Businesses operating in Oman need reliable financial reporting to meet statutory obligations, maintain investor confidence and support sound commercial decisions. International Standards on Auditing (ISA) provide the professional framework external auditors use to examine financial statements, assess financial risks and form an independent audit opinion.
Oman’s regulatory environment places considerable emphasis on compliance with international auditing standards and the professional conduct of auditors. The Financial Services Authority (FSA) has strengthened its supervision of the accounting and auditing profession, with recent inspections highlighting specific shortcomings in audit documentation, evidence, engagement agreements and reporting. Businesses that understand these expectations can prepare more effectively, reduce audit delays and maintain dependable financial records.
What Are International Standards on Auditing?
International Standards on Auditing are professional standards issued by the International Auditing and Assurance Standards Board (IAASB). They establish the principles and procedures independent auditors follow when examining financial statements, including how they assess risk, collect evidence, document their work and communicate their conclusions.
ISA standards provide a consistent approach to audit quality across different industries and jurisdictions. They help auditors conduct engagements with professional judgement, independence and appropriate scepticism while supporting the credibility of financial statements for shareholders, lenders, regulators and other stakeholders.
International Standards on Auditing in Oman: Regulatory Framework
The legal framework governing auditing in Oman combines statutory requirements with professional standards. Companies need to understand both the rules governing their financial statements and the requirements that apply to the external auditors examining those statements.
Commercial Companies Law and Audit Requirements
Royal Decree 18/2019, which promulgated Oman’s Commercial Companies Law, establishes important requirements for company financial records and external audits. Article 209 states that financial statements must be prepared according to International Financial Reporting Standards (IFRS) and audited according to international audit standards, while the competent authority can introduce additional standards that do not conflict with these requirements.
This distinction matters for businesses because IFRS and ISA serve different purposes. IFRS governs how financial information is prepared and presented, whereas ISA governs how an independent auditor examines that information and forms an opinion. Companies need accurate accounting records and financial statements prepared under the applicable reporting framework before an external auditor can complete the audit.
The law also establishes auditor appointment and independence requirements. For companies subject to the relevant provisions, Article 219 addresses the appointment of licensed auditors by the annual ordinary general meeting, while Articles 223–226 set out important restrictions, responsibilities and duties relating to the auditor’s work.
Financial Services Authority: Regulation of External Auditors in Oman
The Financial Services Authority is responsible for regulating the accounting and auditing profession in Oman. Royal Decree 20/2024 transferred responsibility for regulating the profession from the Ministry of Commerce, Industry and Investment Promotion to the FSA, making the Authority a central point of reference for auditor licensing, professional oversight and compliance.
Businesses engaging external auditors need to verify that the selected firm is appropriately licensed and authorised to perform the required audit. The FSA has specifically warned that practising the accounting and auditing profession without a licence is a violation of the applicable law. It has also emphasised that audit reports must be signed by the firm’s owner, a partner or another duly authorised manager, as permitted under the legal framework.
The FSA’s regulatory focus has become particularly relevant in 2026. Its supervisory reviews identified shortcomings involving audit documentation, evidence, materiality, related-party transactions and reporting. These findings demonstrate that compliance involves more than appointing an auditor; the audit itself must be conducted and documented according to professional requirements.
ISA Standards Applicable to Audits in Oman
ISA standards cover numerous aspects of financial statement audits. The following standards are particularly relevant to businesses and external auditors in Oman, including those highlighted in recent FSA supervisory findings.
ISA 200: Overall Objectives of the Independent Auditor
ISA 200 establishes the overall objectives of an independent auditor and the responsibilities involved in conducting an audit in accordance with ISA. The auditor must obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error, and issue an appropriate report.
Reasonable assurance represents a high level of assurance, not an absolute guarantee that every error or fraudulent activity will be detected. Auditors apply professional judgement and maintain professional scepticism throughout the engagement, particularly when financial information contains unusual transactions, inconsistencies or significant estimates.
ISA 210: Agreeing the Terms of Audit Engagements
ISA 210 requires auditors and clients to establish and agree on the terms of an audit engagement. The engagement letter normally sets out the audit’s objective and scope, the responsibilities of management and the auditor, the applicable financial reporting framework and the expected form of reporting.
A signed engagement letter establishes a clear understanding between the company and the audit firm before work begins. The FSA identified missing engagement letters as a compliance concern in its 2026 supervisory findings, making this a practical priority for businesses and external auditors in Oman.
ISA 230: Audit Documentation
ISA 230 establishes requirements for documenting audit work. The auditor’s working papers must provide sufficient information for an experienced auditor, with no previous connection to the engagement, to understand the procedures performed, evidence obtained, significant matters identified and conclusions reached.
Documentation is not an administrative formality. It provides evidence that the auditor conducted the engagement properly and supports the final audit opinion. Oman’s FSA has identified inadequate working papers and failures to retain audit files for the legally required ten-year period as significant regulatory concerns.
ISA 240: Auditor Responsibilities Relating to Fraud
ISA 240 addresses the auditor’s responsibilities concerning fraud in a financial statement audit. Auditors assess the risk of material misstatement arising from fraud, consider management override of controls and evaluate suspicious transactions or inconsistencies.
Businesses can support this process by maintaining effective internal controls, separating financial responsibilities and preserving reliable records of transactions. Management remains responsible for preventing and detecting fraud, while the external auditor evaluates the risk of material misstatement and performs appropriate procedures.
ISA 315 and ISA 320: Risk Assessment and Materiality
ISA 315 requires auditors to identify and assess risks of material misstatement by understanding the business, its operations, industry, financial reporting processes and internal controls. This assessment helps determine which areas of the financial statements need greater audit attention.
ISA 320 addresses materiality in audit planning and performance. Auditors determine materiality thresholds to guide the nature, timing and extent of audit procedures and to evaluate identified misstatements. The FSA’s 2026 findings specifically highlighted failures to document materiality thresholds, showing why auditors must retain clear evidence of their decisions and how those decisions influence audit testing.
ISA 500: Audit Evidence
ISA 500 requires auditors to obtain sufficient and appropriate audit evidence to support their conclusions. Evidence may include invoices, contracts, bank confirmations, inventory records, accounting documents and other information relevant to the financial statements.
The quality and reliability of evidence directly affect the auditor’s ability to form an opinion. The FSA has identified cases where evidence was insufficient or inappropriate, reinforcing the need for auditors to verify financial information rather than rely solely on explanations provided by management.
ISA 550: Related Parties
ISA 550 addresses the auditor’s responsibilities regarding related-party relationships and transactions. These transactions can create financial reporting risks because they may involve unusual terms, conflicts of interest or arrangements that are not conducted on ordinary commercial conditions.
Businesses should maintain complete records of related parties, disclose relevant transactions and provide supporting documentation to their auditors. The FSA has identified weaknesses in related-party audit procedures, making this an important area for companies with complex ownership structures or transactions involving directors, shareholders and affiliated entities.
ISA 700: Forming an Opinion and Reporting on Financial Statements
ISA 700 governs how auditors form an opinion and prepare the independent auditor’s report. The report communicates whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
A compliant audit report must follow the relevant requirements for structure, content and opinion formation. Oman’s FSA identified shortcomings in audit reports that did not meet ISA 700 requirements, highlighting the importance of professional reporting and appropriate review before reports are issued.
Requirements for Businesses Preparing for an External Audit in Oman
Companies can make the audit process more efficient by preparing financial records, internal controls and supporting documentation before the auditor begins testing. Strong preparation also helps businesses respond to audit queries without unnecessary delays.
Maintain Accurate Financial Records
Businesses need complete and organised accounting records that reflect their transactions and financial position. These records should include sales and purchase invoices, bank statements, payroll information, fixed asset registers, inventory records, loan agreements and supporting documentation for significant expenses.
Prepare Supporting Documents and Audit Schedules
Companies should prepare schedules for major financial statement balances, including accounts receivable, accounts payable, inventory, fixed assets, provisions and related-party transactions. Each schedule should reconcile with the general ledger and include supporting evidence that explains the reported balance.
Strengthen Internal Controls
Effective internal controls help prevent errors, detect irregularities and support reliable financial reporting. Businesses should establish clear approval procedures, separate financial duties where practical, reconcile bank accounts and restrict access to accounting systems according to employee responsibilities.
Cooperate with the External Auditor
Auditors need access to relevant financial records, employees, management explanations and supporting documents. Companies should appoint a contact person to coordinate audit requests, organise meetings and ensure information reaches the audit team promptly.
External Auditors in Oman: Licensing, Independence and Professional Responsibilities
Businesses should select an external auditor based on professional qualifications, licensing status, relevant industry experience and the ability to conduct the engagement in accordance with applicable standards. Checking the FSA’s official register is an important step before appointing an audit firm.
Independence is another essential requirement. Under Oman’s Commercial Companies Law, auditors are subject to restrictions involving their relationships with the company and the services they provide. Article 223, for example, prohibits specified relationships with the company’s founders, board, executive management and employees, and restricts certain technical, administrative or consultancy services to the company and its subsidiaries.
Common Audit Compliance Issues Businesses Should Avoid
Several recurring issues can create audit delays, regulatory concerns or weaknesses in financial reporting. Businesses should address these risks before the engagement begins.
- Incomplete accounting records: Missing invoices, unreconciled accounts and inconsistent financial schedules make it difficult to verify balances.
- Insufficient audit evidence: Unsupported financial figures, incomplete contracts and missing confirmations weaken the basis for audit conclusions.
- Poor audit documentation: Audit firms need working papers that clearly record procedures, evidence, professional judgements and conclusions.
- Undocumented materiality decisions: Auditors must establish and document materiality thresholds and explain how they influence audit procedures.
- Undisclosed related-party transactions: Companies need complete records and appropriate disclosures for transactions involving related parties.
- Missing engagement letters: The terms of the audit should be agreed and documented before the engagement proceeds.
- Unlicensed or unauthorised audit practice: Companies should verify the auditor’s licensing status and ensure reports are signed by an authorised professional.
- Failure to retain audit files: Businesses and audit firms should understand the applicable record-retention requirements and maintain documentation accordingly.
How MFN Auditing Supports Audit Compliance in Oman
Preparing for an external audit requires accurate financial records, a clear understanding of applicable regulations and effective coordination with a qualified audit firm. Businesses operating in Oman need professional support that considers their legal obligations, reporting framework, industry risks and audit preparation requirements.
MFN Auditing supports businesses with professional auditing and financial services in Oman, helping organisations prepare for their reporting responsibilities and maintain reliable financial information. Working with an experienced audit team can help management organise documentation, address financial reporting concerns and approach the audit process with greater confidence.
Whether your business is preparing for its annual audit or reviewing its existing financial reporting practices, professional guidance can help identify documentation gaps and improve readiness.
Frequently Asked Questions
What are International Standards on Auditing in Oman?
International Standards on Auditing are professional standards that guide external auditors in examining financial statements, obtaining evidence, assessing risks and issuing audit opinions. Oman’s Commercial Companies Law requires financial statements to be audited according to international audit standards, subject to applicable regulatory requirements.
Are ISA standards mandatory in Oman?
Oman’s Commercial Companies Law, Royal Decree 18/2019, Article 209 requires companies’ financial statements to be audited according to international audit standards. Businesses must also comply with applicable laws, regulations and requirements issued by the competent authority.
Who regulates external auditors in Oman?
The Financial Services Authority regulates the accounting and auditing profession in Oman. Royal Decree 20/2024 transferred responsibility for regulating the profession to the FSA, which oversees licensing, professional compliance and audit quality.
How can a business verify whether an audit firm is licensed in Oman?
Businesses should consult the official Financial Services Authority website and its relevant register of licensed accounting and auditing firms. Confirming the firm’s registration and authorisation before appointment helps avoid engaging an unauthorised provider.
What documents should a company prepare for an external audit in Oman?
Companies should prepare financial statements, general ledger records, bank reconciliations, invoices, contracts, payroll records, inventory schedules, fixed asset registers and supporting documents for significant transactions. Related-party records, loan agreements and relevant management explanations may also be required.
How long must audit files be retained in Oman?
The FSA has highlighted a legally required ten-year retention period for audit files and working papers in its 2026 supervisory findings. Businesses and audit firms should confirm the specific obligations applicable to their records and maintain documentation in accordance with the relevant law and regulatory requirements.
What are the most common ISA compliance issues identified by Oman’s FSA?
The FSA’s 2026 findings included missing engagement letters under ISA 210, deficient audit documentation under ISA 230, insufficient audit evidence under ISA 500, weaknesses in related-party procedures under ISA 550, audit reporting issues under ISA 700 and inadequate documentation of materiality under ISA 320.
Why is auditor independence important in Oman?
Auditor independence supports objective audit opinions and helps protect the credibility of financial reporting. Oman’s Commercial Companies Law establishes restrictions on auditors’ relationships with companies and certain services they may provide, helping reduce conflicts of interest.