The Importance of Accurate Financial Reporting and Documentation for ICV Certification
Accurate Financial Reporting
Some of the key reasons accurate financial reporting is important include:
- Compliance with guidelines: ICV guidelines published by the UAE Ministry of Industry and Advanced Technology (MOIAT) clearly state that all figures submitted must match the supplier’s latest audited financial statements prepared according to IFRS.[1] Non-compliance can result in certification rejects or penalties.
- Verification by certifying bodies: Certifying bodies are authorized to thoroughly verify all financial information provided against supporting documents. Any discrepancies found during the audit process could lead to requests for rectification or terminated assessments.
- Benchmarking eligibility: The ICV score determines a supplier’s eligibility to participate in bids and tenders launched by participating government and private entities that have adopted ICV procurement policies. Inaccurate scoring impacts competitive benchmarking.
- Multi-year validity: The ICV Certificate issued is valid for 14 months from the financial statement issuance date. Errors in the current year’s submission can propagate issues in future recertification attempts using the same financial data.
- Reputation risk: Submitting falsified or misleading financial information damages a company’s integrity and reputation. It can impact trust in the supplier by participating entities and certification authorities.
Key Financial Elements
There are certain key elements from a company’s financial statements that directly feed into the ICV calculation template. Suppliers must pay close attention to accurately capturing these:[2]
Table 1: ICV Calculation Components
| Component | Description | Applicable Entity | Calculation Methodology |
| Manufacturing Cost | Cost of manufacturing goods locally | Goods Manufacturer | Sum of costs incurred within UAE for manufacturing + portion of costs incurred outside UAE (based on vendor ICV scores) |
| Third Party Spend | Amount spent on procuring goods/services locally | Service Provider | Sum of costs incurred within UAE from third party vendors + portion of costs incurred outside UAE (based on vendor ICV scores) |
| Investment | Value of assets owned and located in UAE | All entities | Net book value of owned property, plant and equipment in UAE |
| Emiratization | Costs associated with hiring and training Emiratis | All entities | Total annual payroll costs of Emirati employees |
| Expatriate Contribution | Portion of costs associated with hiring expat employees | All entities | 60% of total annual payroll costs of expatriate employees |
| ICV Bonus | Additional scoring for revenue, jobs and investment growth | All entities | Calculated based on year-on-year percentage increases across eligible metrics |
| Advanced Technology Bonus | Bonus for goods manufacturers investing in new technologies | Goods Manufacturer | Calculated based on capital expenditures in qualifying advanced tech assets |
| Sustainability Bonus | Bonus for service providers’ sustainability practices | Service Provider | Calculated based on sustainability reporting and performance |
Ensuring Documentation Requirements
In addition to accurate financial data capture, suppliers must closely follow documentation requirements stipulated by MOIAT’s ICV certification guidelines. Some of the key documentation that needs to be maintained includes:
- Audited financial statements: Not more than 2 years old from certification year and prepared according to IFRS.
- Trial balance schedules: Detailed classification of accounts to enable extraction of required financial elements.
- Invoices and payment vouchers: Primary records to validate expenditures against financial statements.
- Asset schedules: Details of owned assets along with supporting acquisition documents.
- Vendor ICV certificates: Valid certificates of third party suppliers to correctly apply ICV percentages.
- Payroll records: Salary transfer documents, employee lists from ministry of human resources and free zones (where applicable).
- Training records: Proof of expenditures on emiratization and expatriate training programs.
Thorough documentation acts as an audit trail and enables certifying bodies to closely scrutinize the financial information. It gives suppliers assurance that reported details can withstand verification processes. Any lacks or inconsistencies in supporting documentation could result in delays, rejections or incomplete assessments.
Ensuring Accuracy through Systems
To systematically capture ICV relevant financial elements and streamline the certification process, suppliers are encouraged to appropriately modify their accounting systems. Some measures include:
- Chart of account customization: Introduction of specialized cost centers and expenditure codes for ICV components like manufacturing, emiratization etc.
- Templates for tracking vendor ICV scores: Standard formats to record suppliers with scheduled updates of their certificate validity.
- Job costing capabilities: Ability to trace costs against projects, contracts or products enabling complex cost allocations.
- Interface with payroll systems: Direct integration of HR systems for automated capture of employee and compensation data.
- Document management: Centralized repository with metadata tags for effortless retrieval of audit documents.
Leveraging accounting and Enterprise Resource Planning (ERP) systems to embed ICV data requirements ensures consistent and organized capture of financial information. It eliminates chances of inaccurate compilations due to manual interventions or transitioning of key employees.
FAQs
Q. Can estimated figures be used for ICV calculation if audited financials are not available?
A: For newly established companies less than 10 months old without audited statements, unaudited management accounts can be used. However, any management accounts exceeding 9 months of operations require mandatory auditing.[3]
Q. How often can a supplier renew their ICV Certificate?
A: Suppliers can apply for ICV recertification during the 14 month validity period of the certificate using the same audited financial statements. However, the expiry will still remain linked to 14 months from initial issuance date.
Q. Which account heads in financial statements are excluded from ICV calculations?
A: Items like taxes, penalties, charity costs, losses, board member fees, sponsorship charges etc. expressly outlined under exclusions in MOIAT’s ICV guidelines should be excluded from total cost calculations.
In conclusion, accurate capture and assembly of financial information as per regulatory standards is critical for ICV certification in the UAE. Suppliers must invest in robust accounting systems, documentation practices and internal controls to ensure submitted data withstands rigorous verification processes. Doing so strengthens their ICV score assessment and benchmarking competitiveness over the long term.
[1] Ministry of Industry & Advanced Certification Guidelines for Suppliers Technology National In-Country Value (ICV) Certification Guidelines for Suppliers. https://moiat.gov.ae/-/media/site/moiat/microsite/icv/body/icv-supplier-certification-guidelines-oct-2023.ashx. March 4, 2024
[2] Ministry of Industry & Advanced Certification Guidelines for Suppliers Technology National In-Country Value (ICV) Certification Guidelines for Suppliers. https://moiat.gov.ae/-/media/site/moiat/microsite/icv/body/icv-supplier-certification-guidelines-oct-2023.ashx. March 4, 2024
[3] Ministry of Industry & Advanced Certification Guidelines for Suppliers Technology National In-Country Value (ICV) Certification Guidelines for Suppliers. https://moiat.gov.ae/-/media/site/moiat/microsite/icv/body/icv-supplier-certification-guidelines-oct-2023.ashx. March 4, 2024
