Audit and Assurance

What Is Proof of Reserve (PoR) and Why It Matters

Proof of Reserve (PoR) is an independent verification process that allows a crypto exchange or custodian to prove it holds customer assets in full. Instead of simply saying “your funds are safe,” PoR uses cryptographic methods and audit procedures to confirm that all client balances are backed 1:1 with real assets.

Why is it important?

The collapse of several global exchanges exposed the risks of poor transparency and under-collateralized operations, leading to massive investor losses.

PoR helps restore trust by proving that:

• Every client token, dirham, or dollar is fully backed.
• The exchange is not operating on a fractional basis.
• Customers and regulators can rely on independent evidence of solvency.

The Role of PoR in Dubai’s VARA Compliance Framework

Dubai’s Virtual Assets Regulatory Authority (VARA) has established one of the most advanced global frameworks for digital assets. Licensed Virtual Asset Service Providers (VASPs) must ensure:

• Transparency of holdings
• Segregation of client assets from company funds
• Independent validation of reserves

PoR is an effective mechanism for VASPs to demonstrate compliance, enhance investor confidence, and minimize regulatory risks.

How Proof of Reserve (PoR) Audits Work

• Blockchain verification: Cryptographic proofs (Merkle Trees) confirm customer balances match on-chain reserves.
• Wallet validation: Checking ownership and balances of wallets.
• Independent audit review: Matching liabilities against actual holdings.

Benefits of PoR Audits for Crypto Exchanges and Investors

For VASPs:

• Strengthens VARA compliance
• Builds reputation and credibility
• Reduces regulatory risks

For Investors:

• Assurance that assets are safe
• Greater trust and loyalty
• Encourages adoption of crypto services in the UAE

Affiniax Partners’ Expertise in Proof of Reserve Audits

We help VASPs and crypto businesses with tailored PoR solutions under VARA requirements:

• Independent attestation of reserves vs liabilities
• Cryptographic testing for blockchain validation
• Regulatory compliance review
• Custom reporting for regulators, clients & stakeholders
• Ongoing monitoring for continuous assurance

Partner With a Trusted Crypto Auditor in Dubai – Affiniax

In today’s fast-evolving digital asset space, you need more than an auditor — you need trusted advisors like Affiniax. Our Risk Advisory practice combines crypto audit expertise, regulatory knowledge, and advanced blockchain techniques to deliver Proof of Reserve audits that are credible, compliant, and confidence-inspiring.

For businesses operating in UAE free zones, the annual audit is more than just a compliance requirement, it’s a key step in maintaining financial transparency and credibility. Free zone authorities now place strong emphasis on accurate and timely financial audits, and companies that fall short risk penalties, delays in license renewals, or even reputational damage.

As one of the leading audit firms in Dubai, we often see recurring issues during the audit process. Below are the five most common challenges UAE free zone companies face, along with practical steps to avoid them.

1. Incomplete or Disorganized Records

A frequent issue among SMEs and startups is weak record-keeping. Without proper documentation—such as invoices, receipts, contracts, and payroll records—auditors cannot verify transactions. This not only complicates the external audit process but can also create compliance risks.

How to avoid it: Use a reliable accounting system, keep records updated in real time, and carry out periodic reviews. A strong internal process makes audit & assurance smoother and faster.

2. Non-Compliance with IFRS Standards

Free zone companies are required to prepare financial statements in line with International Financial Reporting Standards (IFRS). However, many businesses prepare accounts using local shortcuts or outdated practices, leading to adjustments and delays during the compliance audit.

How to avoid it: Hire qualified accountants or outsource to professional auditing and accounting services in Dubai. Regular interim reviews help ensure IFRS compliance before the final audit.

3. Misclassification of Expenses and Revenues

A common error is misreporting financial data—for example, booking capital purchases as expenses or recognizing income too early. These mistakes can distort financial performance and raise red flags during both external audits and forensic audits if irregularities are suspected.

How to avoid it: Invest in staff training or partner with an experienced audit and compliance consulting firm to ensure accurate classification.

4. Unreconciled Bank Accounts and Balances

Bank reconciliations are one of the first checks during any audit & assurance engagement. Unreconciled accounts create discrepancies between reported balances and actual cash, undermining financial reliability.

How to avoid it: Conduct monthly reconciliations and resolve variances immediately. This simple step strengthens internal control and reduces audit issues.

5. Late Submission of Audit Reports

Every UAE free zone sets strict deadlines for submitting audited financial statements. Missing these deadlines can result in fines, non-renewal of trade licenses, or compliance warnings. Often, delays stem from companies starting the audit too late or providing incomplete data.

How to avoid it: Begin audit preparations well in advance. Engaging a trusted audit firm in Dubai ensures timely reporting and avoids penalties.

Why Do These Audit Issues Matter?

Whether it’s a compliance audit, external audit, or forensic audit, the process is not only about meeting free zone regulations, it’s also about building trust with investors, banks, and business partners. By proactively addressing these common issues, companies can avoid unnecessary stress, ensure smooth audits, and demonstrate strong financial governance.

At Affiniax Partners, our team specializes in audit & assurance, risk management compliance, and outsourced accounting services tailored to the needs of UAE free zone companies. With expert guidance, you can transform the audit process into a value-adding exercise rather than just a regulatory hurdle.

If your free zone company is due for an audit, contact us today. Our team of experienced auditors in Dubai will help you stay compliant, save time, and strengthen your financial foundation.

Ministerial Decision No. 84 of 2025, issued by the UAE Ministry of Finance on March 25, 2025, marks a significant update to the financial reporting and audit requirements under the UAE Corporate Tax regime. Effective for tax periods commencing on or after January 1, 2025, this decision repeals and replaces Ministerial Decision No. 82 of 2023, reinforcing the UAE’s commitment to robust financial transparency and alignment with global tax practices.

Here’s a summary of its key provisions and implications:

1. Mandatory Audited Financial Statements

• Individual Taxable Persons (not part of a Tax Group): Must prepare and maintain audited financial statements if their annual revenue exceeds AED 50 million during the relevant Tax Period.
• Qualifying Free Zone Persons (QFZPs): All QFZPs are now universally required to prepare and maintain audited financial statements, regardless of their revenue, to maintain their preferential 0% Corporate Tax rate.
• Tax Groups: All Tax Groups are now explicitly mandated to prepare and maintain audited special purpose financial statements for Corporate Tax purposes. This removes the previous AED 50 million consolidated revenue threshold for Tax Groups. The decision indicates that the form, procedures, and rules for these statements will be specified by the Federal Tax Authority (FTA).

2. Mandatory IFRS Adoption (Context from MD 114/2023)

• While not solely introduced by MD 84/2025, this decision operates within the broader context established by Ministerial Decision No. 114 of 2023. All financial statements used for Corporate Tax purposes, including those subject to audit, must be prepared in full compliance with International Financial Reporting Standards (IFRS). Taxable Persons with revenue not exceeding AED 50 million may apply IFRS for Small and Medium-sized Entities (IFRS for SMEs). Cash basis accounting is permitted only if revenue does not exceed AED 3 million, or in exceptional circumstances with FTA approval.

3. Expanded Audit Scope

• The decision broadens the scope of mandatory audits, particularly by removing the revenue threshold for Tax Groups and reiterating the requirement for all QFZPs, leading to an increased demand for statutory audit services across more entities.

4. Stricter Record Retention

• All financial records, including statements, ledgers, invoices, and supporting documents, must be retained for at least seven years and be readily accessible to the FTA upon request.

5. New Requirements for Free Zone Distributors

• QFZPs engaged in the activity of distribution of goods or materials in or from a Designated Zone will be subject to additional procedures to be prescribed by the FTA.

6. Non-Resident Audit Threshold Clarification

• For Non-Resident Persons, only revenue derived through a UAE Permanent Establishment and/or nexus in the UAE will be taken into account when calculating the AED 50 million audit threshold.

7. Direct Corporate Tax Impact

• High-quality, timely audited financial statements are no longer merely a compliance exercise but are directly integrated into Corporate Tax calculations and preferential tax status eligibility (such as QFZP status). They are now a strategic necessity for tax compliance and optimization.

Status of Further Guidance: As of July 2, 2025, the anticipated detailed guidance from the Federal Tax Authority on the “form, procedures, and rules” for audited special purpose financial statements for Tax Groups, and “additional procedures” for Free Zone Distributors, has not yet been publicly released. Businesses should actively monitor official FTA announcements for these forthcoming details.

This Ministerial Decision underscores the UAE’s commitment to enhancing financial transparency, streamlining tax administration, and aligning its corporate tax framework with international best practices.

For more information on how Affiniax can ensure your compliance to Ministerial Decision No. 84 of 2025, contact us at mail@affiniax.com.

The Issue

A diversified group was facing repeated statutory audit qualifications and delays in financial closing due to:

• Weak controls over revenue recognition and accruals
• Lack of documentation and audit trail for journal entries and adjustments
• Inconsistent application of accounting policies across business units
• Limited understanding of financial control responsibilities among process owners
• Absence of a formal ICOFR framework and control testing mechanism
• This resulted in high compliance risk, investor concerns, and challenges in obtaining clean audit opinions.

Affiniax Approach

Our approach included:

• Conducted process walkthroughs across key financial areas: revenue, receivables, procurement, payables, fixed assets, payroll, and financial close.
• Mapped end-to-end process flows and identified risk and control points.
• Developed a risk control matrix (RCM) covering entity-level and process-level controls.
• Identified and documented manual and automated controls, and defined roles/responsibilities for control ownership.
• Designed control testing procedures, sampling techniques, and control effectiveness assessments.
• Provided remediation plans for design or operating effectiveness failures (e.g., lack of documentation, inadequate review mechanisms).
• Conducted training workshops for control owners and finance teams on internal control awareness and documentation best practices.

Impact Delivered

• Established a centralized ICOFR framework and repository of controls, improving consistency across all units.
• Enabled timely and accurate financial reporting through effective risk mitigation and error prevention.
• Reduced reliance on manual journal entries by identifying system-based controls and automations.
• Supported external audit readiness with detailed control documentation, evidence, and walkthrough packs.
• Enhanced control culture and ownership across departments, enabling smoother financial close processes.
• Positioned the company to achieve clean audit reports, enhancing investor confidence and governance image.

To learn more about how Affiniax can help you, please contact us at mail@affiniax.com.