Management and Business Consultancy

Each year across the United Arab Emirates, many businesses give hundreds of thousands of Dirhams in “consultancy services” to Management and Business consultant. Unfortunately, much of this money is in return for unnecessary Information and poorly implemented recommendations. In today’s cash strapped environment businesses need to understand better what business consulting assignments can achieve and accomplish. They need to ask more from their adviser, who in their turn must increase their learning to satisfy these expanded expectations.

Not a Single Purpose Assignment

Management and Business Consulting includes a broad range of activities, and many firms and their members often define these practices quite differently. A particular way of categorization is to assess these in terms of the capabilities of the specific Consultant, e.g. competitive analysis, corporate strategy, operations management, and human resources.

A second approach is to view the business consulting process as a sequence of phases: entry, contracting, diagnosis, data collection, feedback, implementation, and so on. Perhaps the most useful way of evaluating the consulting process is to consider what the purpose of consulting is. In the following diagram, the primary and additional goals of consulting arranged.

Management constancy

The management and business Consulting purposes in their order of hierarchy are:

  1. Providing Information to a Client
  2. Solving a Client’s Problems
  3. Making a diagnosis, which may necessitate redefinition of the problem.
  4. Making recommendations based on the diagnosis.
  5. Assisting with the implementation of recommended solutions.
  6. Building a consensus and commitment around corrective action.
  7. Facilitating client learning—that is, teaching clients how to resolve similar problems in the future.
  8. Permanently improving organizational effectiveness.


The lower-numbered purposes are better understood and practiced by most business consultants. Clients thus, more request these business consulting outcomes. However, some consultants, aspire to a higher stage of the pyramid.


Purposes 1 to 4 are considered as essential functions by most consultants and in a business consulting scenario, purposes five to 8 are the ones that add value to the client. However, it should note that these higher purposes could not achieve unless the lower objects have acquired first. They are essential to competent consulting even if not recognized as explicit goals when the engagement begins.

Moving up the list of the pyramid, and towards more ambitious purposes requires increasing sophistication and skill in the process of business consulting.

We will discuss each of these goals and purposes to give a better understanding.

Providing Information

Perhaps the most common reason for acquiring the services of a business consultant is this. The provision of Information compiling it may involve attitude surveys, cost studies, feasibility studies, market surveys, or analyses of the competitive structure of an industry or business.

Often the situation occurs where a Client merely requires Information. But Information that a Client requires is often different from what requested from a Business Consultant. Seemingly impertinent questions from both sides should not be cause for offense—they can be highly productive. Moreover, professionals have a responsibility to explore the underlying needs of their clients. They must respond to requests for data in a way that allows them to decipher and address other needs as an accepted part of the engagement’s agenda.

Solving Problems

Clients often give consultants severe problems to solve and complicated issues to resolve. For example, a client might wish to know whether to make or buy a component, acquire or divest a line of business, or change a marketing strategy. Or management may ask how to restructure the organization to be able to adapt more readily to change; which financial policies to adopt; or what the most practical solution is for a problem in compensation, morale, efficiency, internal communication, control, management succession, or whatever.

Seeking solutions to the problems mentioned above is certainly a legitimate function. But the Consultant also has a professional responsibility to ask whether the question posed is the one that requires solving.

In many scenarios, most business consulting requirements put forth by the client are not what cause the problems in the first place. The underlying causes need to be understood and communicated to the client by the Consultant.

Effective Diagnosis

Business Consultants are effectively diagnosticians. However, it can be said that the relationship between a business consultant and his client can be strained during the consulting process. Competent diagnosis requires more than an examination of the external environment, the technology and economics of the business, and the behavior of non-managerial members of the organization.

When clients participate in the diagnostic process, they are more likely to acknowledge their role in problems and to accept a redefinition of the consultant’s task. Top firms, therefore, establish such mechanisms as joint consultant-client task forces to work on data analysis and other parts of the diagnostic process.

Recommending Actions

The engagement characteristically concludes with a written report or oral presentation that summarizes what the Consultant has learned, and that recommends in some detail what the client should do. Firms devote a great deal of effort to designing their reports so that the Information and analysis are present, and the recommendations are convincingly related to the diagnosis on which they are based.

Untold numbers of seemingly convincing reports, submitted at great expense, have no real impact because—due to constraints outside the Consultant’s assumed bailiwick—the relationship stops at the formulation of theoretically sound recommendations that can’t be implemented.

In the most successful relationships, there is not a rigid distinction between roles; formal recommendations should contain no surprises if the client helps develop them and the Consultant is concerned with their implementation.

Implementing Changes

The Business Consultant attends a proper role in implementation is a matter of considerable debate in the profession. Some argue that one who helps put recommendations into effect takes on the part of the manager and thus exceeds consulting’s legitimate bounds. Others believe that those who regard implementation solely as the client’s responsibility lack a professional attitude since recommendations that are not implemented (or are poorly implemented) are a waste of money and time.

Active work on implementation problems requires a level of trust and cooperation that is developed gradually throughout the engagement.

Building Consensus and Commitment

Any engagement’s usefulness to an organization depends on the degree to which members reach accord on the nature of problems and opportunities and appropriate corrective actions. Otherwise, the diagnosis won’t be accepted, recommendations won’t be implemented, and valid data may be withheld.

Facilitating Client Learning

Management consultants like to leave behind something of lasting value. This means not only enhancing clients’ ability to deal with immediate issues but also helping them learn methods needed to cope with future challenges. It does not imply that competent professionals work themselves out of a job. Consultants facilitate learning by including members of the organization in the assignment’s processes.

Learning during projects is a two-way street. In every engagement, consultants should learn how to be more effective in designing and conducting projects.

Organization Effectiveness

Sometimes successful implementation requires not only new management concepts and techniques but also different attitudes regarding management functions and prerogatives or even changes in how the primary purpose of the organization is defined and carried out. The term organizational effectiveness is used to imply the ability to adapt future strategy and behavior to environmental change and to optimize the contribution of the organization’s human resources.

Increasing consensus, commitment, learning, and future effectiveness are not proposed as substitutes for the more common purposes of management and business Consulting but as desirable outcomes of any effective consulting process. The extent to which they can be built into methods of achieving more traditional goals depends on the understanding and skill with which the whole consulting relationship is managed.

The United Arab Emirates introduced in April 2019 a legislation named as Economic Substance Regulations [ESR]. For many Years UAE has been considered as a Tax Haven by the many entities due to its lack of direct and indirect taxes.

Recently, however, the United Arab Emirates has introduced legislation to tax supplies in its jurisdiction termed as a Value Added Tax [VAT]. The introduction of Economic Substance Regulations [ESR] is one of the many ways in which the United Arab Emirates has aligned its policies with that of the Organization for Economic Cooperation and Development [OECD]. The directives issued by the Organization for Economic Cooperation and Development [OECD] for BEPS [Base Erosion Profit Shifting] are a direct precursor of Economic Substance Regulations [ESR] directives.

Base Erosion Profit Shifting directives are regulations issued by the Organization for Economic Cooperation and Development [OECD] to combat corporate policies for Tax Planning which would shift the profits of companies from low tax rate jurisdictions to high tax jurisdictions. Thus “eroding” the tax base in high tax jurisdictions.

Commitment to the Organization for Economic Cooperation and Development [OECD] requirements and being a member country of the same body, UAE has introduced the ESR. The issuance of ESR has also helped the UAE to comply with the assessment of UAE Tax Frameworks made by the European Union.

The purpose of the ESR is to bring specific requirements for businesses to demonstrate actual activity in the UAE. With the introduction of ESR, UAE has been removed from the blacklist of tax havens.

The ESR adopted by the UAE is roughly similar to the regulations of the Organization for Economic Cooperation and Development [OECD] member countries which have a similar tax structure as the United Arab Emirates.

The Economic Substance Regulations [ESR] require all UAE entities, whether they are onshore, free zone, branch or representative offices that undertake one or more “Relevant Activity” for Financial Year commencing on or after January 2019.

It should be noted that Entities that direct or indirect ownership amounting to 51% of its total shares is exempted from the compliance requirements of ESR. All UAE Entities need to whether and which of their activities fall within the scope of the Economic Substance Regulations, as well as ensuring that they meet the requirements in respect in each relevant activity. This is in essence both a qualitative and quantitative assessment that would involve consideration of operational, financial, tax/transfer pricing, legal, and governance matters.

What are the relevant activities for Economic Substance Regulations [ESR] Compliance Requirements?

The regulations will apply to companies and other business forms which are registered within the UAE mainland, Free Zones, and Financial Free Zones, that carry out the following activities:

It should be noted with clarity that there is a requirement for a business to use the “Substance over Form” approach when evaluating whether they undertake a relevant activity or not.

This means that companies will not only be evaluated on what activities are stated on their commercial license but their activities will be evaluated and ESR applied accordingly. It is not a requirement that a UAE entity is directly engaged in the performance of a relevant activity directly. If an entity is earning income passively from a relevant activity, it will be sufficient for the application of Economic Substance Regulations [ESR].

What are the requirements for UAE Entities for Economic Substance Regulations [ESR]:

All Entities which assess that they are involved in the performance of a Relevant Activity will carry out the Economic Substance Test for Economic Substance Regulations [ESR]. The Economic Substance is composed of two parts:

  1. The Direct and Managed Test:
    1. The Entity needs to be directed and managed in the UAE with regards to the relevant activity carried out in the Emirates.
  2. The Core Income Generated Activities Test [CIGA]:
    1. The Entity that performs the relevant activities for the purpose of application of Economic Substance Regulations [ESR], need to demonstrate that the CIGA’s are undertaken in the UAE.
    2. The activity which constitutes as a CIGA varies with the activity being performed.

Below is a list of CIGA activities for each relevant activity, however, the list is for illustrative purposes and is not exhaustive.

Relevant ActivitiesExamples of CIGA



§  Raising Funds

§  Managing Risks

§  Taking Hedge Positions

§  Providing Loans, credit and other financial services

§  Managing Capital and preparing reports to investors.





§  Predicting and Calculating Risk

§  Insuring and Re-insuring against the risk

§  Providing Insurance business services

§  Underwriting Insurance and Re-insurance




Investment Fund Management

§  Taking Decision on holding and selling of investments

§  Calculating risk and reserves

§  Taking decision on currency or interest fluctuations

§  Preparing report for Investors



Lease Finance

§  Agreeing Funding Terms

§  Identifying and acquiring assets to be leased.

§  Setting terms and duration of any leasing

§  Monitoring and revising agreements

§  Managing risks



§  Taking relevant management decisions

§  Incurring operating expenditures

§  Co-ordinating Group Activities

Holding Company§  All activities related to the business that derives income from dividends and capital gains from equity interest


Shipping Company

§  Managing crew

§  Overhauling and Maintenance of ships

§  Overseeing and Tracking Shipping

§  Determining what goods to order and when to deliver.

§  Organizing and overseeing voyages.



Intellectual Property

§  Taking a strategic decision and managing principal risks related to the development and subsequent exploitation of intangible assets generating income. Acquisition by third parties and subsequent exploitation and protection of the intangible assets.


Distribution and Service Center

§  Transportation and storing component parts.

§  Material and goods ready for Sale

§  Managing Inventories

§  Taking Orders

§  Providing Consulting and Other Administrative Services


What are Economic Substance Regulations [ESR] Reporting Requirements?

The Entities which exist in the United Arab Emirates and carry out relevant activities within its jurisdiction need to follow certainly and comply with certain reporting requirements.

The entities will be required to submit an annual notice to their Regulatory Authority indicating that they are carrying out a Relevant Activity in the preceding Financial Year and whether there has been any Income from the Relevant activity that has been subject to Taxation outside the United Arab Emirates.

It should be noted that UAE entities that qualify for an exemption from the Economic Substance Regulations, or those that did not earn any income from their Relevant Activities will still be required to file a notification with the Relevant Authority.

UAE Entities which qualify for submission of notification and those that earned any income from the same will also be required to file an Annual Economic Substance Return. The purpose of the Return will be to make an assessment of the requirements of economic substance regulations are met, the income earned, qualifications of the staff involved, and information about the premises and other assets used in carrying out the relevant activity.

What are compliance timelines for [ESR]?

The question arises as to when the entities which are required to comply with Economic Substance Regulations [ESR]. For understanding this, we can divide the requirements into two categories:

These entities must comply with the requirements of the regulations from the beginning of their financial year commencing on or after the 1st of January 2019. The first Return for these entities will be due 12 months after the financial year ends in 2020. For entities engaged in relevant activities with a calendar year ending by the year 31 December, the first notification and return need to be submitted by 31st of December 2020.


New Entities that are engaged in carrying out the relevant activities must comply with the regulations from the commencement of the Financial Year. The first return due will be after their Financial year-end [could be in the year 2020 or later]


What are the Penalties for Non-Compliance of [ESR]?

In addition to an exchange of information by the UAE with countries which are a member of Organization for Economic Cooperation and Development [OECD] to remove the possibility of Base Erosion and Profit Shifting, failure to comply will cause the levy of administrative penalties not less than 10,000 AED and not more than 50,000 AED for failure to comply for the first year. In case of failure to comply with ESR, the minimum amount of penalty will be increased to 50,000 AED and the maximum amount to 300,000 AED.

In addition to this, additional penalties, such as suspending, revocation of UAE Trade License may also be levied.


Summary for Economic Substance Regulations [ESR] Compliance:

For better understanding, the following flow chart will better explain the application of Economic Substance Regulations [ESR].

of Economic Substance Regulations

Audit of Financial Statements also referred as statutory audit/financial audit, is one of the primary types of audit which are to be done as per the statutes applicable to the entity and its primary purpose is to assemble all appropriate pieces of evidence, information and assessment so that auditor can express his true and fair view of the company’s financial position as on the balance sheet date.


Which businesses are legally required to conduct it?

Businesses are incumbent to perform an audit of financial statements in UAE when required by statutory bodies. The term statutory represents that the audit is mandatory by statute. A statute is a regulation or law enacted by the jurisdictive division of the organization’s associated government. Statutes are often ratified at multiple levels, including federal, state, or municipal. In business, a statute also refers to any rule set by the corporation’s leadership team or board of directors.

What do auditors do?

A qualified Chartered Accountant can only perform the audit function as per the regulations. So, a qualified professional CA with a “certificate of practice” can only be entitled to do the audit function.

Auditing of Financial Statements is a process of examining all the financial reports and, therefore, the statements that are used in the determination of the financial position of the company in a true and fair view. Auditors determine whether a corporation is providing a reasonable and accurate representation of its financial position by examining information like bank balances, bookkeeping records, and financial transactions.

Duties of statutory auditor:

  1. The audit of the financial statement is that an independent body conducts the official inspection of a company/’s account.
  2. More elaborately put, it’s the audit of books of accounts of a corporation, according to the obligation of a statute, to certify fair and accurate representation of its financial records.

What is the purpose of the Audit of Financial Statement?

The purpose of the Audit of Financial Statements is to enable the auditor to include his view in audit reports independently without being influenced in any manner. He will check the financial records and can give his opinion thereon within the audit report. It helps the stakeholders to depend upon financial statements. Stakeholders, apart from shareholders also get benefited from this audit as they’ll take their call based on the accounts as they’re audited and authentic.

A statutory/audit of financial statements is an examination of records held by a corporation, business, government entity, or individual. This generally involves the analysis of varied financial records or other areas. During an audit of financial statements, an organization’s records regarding income or profit, investment returns, expenses, and other items are also included as a part of the audit process. Several of those items are used when calculating a combined ratio or conducting ratio analysis.

The purpose of the audit of financial statements is usually to ensure if funds were handled properly and for that, all required records and filings are accurate. At the commencement of an audit, the auditing entity makes known what records are going to be required as a part of the examination. The evidence and knowledge are assembled, gathered, and supplied as requested, allowing the auditors to accomplish their analysis. If imprecisions are found, appropriate consequences should be conducted by the auditor.

An Audit of Financial Statements isn’t an inherent sign of wrongdoing. Instead, it’s often a formality designed to assist in preventing activities like the misappropriation of funds by ensuring regular examination of various records by a competent third party.

What is involved?

Auditors only have a limited time within which to finish their work, so that they focus on testing the validity of a sample of transactions and results instead of vigorously examination everything.

Although an auditor’s independence must be observed and valued at all times, they’re nonetheless providing a service for a fee that will be value for money.

The audit should be a helpful practice and not one to be feared; it’s a chance to receive feedback on strengths and weaknesses in systems. Use your auditor to review ways of improving your accounting systems and procedures and always encourage the submission of a Management Letter, which summarizes findings, highlights weaknesses, and makes recommendations for improvements.

Why Audit of Financial Statements is important

What is Audit of Financial Statements Requirements?

A firm must have the subsequent documents before getting an Audit of Financial Statements started:

The Audit Report

An audit leads to a report which supplies an ‘audit opinion’ about whether the financial statements provide a ‘true and fair’ view of the state of affairs of the organization and operations for the period.

If the auditors don’t agree that the accounts provide a true and fair view, they will provide a variety of other opinions.


Auditor Opinion


1Unqualified The accounts provide a true and fair view.The opinion everyone wants to determine.
2Qualified – disagreement Except for the consequences of …., the accounts provide a true and fair view.There are specific misstatements, like an incorrect accounting policy, an undisclosed fraud, debtors that don’t seem to be recoverable, or interparty loan.
3Qualified – limited scope Except for the possible effects of …., the accounts provide a true and fair viewThere are specific issues that are uncertain, like particular documents not being available for review, an enclosed control flaw that might end in income not being recorded.
4Adverse   These accounts do not provide a true and fair view.There is such a large amount of misstatements within the accounts that they’re overall wrong.
5Disclaimer We don’t seem to be ready to express an opinion.There is such a large amount of missing documents or explanations that we don’t have enough information to make an opinion.

The auditor may handiest sign his report after the Board has signed and affirmed the financial statements.

Advantages of Audit of Financial Statement

  1. It increases the authenticity and credibility of statements because the audit of financial statements of the corporate is being verified by an independent party, i.e., the auditor.
  2. This confirms that management has taken care of while delivering their responsibilities.
  3. It also states regarding compliance with the non-statutory requirements like corporate –governance, etc.
  4. The auditor also commentaries upon the strength of the system of internal control within the organization together with internal checks among the departments or segments. He also suggests the realm where control is weak and susceptible to risk. It helps the corporate to mitigate the hazard and results in the enhancement of the performance of the corporate.
  5. The statement of the small company for whom audit won’t be applicable get more values if it’s audited one because with the assistance of the audited financial statements it becomes easier for the businesses to induce banking loan and other types of facilities on producing of final statements which are audited by an independent auditor because the audited statements are more reliable and authentic.

Disadvantages of Audit of Financial Statement

  1. The cost related to an audit is very high. But if any audit firm is already betrothed for taking care of the day to day work, including accounts preparation, then it’ll charge relatively very less amount to conduct the audit as compared with the firm which isn’t engaged for doing the identical.
  2. The staff might get disrupted for performing their normal work to answer the day to day query of auditor or while providing the auditor any reports or data required to them. This might lead to stretching the work of the staff beyond office hours and should sometimes cause distress among the staff.
  3. The financial statements include judgmental, additionally as subjective matter. Judgmental issues may vary with persons.
  4. There are inherent limitations of audits that prefer it must be completed in due time, control within the organization, limited power of auditor, etc. One must understand that auditors are watchdogs and not the bloodhounds. There reporting is predicated on the sample data and not the whole data. Furthermore, as frauds are the intentional one so it’ll be harder to search out the identical.
  5. There are many areas during which auditors are left with no other option than to require representation from management. This can be a danger if management itself is involved in frauds as therein case they’ll give the manipulated representation.
  6. The auditor doesn’t assess and review the one hundred pc transactions.
  7. Auditors can’t give total assurance at any point They simply express his opinion on the financial statements and data provided to him.
  8. An auditor statement upon the going concern of the organization, but nowhere guarantees for its future possibility. Stakeholders mustn’t vest their money, only seeing that the organization’s data are being audited.

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