk-based approach to supervision and monitoring.
- Fee structure
A new fee structure is in place that is commensurate to the size and nature of ADGM audit firms. The new structure ensures simplicity and proportionality for our audit firms and moves away from the flat structure under the old regime. The fee basis allows ADGM to be competitive, comparable to other similar jurisdictions and use the fees to support its oversight function.
What to expect if you are an existing ADGM Recognised Auditor
If your firm is currently on the register of Recognised Auditors, you can take advantage of the transition period where transitional arrangements will apply to ensure there is no gap in the audit services offered to ADGM entities.
Re-registration is required from all Recognised Auditors who wish to carry on performing auditing activities within ADGM. The transition period means firms need to re-register by their registration renewal date or 12 months from the effective date of the new framework (1 December 2021); whichever is earlier.
Planning ahead for re-registration
To re-register under the new framework, Recognised Auditors will need to follow the steps noted here: New auditors.
It is important that Recognised Auditors start planning now and use the transition period to their advantage in order to ensure continuity of audit services to their clients.
The re-registration process will include eligibility checks for both firms and principals, including Responsible Individuals. As part your application you will be required to submit evidence to show how you meet the eligibility criteria.
A key part of our eligibility check will be assessing the adequacy of professional indemnity insurance at the firm level and appropriate qualifications and experience for audit principals. Collating the supporting documentation to submit as part of your application can take time, especially for firms that are part of international networks. Planning ahead will allow you to gather all relevant documentation in time before re-registration.
Please take the time to understand the requirements by reviewing the legal framework governing audit firms and principals here: Commercial Rules & Regulations (Auditors).
Please note the registration application process involves a thorough review that is likely to take time to finalise and approve. If an application is deficient, this is likely to delay the registration process. Therefore, we strongly recommend you apply for re-registration under the new framework a minimum of one month prior to the anniversary of your existing registration to ensure there is no gap in your registered status.
My firm is an existing Recognised Auditor in ADGM. How do I apply for my firm to become a Registered Auditor in ADGM?
If you are an existing Recognised Auditor, there is a transition period to re-register as a Registered Auditor under the new Auditor's Framework (see FAQ on transition period). There are strict criteria for firms to meet, including eligibility, compliance with relevant standards and principles, as well as professional indemnity insurance. You can find out more about the criteria here (Companies Regulations (Auditors) Rules 2021 - Part 3).
- If you believe you meet the criteria, you then must:
- -complete and submit the application form to become Registered Auditor; and
- -pay the appropriate fees.
The application form to become a Registered Auditor can be obtained from the Registration Authority (RA) by emailing email@example.com.
The Registration Authority will review your application and get in touch with any queries necessary to process the registration application.
Note: an ADGM Registered Auditor requires at least one Registered Audit Principal. Hence please also submit completed audit principal registration forms with the application to register your audit firm.
The new legal framework eligibility criteria for Registered Audit Principals requires the individual to hold a recognised professional qualification. What is required to demonstrate eligibility?
ADGM's Companies Regulations (Auditors) Rules 2021 criteria for registering audit principals includes the requirement for the individual to hold a Recognised Professional Qualification (RPQ) recognised by the Registrar.
An RPQ is a qualification conferred by a Recognised Professional Body (RPB). An RPB is a full member of IFAC.
In addition to holding an RPQ, the individual must also, amongst other requirements, have at least 5 years of relevant post qualification audit experience in the past 7 years, including 2 years of experience in a managerial role supervising and finalising audits of the type being applied for.
For example, if the individual intends to audit companies in the Real Estate sector, their audit experience must demonstrate this. If they are applying for the Public Audit Permit and FI Audit Permit, their post qualification experience must adequately show public interest entity and Financial Institution experience.
Please contact the Registration Authority (RA) to obtain the application form to become a Registered Audit Principal by emailing firstname.lastname@example.org.
I am a Responsible Individual under ADGM's 2015 rules. What documents do I need to submit as part of my application to become a Registered Audit Principal in ADGM?
You must be an individual and satisfy the eligibility criteria set out in the rules to become a Registered Audit Principal. If you meet the criteria, you must complete the application form and pay the relevant fees. The Registration Authority will review your application and get in touch if any additional information is needed.
- Documents to submit include:
- - Application form to become a Registered Audit Principal;
- - Fee payment receipt;
- - Attested relevant qualification certificates;
- - Passport copy and valid residence visa; and
- - Any other documents (attested where appropriate) to support your application
Professional indemnity insurance (PII) - what do I need to provide with my application?
ADGM's rules governing auditors follow a principles-based approach on PII. The rules do not specify the minimum level of indemnity. The firm is responsible for ensuring it has adequate and appropriate cover at all times.
The Registration Authority (RA) will review the adequacy of the firm's PII cover as part of the firm's application to become a Registered Auditor. The RA will expect to see:
- - Policy schedule (including terms of cover, business activity coverage, territorial coverage, insurer(s) details);
- - Proposal form (application / renewal form);
- - Details of any notifications to the insurer and claims made under the policy; and
- - Documentation from the firm to show how it assessed the adequacy and appropriateness of the level of cover.
What is the process to obtain additional permits?
You will have to complete application forms for additional permits for both the firm and the principals. There are two permits that you can apply for:
- - Public Audit Permit - to audit a public interest entity
- - FI Audit Permit - to audit a Financial Institution
Please note, FI Audit Permits will only be granted by the Registration Authority if the applicant holds a Public Audit Permit or is applying for a Public Audit Permit at the same time.
If you are applying for re-registration under the new legal framework, you have two options:
- You can first apply to become a Registered Auditor and then later separately apply for additional permit(s); or.
- You can submit the application for an additional permit together with your application for re-registration as a Registered Auditor.
The rules governing auditors includes clear eligibility criteria for both audit firms and principals who wish to register with the ADGM.
My firm has several existing financial institution audit clients do I need an additional permit?
Yes, you will need an additional permit to audit financial institution clients, namely a Financial Institution (FI) Audit Permit.
ADGM's framework governing Registered Auditors does not allow firms to audit public interest entities or financial institutions without first obtaining the relevant permits. The Registration Authority (RA) grants these permits to both the firm and each principal that the firm nominates. This ensures only firms and principals who have the relevant and required skills are eligible to audit more complex and risky entities.
If your firm has existing financial institution audit clients, applications for an FI Audit Permit should be made at the same time as your application to register the firm as a Registered Auditor in order to continue to offer audit services to these clients. It is important to note that the pre-requisite for an FI Audit Permit is that both the firm and principal must hold a Public Audit Permit.
For more information on additional permits, please see (Companies Regulations (Auditors) Rules 2021 - Part 5).
What is the transition period and what does it mean for my firm?
If your firm is an existing Recognised Auditor in ADGM, the transitional arrangements of the new framework means the firm must re-register 12 months from 1 December 2021 or on your firm's registration renewal date, whichever is the earlier.
For instance, if your firm's audit registration renewal date is 1 March, you have from 1 December 2021 to 28 February 2022 to re-register.
Please note the re-registration process will involve a thorough review of your application. We recommend you plan ahead and factor in time for processing of the application. This will ensure you are able to continue to offer uninterrupted audit services to your clients.