Transfer pricing documentation for related-party transactions: how does it actually get reviewed during your annual audit?

Transfer pricing and financial statement audit are, at heart, two separate worlds — but they intersect at one important point. Transfer pricing sits inside the UAE's corporate tax framework and rests on the arm's length principle: transactions between related parties must reflect terms comparable to what unrelated parties would have agreed to. Entities with standalone revenue of AED 200 million or more, or those belonging to a multinational group with consolidated revenue of AED 3.15 billion or more, are required to prepare a Local File, and larger groups are additionally required to maintain a Master File.

The financial statement audit, on the other hand, is governed by ISA 550 on related parties, which is entirely independent of any tax obligation. The auditor is required to identify related parties and their transactions, assess whether those transactions have been properly recorded and accounted for, and evaluate whether the disclosures in the financial statements are adequate and clear — regardless of the company's tax position.

This is where the two worlds meet: the auditor typically requests the transfer pricing file or study as audit evidence supporting management's assertion that related-party transactions were priced on an arm's length basis, and cross-checks the related-party balances and transactions disclosed in the financial statements against the figures documented in the transfer pricing file itself, to confirm the two are consistent.

Inconsistencies here raise flags: if the pricing method disclosed in the tax file doesn't match the margins actually recorded in the books, or if the transfer pricing file understates the volume of transactions compared to what's actually in the accounting records, the auditor may request additional evidence or reconsider the effect on the audit opinion.

There's a related dimension too: if a company's transfer pricing position carries potential tax uncertainty — meaning the tax authority could challenge the method used and assess additional tax — the auditor needs to assess whether that calls for a provision, or at least disclosure of a contingent liability, under IAS 37, which ties directly back into accounting estimates and management judgment.

The practical implication for a business owner: a transfer pricing file shouldn't be a document prepared once for the tax authority and left in a drawer — it needs to be a living record consistent with your books and with every actual related-party transaction throughout the year, because it will also sit under the auditor's review.

That's exactly why coordination between tax advisory and audit matters — so the transfer pricing file and the financial statements line up from the start, rather than needing to be reconciled under pressure during the audit itself. It's the kind of connection RASEEKH provides for clients across both sides.