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How publicly listed companies in the UAE can navigate the SCA circular on ICFR 

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The UAE's new ICFR regulations prompt companies to enhance internal controls, boost transparency and seize opportunities for growth.

In brief

  • The Securities and Commodities Authority’s (SCA) circular emphasizes robust internal control and risk management for the UAE companies, enhancing transparency and accountability in financial reporting.
  • A two-phase approach mandates self-assessment in 2024 and external auditor evaluations in 2025, enabling compliance with international best practices.
  • EY MENA's automated ICFR maturity assessment tool helps companies evaluate their internal controls, providing insights and strategies for effective implementation.

The UAE is at the forefront of implementing regulations that enhance confidence in its financial markets by emphasizing a robust internal control framework and risk management. The recent circular issued by the SCA highlights the critical role of effective internal control over financial reporting (ICFR) in promoting transparency, accountability and compliance with leading practices. This reiterates UAE’s ongoing efforts to cultivate confidence in its financial markets, promote domestic investments, attract and retain foreign direct investments (FDIs).

The circular summarizes the key amendments introduced by the SCA to Article (14) of the Corporate Governance Guide, which strengthens the board of directors’ responsibilities for establishing effective internal control and risk management frameworks. These amendments aim to elevate corporate governance standards, align with international leading practices, and promote a culture of proactive risk management, ownership and accountability.

It also outlines the board’s responsibilities in overseeing these frameworks, highlighting the importance of accurate internal and external reporting. Additionally, it allows external auditors to perform their independent assessments and to issue their opinion.

Furthermore, the SCA mandates a structured, two-phase approach for implementing the internal control:

SCA circular on ICFR

How EY can Help

As companies begin implementing ICFR for the first time, it is essential to develop well-defined and agile strategies that not only address challenges but also view them as opportunities for growth. The EY MENA FAAS team has identified the following areas where companies may encounter challenges, along with tailored mitigation strategies derived from the capabilities of EY teams in ICFR implementation to achieve impactful and sustainable outcomes.

Key challenges in the first year of ICFR implementation

  • Lack of clear and documented ICFR governance or ownership.
  • Align timing of ICFR implementation to avoid peak periods and business disruption, allowing adequate remediation time.
  • Establish a culture of acceptance among process owners of sophisticated processes toward ICFR rather than perceiving it as a compliance burden.
  • Ineffective collaboration and alignment between the ICFR owner within the company and the external auditor.
  • Ability to differentiate financial reporting controls from operational or compliance controls, and to distinguish between key and non-key controls.

By effectively integrating ICFR and robust risk management practices, organizations can fulfil regulatory obligations while protecting stakeholder investments and enhancing their market reputation. Compliance initiatives will lead to better financial health and provide a favorable ROI.

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Navigating the SCA's circular on ICFR

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How EY can Help

Role of EY MENA FAAS teams in ICFR journey

 

EY MENA teams can guide companies through evolving regulatory landscapes with tailored ICFR solutions that support businesses at any stage of their ICFR journey. The organization emphasizes that the path toward effective ICFR should be viewed as both a strategic necessity and an opportunity for lasting improvement, reinforcing its commitment to establishing trust in capital markets and the financial ecosystem.

To address the challenges companies may encounter during the first year of ICFR implementation, EY MENA teams recommend several strategies derived from its extensive experience in ICFR implementation:

  • Establish clear roles and responsibilities to enable buy-in through effective change management.
  • Prepare a comprehensive implementation plan engaging all relevant stakeholders by avoiding duplication of efforts and inefficiencies.
  • Position ICFR as an opportunity to create value and enhance existing processes in alignment with global best practices by showcasing “what good looks like.”
  • Maintain an open and transparent communication channel with the external auditor to avoid year-end surprises.
  • Develop a risk-based ICFR framework aligned with COSO principles to define the universe of financial reporting risks, and map to financial assertions and key controls.

EY MENA’s automated ICFR maturity assessment tool

 

Recognizing the growing market need for assessing ICFR maturity, EY MENA has developed an innovative tool that integrates global experience and key lessons from ICFR implementations.

This tool is designed to:

  • Assess a company’s current ICFR maturity level.
  • Provide industry insights and benchmarks.
  • Embed the five components and 17 principles of the COSO Internal Control–Integrated Framework (ICIF), as recommended by SCA.

EY MENA's automated ICFR maturity assessment tool empowers companies to assess their current state and develop targeted mitigation strategies to elevate their internal control environment.

By integrating comprehensive ICFR and effective risk management practices, companies can comply with regulatory requirements while protecting stakeholders' investments. This approach helps maximize ROI and enhances the company's reputation and market value. Additionally, these practices promote the safeguarding of assets and enhance the overall financial health of the organization.

At EY MENA, we recognize that the journey toward robust and resilient ICFR is both a strategic imperative and a transformative opportunity. EY MENA teams are uniquely equipped to assist companies in navigating evolving regulatory requirements with comprehensive and tailored ICFR solutions. Whether you are at the beginning of your ICFR process or seeking to reimagine your ongoing efforts, the teams at EY MENA are here to support you on this exciting journey.

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    Summary

    The UAE's SCA circular marks a significant advancement in corporate governance. This initiative aims to enhance financial market integrity but presents challenges such as defining ownership of Internal Control over Financial Reporting (ICFR), timing implementation, and fostering collaboration between internal teams and external auditors. To navigate these challenges, companies should secure stakeholder buy-in, develop a robust ICFR strategy and cultivate a culture that considers ICFR as a value-creation initiative. By leveraging EY MENA’s automated ICFR maturity assessment tool, organizations can streamline their compliance journey and drive continuous improvement while strengthening their internal control frameworks.

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    Nonfinancial reporting

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