Principles to keep in mind while preparing a Combined Financial Statement or Consolidated Financial Statement

How to prepare combined financial statement and consolidated financial statement

If you are an owner of multiple businesses or the majority shareholder of a Company which is part of a group and is under a parent / subsidiary relationship, it’s important to understand your options when it comes to preparation of financial statements and reporting for stakeholders. Being an owner of the Company / group, you need to know what the financial statements show about the financial health of your business and the subsidiary / associate companies. The more you know about financial statements, the more likely you’ll be an informed and discerning owner / shareholder of the business.

A Brief understanding of financial statements

Financial statements are reports that summarise important financial accounting information about your business. According to IAS 1 Presentation of Financial Statements, there are four main types of financial statements: the statement of financial position or ‘balance sheet’, the statement of comprehensive income or ‘income statement’, statement of changes in equity and statement of cash flow.
In layman terms, the financial statement is like a report card for a Company to measure its performance through the Statement of Comprehensive Income, and Statement of Financial Position is used to ascertain its Grade. The following Grades provide confidence to the stakeholders, who decide to what extent they have to rely on the entity.

Types of financial statements

Being an owner of multiple businesses, whether owning a Parent company or owning and holding control in various entities or groups of companies, it is required to prepare the financial statements of the entity to disclose their financial results. The commonly used financial statements are:

  1. Single entity financial statement;
  2. Consolidated financial statements; and
  3. Combined financial statements.

In this article, we will further explore the above, keeping the owners’ mindset in mind and will briefly provide an understanding of the meaning of all these financial statements, their purpose, and their usefulness.

a)Single Entity Financial Statements

Single Entity financial statements, or Standalone financial statements, represent the financial position and the performance of the company as a single entity without taking into account the financial position and the performance of its subsidiaries, etc. The financial statements of the entity are written records that convey the business activities and the financial performance of a company.

b)Consolidated Financial Statements

In a consolidated financial statement, the financial results of the subsidiaries are included in a single financial statement with the parent company, as if the parent company and the subsidiaries were one entity. While the subsidiaries operate separately from the parent company, a consolidated financial statement reports on the group, with the parent company and subsidiaries together making up the financial picture of the group.

As per the guidelines from International Financial Reporting Standards on Consolidated financial statements (FRS 10), a few key factors to keep in mind are that a consolidated financial statement must be prepared, rather than a combined financial statement, when the parent has:

  1. Power over (controlling rights) the subsidiary – rights that give the parent the ability to direct the relevant activities of the subsidiary;
  2. Exposure/rights to (variable) return – rights to returns that aren’t fixed and may vary based on the performance of the subsidiary; and
  3. Ability to use its power – to affect the amount of returns.

Keep in mind that there is additional application guidance in which assessment of control is difficult.

C)Combined Financial Statements

On the other end of the spectrum, combined financial statements are, simplistically, when two or more entities/segments report their finances in a combined document. Within the document, financial statements presenting the historical financial information of a circumscribed area of economic activities for which consolidated financial statements are not prepared in order to present the financial position of the combined economic activities, as well as their financial performance and cash flows.

Combined financial statements are prepared where a reporting objective exists for two or more legal entities who are all commonly owned or controlled by an individual or group of individuals who wanted to see the financial results for these subject entities as a single unit. Further, they do not by themselves meet the definition of a group under IFRS 10.

In many cases, it is not just entities that are included when preparing combined financial statements but also parts of entities. This can be the case when the parts of entities are sufficiently identifiable and, from a financial reporting perspective, separable from the entity which they are part of.

To prepare a combined financial statement, all entities/segments are under common control during the reporting period. Common control can be:

  1. A Common Control / Management Approach – A common person or entity or part(s) of entities may be combined, if they were under common control as per the respective reporting framework. This approach reflects the control principle currently allowed for the preparation of financial statements for economic activities, which were, for the respective reporting period, part of a larger group or commonly controlled by the same individual(s).
  2. A Common Ownership Approach – Entities or parts of entities may be combined if all combined entities or parts of entities were under common ownership. It can be a case where entities are jointly owned, but not commonly managed by the same management. It further allows the preparation of combined financial statements regardless of any changes in the Management structures and enables those preparing the statements to show the historical track record of economic activity for every period during which this economic activity is commonly managed.

A Comparison of Consolidated Financial Statements vs. Combined Financial Statements

# Description Key features of Combined Financial Statements Key features of Consolidated Financial Statements
1 Ownership, relationship and its use Combined financial statements are used where the entities are under common control but do not have parent-subsidiary relationships. One of the examples which we can use here is, combined financial statements based on Investor Interest. In addition, combined financial statements, equity of the entities which are being combined (may or may not be subsidiaries) are added. Consolidated financial statements are presented where there is a parent-subsidiary relationship, which means one (parent) is owning and controlling the other company (subsidiary) by way of exercising control either by holding shares of the subsidiary or right to direct the profits towards the parent company.
2 Accounting Treatment of Intercompany Transactions Accounting treatment for combined financial statements eliminates intercompany transactions and balances, but rarely emphasises, the unrealized gain or loss on inventories or assets unless identical and material in value/nature. Accounting treatment of consolidated financial statements eliminates intercompany transactions. These are transactions that occur between the parent and subsidiary company. These transactions must be eliminated in order to avoid double-counting, once on the books of the subsidiary and again on the parent’s books. This avoids misrepresenting transactions that distort the actual results of the parent company and subsidiary.
3 Similarities on the Income Statement Both combined and consolidated financial statements add the subsidiary companies’ income and expenses to the parent company. This creates a total income and expenses for the entire group of companies, including the parent.
4 Differences in the Reporting of Stockholders Equity In combination, the equity for all the entities is totalled and presented accordingly, whereas in consolidation only the Parent share capital is disclosed, while the retained earnings are accumulated after necessary adjustments e.g. unrealized gain and loss and then split into parent and NCI portions.
Combined financial statements add the stockholder’s equity to that of the parent. This is because the parent has a controlling interest in the subsidiary group of companies.
Consolidated financial statements simply eliminate the stockholder’s equity section of the subsidiary. Therefore, there are no changes to shareholder equity accounts, such as stock and retained earnings.
5 Non-controlling Interest In Combined financial statements, there is no non-controlling interest separately shown and the financial results are combined based on common ownership and control. In consolidated financial statements, accountants must keep track of the non-controlling interest relationship between the parent and subsidiary. This creates an account called non-controlling interest or minority interest, which tracks the part of the subsidiary not owned by the parent.

Which type of Financial Statement to use?

When the parent has power over the subsidiary, rights to variable return from its involvement with a subsidiary, and the ability to use its power over a subsidiary to affect the amount of return, you must file a consolidated financial statement as per IFRS 10.

Whereas a combined statement can be prepared in the situation when two or more entities are under common control, but there is no actual parent company relationship that exists. The combined statement is much easier to prepare since it simply requires a set of separate financial statements for each entity.

It is more important to be able to assess each entity on its own merits instead of as part of the unified whole, then the combined financial statement may be more suitable.

As with much of the reporting that is done specific to a business, which is the end goal, Assessing the parent and subsidiaries as a whole vs. assessing the individual components—will help you determine which financial statement structure is better for presenting your financial information.

How can we help you professionally?

With our well-diversified professional services, we can support in the preparation of different types of financial statements according to the ownership structure and set financial reporting standards and can assist you in evaluating the relationship between different entities of the Group.

In case you have any questions regarding your reporting obligations for your organization, please contact us at or call us on +971 4 425 6616.

UAE Economic Substance Regulation ESR: Major Overhaul

New ESR law 2020

The United Arab Emirates (“UAE”) Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020 on 10 August, 2020. This resolution replaced the original Cabinet Resolution No.31 of 2019 (the original ESR law) concerning the Economic Substance Regulation (“ESR”). The UAE Ministry of Finance has now also updated its website with further information regarding the changes to the regulation. Since the application of the new resolution is retrospective (i.e. effective 1 January, 2019), all companies are advised to revisit Notifications already submitted.

The most prominent update in Cabinet Resolution No. 57 of 2020 was the appointment of the Federal Tax Authority (“FTA”) as the National Assessing Authority for the assessment and determination of ESR compliance and governance.

Major changes introduced in the ESR legislation include:

  1. The Federal Tax Authority has been appointed as the National Assessing Authority for the enforcement, assessment and determination of compliance with ESR rules by the licensees.
  2. The amended ESR (issued on 10 August, 2020) now covers juridical persons (those with separate legal personality) and unincorporated partnerships, while excluding natural persons – including sole proprietors, trusts and foundations. Also, the licensees that are now exempt include Investment funds, entities being Tax Resident outside the UAE and UAE branches of a foreign company (head office / parent company) whose relevant income is subject to Tax in a foreign country.
  3. As branches do not have separate legal identity from their parent or head office, they are not regarded as “Licensees”.
  4. Distribution & Service Center Business: The new regulation emphasises and clarifies that, for a trading business, there is no requirement to import and stock goods in the UAE in order to be considered as a Distribution and Service Center Business. Further, the law also clarifies that any services provided to foreign connected persons shall be considered a relevant activity (previously it stated that such services are only considered a relevant activity if they are “in connection with a business outside the State”).
  5. A Connected person shall be any entity that is part of the same group as a Licensee. Groups are defined as “two or more entities related through ownership or control such that they are required to prepare consolidated financial statements for financial reporting purposes under the accounting standards applicable thereto”.
  6. High Risk Intellectual Property Licensee The definition of a High-Risk Intellectual Property Licensee has been limited to an Intellectual Property Business that meets all of the following conditions:
    a) Licensee did not create the IP asset;
    b) Licensee acquired the IP asset from a connected person or in consideration for funding, research and development by another person situated in a foreign jurisdiction, and
    c) The Licensee has sold the intellectual property asset to a connected person or earns separately identifiable income from a foreign connected person in respect of the use or exploitation of the intellectual property asset.
  7. As the application of the amended ESR law is retrospective (i.e. effective 1 January, 2019), companies that have already submitted the ESR notifications based on the previously issued Cabinet Resolution No.31 of 2019 will need to re-submit the notification based on the new law for ESR i.e. Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020. Further guidance on this matter is yet to be announced by the Ministry of Finance.
  8. The deadline for the annual ESR Notification is within 6 Months from the end of the Licensee’s financial year.
  9. The deadline for the annual ESR Report is within 12 months from the end of the financial year, same as before.
  10. The Penalty for non-submission of the ESR Notification by a licensee is now increased to AED 20,000 while the penalty for non-submission of the Annual report is now AED 50,000.

Given the above updates, and in particular the appointment of the FTA, the scope of ESR is increasing and demonstrates the UAE’s increased commitment towards international tax and reporting compliance. Also, the appointment of the FTA means that there shall now be a bridge between License issuing Authorities and the Federal Tax Authority. As observed in the enforcement of VAT laws in UAE, the FTA shall be thoroughly assessing the information being submitted under the ESR Notification and Annual Report.

It is strongly recommended that all Licensees re-assess and re-evaluate the already submitted ESR notification to ensure that they are in compliance with the updated regulation. Licensees that did not submit a Notification on the basis that the original ESR law did not apply to them may need to re-evaluate their position under the amended ESR law.

To understand more about how the above changes in ESR affect your business, please reach out to us on

How to improve Cash Flow Management during COVID-19

Accounting solutions to help business survive covid

A couple of months ago, we wrote a blog describing “WHY BUDGETING IS CONSIDERED KEY TO BUSINESS FINANCIAL SUCCESS?” and one of the mentioned benefits of budgeting was planning and predicting cash flows. We assume that, due to the unpredictable events caused by COVID-19, there would be a major change in the budgeted figures and improving cash flow is important to help owners make decisions that will influence the future of their company.

As a major portion of cash revolves around accounts receivable and payable, let us examine some methods to achieve budgeted cash flow through its proper management.

  • Improve Receivables Credit Policy: Review your receivable credit policy i.e. your credit terms. It should be less than the credit period given to you by your suppliers. In order to improve your receivables credit period, you can encourage customers to pay faster with an early payment discount scheme.
    On the other hand, you can check with your supplier if payment terms can be increased on the basis of your long-term relationship. If not all, some of them may agree and extend your credit period from (hypothetically) 30 days to 45 days.
  • Advance Payment: If you are providing a service or goods that involve substantial cash or effort before delivery of said service or goods, ask your customer to pay a portion of that as an advance. An advance can range between 30%-50%, depending on the agreement with your customer and the type of services or goods to be provided.
  • Transaction cycle between receivable and payable should not be too long, or else you will end up investing in additional human resources or will end up paying interest on delay in payments to your suppliers.
  • Invoice financing: This option is also known as invoice factoring, invoice discounting or, in simple terms, selling your sales invoice to finance companies or banks. For example, if you have credit terms of 30 days with a customer, you can get the amount from a finance company on the day the invoice was issued, instead of waiting for 30 days.
  • Set up a policy for long outstanding receivables: Set up a policy indicating the maximum period it should take to clear a customer’s account. If any outstanding receivables exceed the maximum period, act immediately and suspend any further business with that client until their account is settled.
  • On-time Accounting: Record all transactions immediately and keep track of aging summary on a regular basis.
  • Use Automated feature of accounting software: Tracking receivables and payables manually would be time consuming and more cumbersome if even a single document is missed. Automating the process will help you with quick compilation of information and send regular reminder mail to customers for payment without interrupting your routine work.

Other than the methods mentioned above, you can also improve cash flow by converting fixed costs into variable costs, cutting or delaying expenses, looking to sell or lease idle assets, checking for deferment of loan instalments, lowering instalment amounts etc.

It is very important that you consider your business model before selecting from the above methods to improve cash flow. Contact us for more information

COVID-19: Accounting and Financial Reporting Considerations

Preparing Books of accounts during Covid-19

The outbreak of the Coronavirus (COVID-19) pandemic has had an adverse impact on the global economy and is affecting businesses of all sizes and sectors. Organizations around the world are facing challenges, often related to economic downturns, such as supply chain disruption, reduction in revenue, increasing inventory level, business closures, delay in expansion and tightening cash and credit conditions.

Considering such economic uncertainties, entities need to carefully consider their circumstances and risk exposures, revisiting their strategic business plan and assessing the impact the outbreak may have on their financial reporting.

This article highlights certain key accounting and financial reporting implications that may arise as a result of COVID-19 in the preparation of financial statements as per the International Financial Reporting Standards for the annual or interim reporting periods ending in 2020.

1. Going Concern Assumption
IAS 1 Presentation of Financial Statements requires management to assess a company’s ability to continue as a going concern. The going concern assessment needs to be performed up to the date on which the financial statements are issued. There may be significant areas of uncertainty due to COVID-19 and it could be important to assess the anticipated effects and impact of new information.

Management should assess whether disruptions caused by COVID-19 will be prolonged, resulting in a reduced demand for their products and services, liquidity shortfalls, among other possible repercussions, thereby assessing the appropriateness of the use of the going concern basis. When management is aware of material uncertainties that cast a significant doubt on the entity’s ability to continue as a going concern, the entity should disclose those material uncertainties in the financial statements.

If it has decided to either liquidate or to cease trading, or the company has no realistic alternative but to do so it is no longer a going concern and the financial statements may have to be prepared on another basis, such as a liquidation basis.

2. Events after the Reporting Period
IAS 10 Events After the Reporting Period contains requirements for when adjusting events (those that provide evidence of conditions that existed at the end of the reporting period) and non-adjusting events (those that are indicative of conditions that arose after the reporting period) need to be reflected in the financial statements.

With respect to reporting periods ending on or before 31 December, 2019, there is a consensus that the effects of the COVID-19 outbreak are the result of events that arose after the reporting date. If management concludes the impact of non-adjusting events are material, the company is required to disclose the nature of the event and an estimate of its financial effect.

If it cannot be quantitatively estimated in a reliable manner, there still needs to be a qualitative disclosure, including a statement that it is not possible to estimate the effect. Management should also consider whether it is able to properly assess as a going concern, if it cannot reliably quantify the effect of non-adjusting events.

3. Fair Value Measurements
Fair value measurement (FVM) is the exit price of an asset or liability on the measurement date from the perspective of a market participant as specified in IFRS 13 Fair Value Measurement

.Considering the market volatility, a key question is what conditions and the corresponding assumptions were known or knowable to market participants at the measurement date and not at a future date. The events or transactions occurring after the measurement date are only adjusted for in FVM to the extent they provide additional evidence of conditions that existed at the measurement date.

IFRS 13 Disclosures requires companies to disclose the valuation techniques and the inputs used in the FVM as well as the sensitivity of the valuation to changes in assumptions. Disclosures are needed to enable users to understand whether COVID-19 has been considered for the purpose of FVM or not.

4. Impairment of Non-Financial Assets
IAS 36, Impairment of Assets ensures that a company’s assets are carried at a value that is not more than their recoverable amount (the higher of fair value less costs of disposal and the value in use) and requires companies to conduct impairment tests when there is an indication of impairment of an asset at the reporting date.

Companies will need to assess whether the impact of COVID-19 has potentially led to an asset impairment. For most companies, the economic effects are likely to trigger an impairment test for long-lived assets, as well as other asset groups. Estimates of future cash flows and earnings are likely to be significantly affected by direct or indirect factors. Ongoing identification, evaluation and re-evaluation are essential to understand the extent of the need for recognition and for what periods. Considering the uncertainty in the current environment, disclosure of key assumptions and judgements made in estimating recoverable amounts are important.

5. Lease Accounting
IFRS 16 Leases requires a lessee to recognise a right-of-use (ROU) asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

Impairment to ROU could occur due to the consequences of the pandemic and the lessee must test its ROU assets for impairment and shall recognise impairment loss (if any) as per IAS 36.

In the current environment, lessees may be seeking rent concessions from lessors. This may take the form of reduced or free rent for a period, a deferral of rent or some other type of relief (e.g. fixed rent payments becoming variable). The accounting implications of an agreed change to rent will depend on whether or not the change was envisaged in the original lease agreement.

The IASB has issued an amendment to IFRS 16 to make it easier for lessees to account for COVID-19 related rent concessions. The changes to IFRS 16 are listed below:

      • Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification, if the conditions stated in amendment are met.Requires lessees to disclose if the exemption is applied to all rent concessions, the nature of contracts to which it is applied and amount recognised as profit or loss to reflect the changes in lease payment.
      • Requires lessees to apply the exemption retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors but does not require them to restate prior period figures.

The amendment is effective June 1, 2020, but lessees can apply the amendment immediately in any financial statements (interim or annual) not yet authorized for issue.

6. Revenue Recognition
IFRS 15, Revenue from Contracts with Customers establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer.

COVID-19 could affect the assumptions made by management in measuring the revenue from goods or services already delivered, particularly for variable consideration and for the anticipated outcome of contacts extending over multiple reporting periods.

For example, reduced demand could lead to an increase in expected returns, additional price concessions, reduced volume discounts, penalties for late delivery or a reduction in the prices that can be obtained by a customer. A company may also modify its enforceable rights or obligations under a contract with a customer such as granting a price concession in which it is necessary to consider whether the concession is due to the resolution of variability that existed at the contract’s inception or a modification that changes the parties’ rights and obligations.

7. Onerous Contracts
An onerous contract arises when the unavoidable costs of meeting the obligations under the contract exceed the benefits expected to be received. If an entity has a contract that is onerous, IAS 37 requires the entity to recognise and measure the present obligation under the contract as a provision.

The provision for onerous contracts could be triggered in situations such as a revenue contract containing penalties for non-performance or an increase in costs associated with fulfilling a customer contract. Hence, entities should review their contracts to determine if there are any terms that may relieve them from its obligations without paying compensation. Contracts that can be terminated without paying compensation to the other party do not become onerous as there is no obligation.

8. Valuation of inventories
Inventories are measured either at cost or net realisable value (NRV), whichever is lower. Given the uncertainties in the current economic environment, it would be challenging for entities to determine NRV at the balance sheet date and conclude that NRV will recover before the inventory is sold. Hence, entities should assess the significance of any write-downs and make appropriate disclosures in accordance with IAS 2.

Also, the entities may experience changes in production level due to COVID-19 and will need to use judgement in determining what constitutes abnormal production levels. In case of abnormally low production, an entity may need to review its costing of inventories to ensure unallocated fixed overheads are recognized in profit or loss in the period during which they are incurred.

9. Financial Instruments – Classification, measurement and expected credit loss assessment

The classification of financial assets under IFRS 9 Financial Instruments is based on-

a) The entity’s business model for managing the financial assets; and

b) Whether the contractual cash flows of the financial asset are solely payments of principal and interest.

COVID-19 can impact the classification of assets where the entity’s business model for managing financial assets might have changed and it must reclassify all affected financial assets.

The potential deterioration in credit quality of individuals and entities due to the COVID-19 pandemic will have a significant impact on the expected credit loss (ECL) measurement. IFRS 9 requires an entity to incorporate reasonable and supportable information about past events, current conditions and the forecast of future economic conditions into the assessment of expected credit losses (ECL) for financial assets. ECL applies to trade and other receivables, loans, debt securities, contract assets, lease receivable, loan commitments and financial guarantee contracts.

The measurement of expected credit losses should be based on:

a) The information that existed at the reporting date and that is available without undue cost or effort;

b) An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; and

c) The time value of money. Entities should provide transparent disclosure of the assumptions used to measure the ECL and provide sensitivity disclosures.


Whilst the COVID-19 outbreak represents one of the biggest challenges ever to the world economy, companies should evaluate the related accounting issues and disclosure considerations discussed above and must continuously adapt to new and uncertain market conditions.

Key Steps accountants should take to guide SMEs out of the Covid-19 Crisis

Business survival tips, strategies for businesses during covid-19 crisis, accounting consultancy in Dubai

In the present situation where the whole world has come to a stop, it is now more important than ever to have savings in hand. There will be a massive impact felt due to the coronavirus, and businesses need to be ready for any situation which comes their way. It is because of this reason that outsourcing the accounting functions of a company will be more beneficial for the management.

Accountants – for many – are SME’s trusted advisors.

The Covid-19 crisis is a critical time where SMEs need all the guidance they can get to navigate through the storm. We call on accountants and small accountancy practices to help struggling SMEs through these difficult times.

The following actions are required to be taken by accountants to support their struggling SME clients:

1. Informing clients about all aid options

Accountants should be aware of all financial (and other) forms of aid provided by national governments. It would be helpful for the national accountancy body to be aware of aid that other countries provide, so they can flag the best practices to their own national policymakers.

2. Applying the available aid to client’s situations

Identify clients in high risk sectors and those that would benefit most from public support measures. Help them by:

  • Advising them on, and guiding them through, all the claims available to them
  • Identifying options to help them diversify their business
  • Providing a path to accessing emergency financing being provided by governments
  • If possible, consider renegotiating your fees and payment schedules with them

3. Helping with immediate business survival

One of the ways in which accountants can help is by informing their SME clients of immediate measures that might make the difference between survival and collapse. They should also help them implement these measures where required. Examples of this include:

  • Accessing the reliefs on offer as soon as possible to increase the impact.
  • Reviewing and adjusting their cash flow forecast to determine what impact cuts in sales will have on their ability to pay their suppliers and debt. Businesses should continue to pay their suppliers when they can to help avoid a wide-spread collapse of the financial system.
  • Considering the business model to ascertain whether the SME can deliver goods or services in an alternative manner – such as by home delivery or online, and whether it can downsize or stop certain activities, such as travel, sales and marketing.
  • Understanding their supply chains and planning for disruptions in the supply of products and services. This may involve scaling back production for some parts and stock and re-considering suppliers and clients from countries heavily impacted by the virus.
  • Checking their insurance to understand whether they are eligible for a claim for any financial losses.
  • Communicating with their staff to discuss the possibility of short term pay cuts.
  • Ensuring that their financials are up to date so they can monitor profitability, stock, and debtor-creditor balances. Many governments are offering deferment of tax returns and financial information filing. However, such deferments’ long-term impacts are not clear. They could result in a later bottleneck in filing such returns and the possible loss of financial and tax data.
  • Negotiating with their debtors- for example, to offer discounts in exchange for early payment.
  • Negotiating with their debtors– for example, to offer discounts in exchange for early payment.
  • Continually monitoring the situation and informing clients of new initiatives so that when lifting the restrictions becomes imminent, they are ready to recommence trading.
  • If all else fails, considering the options within insolvency as it may be possible to rescue viable businesses by debt reorganization rather than being forced into full liquidation.

4. Guiding SME’s plan for the medium term

Many SMEs are likely to be in a crisis mode. Our accountants help them avoid emergency measures that could endanger the business’ medium-term viability. They can, for example, help them to:

  • Reconsider whether laying off employees is unavoidable. On top of having negative social and societal impacts, cutting down on workforce also constitutes a loss of key skills for the business. This should be a last resort option only, so make your clients aware of that and help them access all alternative options, aid and financing available first. It is possible that staff would prefer taking a temporary pay cut over redundancy. This could increase staff loyalty and allow the business to resume operations once the restrictions are lifted.
  • Start building financial reserves as soon as possible, to prepare for a new peak in coronavirus cases even after the current restrictions are lifted.

Accounting For COVID-19-Related Rent Concessions

Accounting and Bookkeeping services in Dubai, accounting for covid-19 rent concessions, IFRS-16 amendment

COVID-19-Related Rent Concessions for Lessees, published by IASB on May 28, 2020:


As a result of the COVID-19 pandemic, many lessors are providing rent holidays / concessions to lessees.

Rent Concessions can be in the form of rent waivers, lease payment deferrals or one-off rent reductions. Prior to the amendment, such concessions may fall within the ambit of lease modifications.

What is a lease modification?

IFRS 16 defines a lease modification as:

“a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.” A lease modification results from renegotiations between the lessee and lessor.

Examples of lease modifications include (but are not limited to):

  • reducing or extending the contractual lease term;
  • hiking or lowering the lease payments; or
  • adding or removing the right to use one or more underlying assets.

Separate lease:

If a lease modification creates a separate lease, the lessee makes no adjustments to the original lease and accounts for the separate lease the same as any new lease.

Not a separate lease:

For a modification that is not a separate lease, the lessee’s accounting depends on the nature of the modification.

Lease Modifications – Amendment:

The following amendment makes it easier for lessee to account for COVID-19 related rent concessions as “not a lease modification” by exempting him to consider/evaluate the individual lease contracts to determine whether rent concessions are a lease modification or not as a direct rule with a criteria prescribed”.

Practical Expedient:

The accounting for lease modification is seemingly complex. It envisages the recalculation of lease assets and lease liabilities / (payments) using revised discount rates.

In order to simplify the Lessee Accounting for rent concessions, the International Accounting Standards Board (IASB), has proposed some amendments as a practical expedient:

All the following three conditions are required to be met for permitting a lessee to apply the practical expedient:

  • As a result of revised consideration, the change in lease payments is substantially the same or less than the original consideration; AND
  • the reduction in lease payments affects only payments, originally due on or before June 30, 2021; AND
  • there is no substantive change to other terms and conditions of the lease.


  • Thus, the proposed practical expedient obviates the need for lessees to carry out an assessment to decide whether a COVID-19 related rent concession received is a lease modification or not.
  • The lessee accounts for the rent concession as if the change was not a lease modification. Such rent concessions would generally be accounted for as a variable lease payment.
  • In this case, a lessee applies paragraph 38 of IFRS 16 and generally recognises the effect of the rent concession in profit or loss.


  • No practical expedient is provided for lessors
  • Lessors are required to continue to assess as if the rent concessions are lease modifications and account for them accordingly.
  • In case of operating lease, the lessor recognises the effect of the rent concession by recording lower income from leases.

Disclosure Requirements:

Lessees applying the practical expedient are required to disclose:

  • that fact, if they have applied the practical expedient to all eligible rent concessions and, if not, information about the nature of the contracts to which they have applied the practical expedient; and
  • the amount recognised in profit or loss for the reporting period arising from application of the practical expedient.

The information disclosed will need to be sufficient to enable users of financial statements to understand the impact of COVID-19-related changes in lease payments on the entity’s financial position and financial performance (paragraph 31 of IAS 1).

Effective date:

The amendments are effective for periods beginning on or after June 01, 2020, with earlier application also permitted in Financial Statements not authorized for issue at May 28, 2020.


A lessee applies the amendments retrospectively and recognises the cumulative effect of initially applying them in the opening retained earnings of the reporting period in which they are first applied.

The disclosure requirements of Paragraph 28(f)1 of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors do not apply in the reporting period in which a lessee first applies COVID-19-Related Rent Concessions.

Accounting of Unexpected COVID-19 related Costs

Accounting and Bookkeeping Services, Accounting and Bookkeeping Companie, accounting for unforeseen expenses, accounting treatment of covid-related expenses


COVID -19 has taught us a new lifestyle as well as new business structures. Staying at home and social distancing is becoming a part of our day-to-day life. Every business and every person has been affected by this epidemic and it will go down in history as an event that paused the economy and the beginning of a new culture.

In addition to various financial impacts being felt due to COVID-19, we must consider the unexpected/unusual expenses and their classification. Nowadays, every organisation requires a restructured business model. Most businesses would be remodelled and relaunched as a part of a turnaround strategy to recover all the financial impacts. Let us discuss the major unusual expenses that would affect cash flow due to COVID-19.

  • Cost related to digital ecosystem: As we know, most of the countries have imposed lockdown in order to reduce the spread of COVID19. Due to this, majority of the companies have implemented a remote working model in order to continue operations. Cost incurred for implementing remote working such as IT Consultation, related hardware installations, etc. can be considered as restructuring costs and treated accordingly.
  • Costs related to Inventory: Verification and valuation of inventory would be required before re-opening the regular activities of trading and manufacturing companies. Companies may require additional manpower for the verification of inventories, an inevitable cost. Due to the lapse in time, there is a high chance of goods being found to be unfit for sale, which may lead to high abolishment costs. Valuation is required because it reduces risk and return of goods. High maintenance cost of inventory may also be incurred due to lockdown.
  • Supply chain interruption: Production delays due to supply chain interruption would be a major cost which adversely affects the overall operation and the cash flow of the business.
  • Marketing expenses: Remodelling and recovery of business stability would be a great challenge, especially during the initial phases. Door to door communication may not be allowed and hence marketing divisions should be more focused on online marketing. Customer relationship expenses will also be part of this.
  • Sanitisation costs: As it may take more time to fully recover from COVID-19, cost of sanitisation will continue, at least in the short-term.

Accounting Treatment

When items of income or expenses are material, an entity shall disclose their nature and amount separately (IAS 1:97). An entity shall present additional line items, headings and subtotals in the statement(s) presenting profit and loss and other comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance (IAS 1:85). However, an entity shall not present any items of income or expenses as extraordinary items, in the statement(s) presenting profit or loss and other comprehensive income or in the notes (IAS 1:87).

According to IAS 1:86, because the effect of an entity’s various activities, transactions and other events differ in frequency, potential for gain or loss and predictability, disclosing the components of financial performance assists users in understanding the financial performance achieved and in making projections of future financial performance. An entity includes additional line items in the statement(s) presenting profit or loss and other comprehensive income and it amends the descriptions used and the ordering of items when this is necessary to explain the elements of financial performance. An entity considers factors including materiality and the nature and function of the items of income and expense.

Based on these explanations in IAS 1, we can conclude that the overall effect of COVID-19 can be accounted separately if the total expenses are material, as decided by the management. If the expenses incurred are not material, it should be accounted within the appropriate heads of accounts itself. For e.g If there are any additional expenses (which are immaterial) related to marketing, it should be part of marketing expenses. Similarly, if there is any restructuring cost which is material, an entity shall disclose it separately under appropriate head.

Accounting Technologies

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Accountants need to stay up to date with technological advances in order to respond to market conditions and their clients’ needs. Technological innovations have led the way, establishing how accounting is done nowadays. Digital resources and online tools help improve productivity and organization.

Now, we can find advanced technology to help streamline accounting processes and management of books of accounts.

How does technology impact accounting?

The biggest impact IT has made on accounting is enabling companies to develop and use computerized systems to track and record financial transactions. This system allows companies to create individual reports quickly and easily, enabling management to make decisions faster, using up-to-date information.

There are many applications of modern technology in accounting. Out of the many available options, in this blog we summarize the five types of accounting technologies that are currently transforming the accounting industry:

  1. Artificial Intelligence & Robotics

    In simple terms, Artificial intelligence (AI) is the ability of a computer or a robot controlled by a computer to do tasks that are usually done by humans because they require human intelligence and discernment.

  2. Cloud Computing

    Cloud computing accounting software is accounting software that is hosted on remote servers. It provides accounting capabilities to businesses in a fashion similar to the SaaS (Software as a Service) business model. Data is sent into “the cloud“, where it is processed and returned to the user.

    A Simple Advantage
    This opens up a new way for accountants to work with their clients. Using cloud accounting, there is more time to engage with the client and focus on business strategy instead of getting burdened with detailed processes.

    Difference between Traditional Accounting and Cloud Computing?
    Traditional Accounting Software comes with initial infrastructure costs as well as maintenance costs of on-site software and hardware.

    Cloud computing, on the other hand, provides a software function without large upfront costs or licensing fees.

  3. Innovations in Tax Software

    An innovation is defined as the process of translating an idea or invention into a good or service that creates value or for which customers will pay. To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific need.

    Tax preparation software is an online, automated system for preparing individual and business income taxes. It’s used by both tax preparation businesses, like CPA’s(Certified Public Accountant), and individual taxpayers who prefer to do their own returns. It eliminates the need for the taxpayer to complete his or her return using actual forms.

    The tax software of today has helped improve accuracy while reducing margins of error – something businesses want to embrace in order to avoid tax penalties and prevent issues with stakeholders. Better tax software also helps streamline audits by making them more efficient and effective.

  4. Mobile Accounting

    Mobile accounting is the ability to access and process accounting information, which could be data, applications, etc. over devices that are not restricted by physical locations.

    Mobile accounting could mean different things to different people and businesses, so the first step in a successful rollout is defining what it means to you and your company. For example, consider who the users will be and what they will be using it for. Think about the different functions you’d want your mobile accounting and financial solution to cover.”

  5. Social Media

    Social media has become an essential tool for firms wanting to engage with current and potential clients while expanding their brand reach. Social media is a tool that will continue to evolve and provide accountants with a valuable sales and marketing platform that can instantly connect firms to current and future clients.

    Most accounting firms understand the importance of implementing traditional marketing into their overall business development plans, but many firms may not realize the power of integrating social media marketing into their long-term marketing strategies.

    Social media should be a part of a firm’s overall business development strategy, and if done consistently, will help amplify the effectiveness of all other marketing and business development efforts.

Why Outsource Bookkeeping and Accounting Function?

Outsourced CFO Services Dubai
Every business is different and one business’ proven formula may not fit another’s. It is very important for a Company to maintain its financial discipline, irrespective of the nature or size of the business. Some of the key benefits of outsourcing finance operations are:
  1. Saves time – One of the most common and obvious advantages of outsourcing is the amount of time you save. It’s a simple concept: accounting and payroll take time. If you’re doing it yourself, then that’s time lost. There are a lot of different aspects to consider and it becomes a balancing act. By outsourcing your accounting and payroll services, you simply save time that’s better spent on core tasks.
  2. Reduced Overheads – By outsourcing accounting, a Company saves overheads like visa costs, perks, visa deposits, sick leaves, annual leaves etc.
  3. Faster decision making – Our reports are customizable and helps the management to make informed decisions at the right time, which is crucial for any business to grow exponentially. After all, if you’re paying money to work with the experts, they’ll have the information you need to see in a way that makes sense. This allows you to continue to make decisions to grow your business with peace of mind.
  4. Updated Big Picture – If you’re on the fence about outsourcing one service or another, an important thing to keep in mind is the amount of information and insight you might receive. Good quality accounting and payroll companies will have a “big picture” in mind after dealing with your company for a while. This information can be had at a moment’s notice, and advanced technologies can help you obtain personalized reports giving you the insight you need to further your company.
The types of Outsourced Accounting and Bookkeeping Services we offer are listed below:

Bookkeeping / Outsourced Accountant

A service which helps the Company maintain their set of books in complete order, compliant with local laws and reconciled with various statements. This is a basic feature and  the minimal requirement for any Company, whether it is a startup or a Multi-National entity. Our bookkeeper shall handle day-to-day data entry, either on a full-time deputation basis or through regular visits. Typical kinds of bookkeeping outsourcing could be on a Full time, Part Time or Project Basis.

Management accounting / Outsourced FM

Management accounting entails the management of business assets, internal business operations of clients, reports on profit and loss based on the company budget, reports on the fulfillment of key performance indicators or performance metrics that are uniquely adapted by the company, cash forecasts and revenue projection, among others. In managing this data, your provider must assume an eagle-eye approach with regard to how your company’s leadership realistically fulfills all its financial goals.

Financial controller services / Outsourced CFO

These services cover coordination with bookkeepers and business owners in the completion of monthly management reports. In the fulfillment of these services, your provider will handle financial data that is crucial to hiring, dealing with clients, and the like—an assessment of how healthy your business is at any given time. Financial analysis is a part of this service, which includes data that pertains to product cost calculation; profitability; reviewing of credits and rebills; and reviewing company sales contracts to determine impact on accounting policies, among others.

Payroll services

Another service that is available is the management of your company’s payroll. Our payroll services include the tallying of your company’s pay cycle, the accounting of on-demand services, end-of-month services, and end-of-year services. Your provider is obligated to learn the payroll management norms of your company, as well as what the just and timely standards are for your employees’ compensation, in order to ensure that they adhere to the same.

To know more details, please contact Nihar Kothari, Partner at Affiniax at


All multinational groups with Group Revenue equal to or exceeding 3.15 Billion AED must read this carefully. Otherwise, there is a risk of AED 1,000,000 penalty if the form is not submitted by 31 December 2019.

Ministry of Finance (MoF) has required all eligible entities to submit CbCR notifications before the 31 December 2019 deadline. The purpose of reporting is to eliminate gaps in information between taxpayers and tax administrators. Cabinet Resolution No. 32 on Country-by-Country Reporting regulation was issued in UAE on 30th April 2019 and requires those entities which are tax residents in the UAE and part of a multinational group; to file a notification to the Ministry of Finance in a specified format.

Applicability of Resolution:
Multinational groups with consolidated revenues of at least AED 3.15 billion (approximately USD 855 million) per annum and wherein,
  1. An Ultimate Parent Entity established in the UAE being tax resident (being parent company of a Multinational Group)
  2. A Constituent Entity, through ownership or control of a Multinational Group in UAE.
Compliance Requirements: CbCR Notification Notification must be submitted, on or before the last day* of the group’s financial year by the Constituent Entity of an MNE Group being Tax Resident of UAE.

*Where financial reporting year of the Multinational group starts on 1st January 2019, the due date of first notifications must be on or before 31 December 2019

CbC Report Filing
The filing must be done within 12 months from the end of group financial year* by:
    1. Parent Company being Tax Resident in UAE
    2. Constituent Entity (being tax resident) on fulfilling certain conditions.
Penalties for Non- compliance:
Failure to keep the documents and information for a period of 5 years from the date of submitting CbCR AED 100,000
Failure to provide any information required in accordance with the CbCR and notification AED 100,000
Failure to report or notify on or before the due date AED 1,000,000 plus AED 10,000 per day subject to maximum AED 250,000
Failure to provide complete and accurate information AED 50,000 – 500,000
  How Affiniax Partners can Help
  • Assessment of applicability of Regulation CBCR requirements
  • Assist in Notification Compliances
  • Assist in aggregating the data required under the CbC Reporting
  • Advisory services