Adgm Companies Regulations Part 35

Part 35 - Auditors

Chapter 1 - Introductory

Article 1030 - Main purposes of Part

The main purposes of this Part are–

(a) to secure that only persons who are properly supervised and appropriately qualified are appointed as auditors, and

(b) to secure that audits by persons so appointed are carried out properly, with integrity and with a proper degree of independence.

Article 1031 - Meaning of “auditor” etc.

In this Part “auditor” means a person appointed as auditor under Part 15 of these Regulations and the expressions “audit” and “audit work” are to be construed accordingly.
In this Part “audited person” means the person in respect of whom an audit is conducted.

Chapter 2 - Individuals and Firms

Article 1032 - Eligibility for appointment as an auditor

No firm may be appointed or act as an auditor of an audited person unless the first-mentioned firm is:

(a) registered or treated as having been registered as an auditor pursuant to rules made by the Registrar under section 1032A;
(b) holds any permit as may be required to act as such auditor; and
(c) is otherwise in compliance with the requirements of this Part.”

Article 1032A - Registration of auditors and audit principals

(1) The Registrar may make rules which require or allow:

(a) the registration of auditors and certain individuals who are appointed by an auditor with responsibility for managing the conduct or provision of audit services by the auditor or for signing on behalf of the auditor audit or other reports or any other matters as may be provided for in such rules (audit principals);
(b) an auditor or an audit principal to apply to the Registrar for the issue to it of a registration or permit to act as a registered auditor or registered audit principal for such categories of company, entity or body carrying on such business or activities as may be prescribed by the Registrar in such rules or in such registration or permit;
(c) auditors and audit principals whose names are entered on the register to comply with or satisfy such conditions or requirements as may be prescribed in or pursuant to such rules or any such registration or permit as may be issued to them as mentioned in (b) above;
(d) the Registrar to exercise such powers and rights with respect to the regulation of such auditors and audit principals as the Registrar may consider appropriate, including powers to impose sanctions, whether by way of fine, censure or otherwise, on any auditor or audit principal who contravenes any requirement applicable to it or him pursuant to such rules and, in such circumstances as such rules may prescribe, to suspend or withdraw any registration of, or the issue of any registration or permit to, an auditor or audit principal pursuant to such rules; and
(e) the Registrar from time to time to amend, revise, withdraw or supplement any rules so made by him as he may consider appropriate or desirable for the purposes of such rules.

(2) The Registrar may, on the application of a person to whom Part 35 applies, direct by notice in writing to that person, that any of the rules made by the Registrar pursuant to section 1032A:

(a) are not to apply to that person, as specified in a direction notice from the Registrar; or
(b) are to apply to that person with modifications, specified in a direction notice from the Registrar.

(3) The Registrar may only exercise the direction power in subsection (2) where, in the reasonable discretion of the Registrar, public policy grounds exist.

(4) The Registrar may request from an applicant under subsection (2) any information it reasonably requires to exercise the Registrar’s discretion.

Article 1032B - Registration of auditors and Commercial Licences

The registration of an auditor as a registered auditor by the Registrar shall be deemed to be a “licensed person” with respect to all controlled activities relating to audit services, for the purposes of the Commercial Licensing Regulations 2015. For the avoidance of doubt, these Regulations, and not the Commercial Licensing Regulations 2015, shall apply with respect to all licensing matters for registered auditors.

Article 1033 - Effect of ineligibility

(1) If at any time a firm who has been appointed or is acting as an auditor, or a person who has been appointed or is acting as an audit principal, ceases to be a registered auditor or a registered audit principal under rules made pursuant to section 1032A, such a firm or person must immediately:

(a) resign each appointment (with immediate effect) that they may hold as an auditor or audit principal in relation to an audited person, and
(b) give notice in writing to the audited person that they have resigned such appointment by reason of being no longer registered as an auditor or, as the case maybe, audit principal under rules made pursuant to section 1032A.

(2) A firm or person (as the case may be) will commit a contravention of these Regulations if:

(a) they act as an auditor or audit principal in contravention of subsection (1), or
(b) they fail to give the notice mentioned in paragraph (b) of subsection (1) in accordance with that subsection.

(3) A firm, or person, who commits the contravention referred to in subsection (2) shall be liable to up to a level 6 fine.

(4) In proceedings against a firm or person for any contravention under this section it is a defence for them to show that they did not know and had no reason to believe that they had ceased to be a registered auditor or registered audit principal.

Article 1034 - Independence requirement

A person may not act as an auditor of an audited person if one (1) or more of subsections (2), (3) and (4) apply to him.
This subsection applies if any individual responsible for audit work is–

(a) an officer or employee of the audited person, or

(b) a partner or employee of such a person, or a partnership of which such a person is a partner.
This subsection applies if any individual responsible for audit work is–

(a) an officer or employee of an associated undertaking of the audited person, or

(b) a partner or employee of such a person, or a partnership of which such a person is a partner.
This subsection applies if there exists, between–

(a) the person or an associate of his, and

(b) the audited person or an associated undertaking of the audited person,

a connection of any such description as may be specified by rules made by the Board.
An auditor of an audited person is not to be regarded as an officer or employee of the person for the purposes of subsections (2) and (3).
In this section “associated undertaking”, in relation to an audited person, means–

(a) a parent undertaking or subsidiary undertaking of the audited person, or

(b) a subsidiary undertaking of a parent undertaking of the audited person.

Article 1035 - Effect of lack of independence

If at any time during their term of office an auditor becomes prohibited from acting by section 1034(1), they must immediately–
- (a) resign their office (with immediate effect), and
- (b) give notice in writing to the audited person that they has resigned by reason of their lack of independence.
An auditor will commit a contravention of these Regulations if –
- (a) they act as an auditor in contravention of section 1034(1), or
- (b) they fail to give the notice mentioned in paragraph (b) of subsection (1) in accordance with that subsection.
An auditor who commits the contravention referred to in subsection (2)(a) shall be liable to up to a level 4 fine.
An auditor who commits the contravention referred to in subsection (2)(b) shall be liable to a level 3 fine.
In proceedings against an auditor for any contravention under this section it is a defence for them to show that they did not know and had no reason to believe that they were, or had become, prohibited from acting as auditor of the audited person by section 1034(1).

Article 1036 - Effect of appointment of a partnership

This section applies where a partnership constituted under the laws of–

(a) the Abu Dhabi Global Market, or

(b) any other country or territory in which a partnership is not a legal person,

is by virtue of this Chapter appointed as auditor of an audited person.
Unless a contrary intention appears, the appointment is an appointment of the partnership as such and not of the partners.
Where the partnership ceases, the appointment is to be treated as extending to–

(a) any appropriate partnership which succeeds to the practice of that partnership, or

(b) any other appropriate person who succeeds to that practice having previously carried it on in partnership.
For the purposes of subsection (3)–

(a) a partnership is to be regarded as succeeding to the practice of another partnership only if the members of the successor partnership are substantially the same as those of the former partnership, and

(b) a partnership or other person is to be regarded as succeeding to the practice of a partnership only if it or he succeeds to the whole or substantially the whole of the business of the former partnership.
Where the partnership ceases and the appointment is not treated under subsection (3) as extending to any partnership or other person, the appointment may with the consent of the audited person be treated as extending to an appropriate partnership, or other appropriate person, who succeeds to–

(a) the business of the former partnership, or

(b) such part of it as is agreed by the audited person is to be treated as comprising the appointment.
For the purposes of this section, a partnership or other person is “appropriate” if it or he–

(a) is eligible for appointment as an auditor by virtue of this Chapter, and

(b) is not prohibited by section 1034(1) from acting as auditor of the audited person.

Article 1037 - Matters to be notified to the Registrar

Section 1037 has been repealed by ADGM Companies Regulations (Amendment No. 2) 2021.

Article 1038 - The Registrar’s power to call for information

Section 1038 has been repealed by ADGM Companies Regulations (Amendment No. 2) 2021.

Chapter 3 - The Register of Auditors Etc.

Article 1039 - The register of auditors

The Registrar may make rules which require one or more registers of the firms eligible for appointment as an auditor, or the persons eligible for appointment as an audit principal, to be kept.
The rules may require each firm or person’s entry in the register to contain relevant information about firms or persons recorded therein, including but not limited to–
- (a) a name and address,
- (b) in the case of a firm eligible for appointment as an auditor, the specified information relating to the individuals responsible for audit work on its behalf,
- (c) in the case of a firm eligible for appointment as an auditor by virtue of Chapter 2, the information mentioned in sub-section (3).
The information referred to in subsection (2)(c) is–
- (a) in relation to a body corporate, the name and address of each person who is a director of the body or holds any shares in it,
- (b) in relation to a partnership, the name and address of each partner.
The rules may provide that different parts of the register are to be kept by different persons.
The rules may impose such obligations as the Registrar thinks fit on–

(a) recognised professional bodies, and

(b) persons eligible for appointment as an auditor.
The rules may include–

(a) provision requiring that specified entries in the register be open to inspection at times and places specified or determined in accordance with the rules,

(b) provision enabling a person to require a certified copy of specified entries in the register.
In this section “specified” means specified by rules made under this section.
The Board may make rules which make provision for the charging of fees for inspection, or the provision of copies of the register maintained under this section, such fees to be of such reasonable amount as may be specified or determined in accordance with those rules.

Article 1040 - Information to be made available to public

Section 1040 has been repealed by ADGM Companies Regulations (Amendment No. 2) 2021.

Chapter 4 - Supplementary and General

Article 1041 - Registrar’s power to require second audit of a company

This section applies where a person appointed as auditor of a company was not an appropriate person for any part of the period during which the audit was conducted.
The Registrar may direct the company concerned to retain an appropriate person–

(a) to conduct a second audit of the relevant accounts, or

(b) to review the first audit and to report (giving his reasons) whether a second audit is needed.
For the purposes of subsections (1) and (2) a person is “appropriate” if he–

(a) is eligible for appointment as an auditor, and

(b) is not prohibited by section 1034(1) (independence requirement) from acting as auditor of the company.
The company will commit a contravention of these Regulations if–

(a) it fails to comply with a direction under subsection (2) within the period of 21 days beginning with the date on which it is given, or

(b) it has previously committed a contravention under this subsection and the failure to comply with the direction which led to the contravention continues after the contravention.
The company must–

(a) send a copy of a report under subsection (2)(b) to the Registrar of companies, and

(b) if the report states that a second audit is needed, take such steps as are necessary for the carrying out of that audit.
The company will commit a contravention of these Regulations if–

(a) it fails to send a copy of a report under subsection (2)(b) to the Registrar within the period of 21 days beginning with the date on which it receives it,

(b) in a case within subsection (5)(b), it fails to take the steps mentioned immediately it receives the report, or

(c) it has previously committed a contravention under this subsection and the failure to send a copy of the report, or take the steps, which led to the contravention continues after the contravention.
A company who commits a contravention under this section shall be liable to up to a level 4 fine.

Article 1042 - Supplementary provision about second audits

If a person accepts an appointment, or continues to act, as auditor of a company at a time when he knows he is not an appropriate person, the company may recover from him any costs incurred by it in complying with the requirements of section 1041.

For this purpose “appropriate” is to be construed in accordance with subsection (3) of that section.
Where a second audit is carried out under section 1041, any provision of these Regulations applying in relation to the first audit applies also, in so far as practicable, in relation to the second audit.
A direction under section 1041(2) is, on the application of the Board, enforceable by injunction.

Article 1043 - Misleading, false and deceptive statements

Section 1043 has been repealed by ADGM Companies Regulations (Amendment No. 2) 2021.

Article 1044 - Delegation of the Registrar’s functions

The Registrar may make an order under this section (a “delegation order”) for the purpose of enabling functions of the Registrar under this Part to be exercised by another public authority in the Abu Dhabi Global Market.
A delegation order has the effect of transferring to the body designated by it all functions of the Registrar under this Part–

(a) subject to such exceptions and reservations as may be specified in the order, and

(b) except his functions in relation to the body itself.
A delegation order may confer on the body designated by it such other functions supplementary or incidental to those transferred as appear to the Registrar to be appropriate.
A delegation order may be amended or, if it appears to the Registrar that it is no longer in the public interest that the order should remain in force, revoked by a further order under this section.
Where functions are transferred or resumed, the Registrar may by order confer or, as the case may be, take away such other functions supplementary or incidental to those transferred or resumed as appear to him to be appropriate.

Interpretation

Article 1045 - Meaning of “associate”

In this Part “associate”, in relation to a person, is to be construed as follows.
In relation to an individual, “associate” means–

(a) that individual’s spouse or minor child or step-child,

(b) any body corporate of which that individual is a director, and

(c) any employee or partner of that individual.
In relation to a body corporate, “associate” means–

(a) any body corporate of which that body is a director,

(b) any body corporate in the same group as that body, and

(c) any employee or partner of that body or of any body corporate in the same group.
In relation to a partnership constituted under the laws of the Abu Dhabi Global Market, or the law of any other country or territory in which a partnership is not a legal person, “associate” means any person who is an associate of any of the partners.

Article 1046 - Minor definitions

In this Part, unless a contrary intention appears–

“address” means–
- (a) in relation to an individual, his usual residential or business address,
- (b) in relation to a firm, its registered or principal office in the Abu Dhabi Global Market,
“company” means any company or other body the accounts of which must be audited in accordance with Part 15,

“director,” in relation to a body corporate, includes any person occupying in relation to it the position of a director (by whatever name called) and any person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of the body are accustomed to act,

“firm” means any entity, whether or not a legal person, which is not an individual,

“group”, in relation to a body corporate, means the body corporate, any other body corporate which is its holding company or subsidiary and any other body corporate which is a subsidiary of that holding company,

“holding company” and “subsidiary” are to be read in accordance with section 1015 and Schedule 6,

“officer,” in relation to a body corporate, includes a director, a manager, a secretary or, where the affairs of the body are managed by its members, a member,

“parent undertaking” and “subsidiary undertaking” are to be read in accordance with section 1018 and Schedule 7.
The Board may make such modifications of this Part as appear to it to be necessary or appropriate for the purposes of its application in relation to any firm, or description of firm, which is not a body corporate or a partnership.