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Mahmud P.K. Merali

UAE, DUBAI - Economy

In the Details

Managing Partner, Merali’s

Bio

Mahmud P.K. Merali is a fellow of the Institute of Chartered Accountants of England & Wales, a Certified Public Accountant in Kenya and Zambia, as well as an Associate Member of the Institute of Taxation in the UK. Currently an Executive Partner of the Baker Tilly Meralis Group, he is the Regional Head for Middle East and South East Asia, and takes the lead as the group’s International and Financial Consultant. He also sits on the boards of three Saudi-owned Investment Funds, as well as being the Vice-Chairman of the Board of Directors of a Turkish retail chain.

"The reform of insolvency laws can improve economic deficiencies and strengthen the market in times of crisis."

What could be done to further develop the UAE’s accounting standards and requirements for auditing practices?

Presently, the commercial company law does not specify the accounting standards framework for financial statements. The Central Bank of the UAE made it mandatory for the banks to prepare financial statements as per International Financial Reporting Standards

(IFRS). The important thing here, really, is that the commercial company law is under an amendment process and the laws should take into account the requirements of the financial statements and framework of the IFRS. We believe the amended law will also ensure that audits are done in compliance with IFRS.

“The reform of insolvency laws can improve economic deficiencies and strengthen the market in times of crisis.”

What kind of impact did the financial crisis have on internal auditing and risk management procedures?

In terms of business challenges, the reforms to the legal framework improved corporate governance requirements for risk management and, hence, the development and resilience of the economy. They proved how important corporate governance is. For a global economic crisis, which it was, the need for stronger internal audit and risk management procedures are of upmost importance. Good corporate governance is a key factor in sustaining economic growth and development. As economic conditions change, so too do risk management priorities. That is also why auditors should consider first and foremost whether they are aligned with the strategy and direction of the company. By focusing on a company’s long-term strategy and understanding the impact of short-term initiatives, they can align themselves accordingly and the internal audit functions can be better positioned to monitor and address the risk management activities throughout. Internal auditing plays a very big role in corporate governance. We recommend having an audit committee. Large family businesses should have an audit committee and the chairman should be an independent board member. From there, they can decide whether they should outsource an auditing department or have an internal auditing department.

What kind of impact has real estate legislation had on the market here?

The Dubai Jointly Owned Property Law established a framework for development and subdivision in such unified compounds, which are then known as jointly owned properties. Each development in Dubai comprises not only a number of units, but also common parts designed for common use by unit owners and occupants. Regulations have been introduced to enforce the law and, among other things, they provide that the owners’ association of all the unit owners is responsible for the management, operation, and maintenance of common areas. For each development, the developer must file a Jointly Owned Property Declaration (JOPD) with the Land Department. Under the strata law, they must appoint an auditor and at the first annual general meeting and at the end of the financial year they evaluate financial statements. We give guidance and provide a way forward to the board in the initial transition stage for it to ensure that the service charge is properly calculated, computed, and charged correctly to the owners. When there are multiple users, making sure the right amounts are charged is very important, especially where developers are still holding something they’ve not sold. It was quite a task in the initial years. The strata law accounts for this and provides owners’ associations with the power to hold a loan on the property of those we have not paid. The legalities are there and the lawyers are comfortable going to court to get a loan to recover service charges, which is the same as in other places where we do work, such as the UK.

What about the need to improve insolvency laws?

That, to me, is crucial in a developing nation. The reform of insolvency laws can improve economic deficiencies and strengthen the market in times of crisis. Reforming the insolvency laws to provide clarity and transparency will boost the national economy by reducing the cost of capital for companies in the medium to long term. There is a bankruptcy law that exists, but it has not been tested by companies, which means that there is uncertainty in legal circles. Best practice corporate governance can play an important role in stimulating investments in the UAE and enhancing confidence in investors. To me, insolvency laws must be a key factor among other key concerns.

Why has the bankruptcy law taken so long? Is that prudent?

Dubai is unique. It has grown very successfully in a very short period. There is lovely infrastructure and it is taking its time. It has to balance between the sharia and other legal systems. It is complicated. The lawyers and the businesses have long been calling for changes to mitigate financial problems and attract foreign investments. The good thing is that a draft bankruptcy law designed to support companies is currently being reviewed. This is the final stage. There is new hope for an overhaul in how the law deals with businesses and individuals. This is important. We can see goodness coming out of that.

Why do you see Dubai as such a vibrant center for global business?

Dubai is one of the very few cities in the world that has undergone such a rapid transformation from humble beginnings to be one of the fastest growing cities in the world. Tourism, trade, and logistics have earned it the reputation of being the bridge between East and West. It is a new, dynamic place for the Arabian Gulf region. It is home to maybe 200 nationalities. This is where Dubai is, and it has a lot of offer. It is safe, stable, centrally located, and there is a good education system, health care, and infrastructure. It is always sunny. Obviously, also, the tax legislation is very relaxed. To us, we believe Dubai is the destination of the 21st century. Dubai is ambitious and fast growing.

© The Business Year – April 2013

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