Financial reporting and audit are central to the accountability of joint stock companies to shareholders, regulators, and other stakeholders. The Companies Law No. 21 of 1997 (as amended) establishes baseline requirements for annual financial statements and external audit, with public JSCs additionally subject to elevated standards administered by the Iraq Securities Commission. For substantial JSCs, the reporting and audit function is a meaningful organisational discipline requiring dedicated capability and external coordination.
Annual Financial Statements
JSCs must prepare annual financial statements covering the company’s financial position and performance. The principal elements include:
- Balance sheet showing assets, liabilities, and equity at the year end.
- Income statement showing revenue, expenses, and profit for the year.
- Cash flow statement showing the movement of cash during the year.
- Statement of changes in equity tracking movements in capital and reserves.
- Notes providing detail on the line items and accounting policies.
- Board’s report on the company’s affairs and prospects.
- Where applicable, consolidated statements for groups headed by the JSC.
The statements must comply with applicable accounting standards and present a true and fair view of the company’s position.
Accounting Standards
Iraqi accounting practice draws on a combination of Iraqi accounting standards adopted through the Audit and Accounting Profession Regulatory Council, international financial reporting standards (IFRS) increasingly applied by larger companies, sector-specific accounting requirements for regulated industries, and the requirements of the Iraq Securities Commission for public JSCs. The right combination for a specific company depends on its activities, its scale, its stakeholders, and any specific commitments to apply particular standards.
External Audit
JSC financial statements are subject to external audit by an independent auditor. Audit requirements include:
- Appointment of an independent auditor by the general assembly on the board’s recommendation.
- Auditor qualification consistent with Iraqi audit standards.
- Audit conducted in accordance with applicable auditing standards.
- Audit report presenting the auditor’s opinion on the financial statements.
- Auditor independence from the company and its management.
- Audit committee oversight of the audit function for larger JSCs.
The audit provides independent assurance to shareholders and other stakeholders on the reliability of the financial statements.
Audit Process
Modern audit process typically involves planning and risk assessment at the start of the audit, interim work during the year understanding the company’s operations and controls, year-end work testing specific account balances and disclosures, completion procedures finalising the audit opinion, and reporting to the audit committee and ultimately the general assembly. The process is more substantial for larger and more complex companies, with significant time investment by both the auditor and the company’s finance function.
Public JSC Reporting
Public JSCs face additional reporting obligations beyond the general framework:
- Interim financial reports during the year covering quarterly or semi-annual periods.
- Continuous disclosure of material developments.
- Specific disclosures required by Iraq Securities Commission rules.
- Listing rules disclosures imposed by the Iraq Stock Exchange.
- Where applicable, sector-specific reporting for regulated industries.
- Annual general meeting documentation and shareholder communications.
Public reporting infrastructure should be resourced appropriately, because compliance failures are visible to the market.
Internal Controls
Effective financial reporting depends on internal controls within the company. Substantial JSCs typically operate finance functions with defined responsibilities and segregation of duties, accounting policies and procedures documented and applied consistently, internal audit functions providing independent verification of controls, audit committee oversight of the reporting and control framework, and management reporting supporting executive and board oversight of financial matters.
Consequences of Reporting Issues
Financial reporting issues can produce significant consequences:
- Audit qualifications or modifications affecting the credibility of the statements.
- Restatements of previously reported figures requiring correction of errors.
- Regulatory action by the Companies Registrar, the Iraq Securities Commission, or sector regulators.
- Civil liability to shareholders or other parties relying on the reported figures.
- Criminal liability in serious cases involving deliberate misreporting.
- Reputational consequences affecting investor confidence and broader stakeholder relationships.
Investment in the financial reporting function pays returns substantially exceeding its cost.
How We Can Help
Etihad Law Firm advises joint stock companies on financial reporting and audit matters in Iraq, compliance framework development, response to audit issues, defence of reporting positions in disputes, restatement processes when required, and the resolution of regulatory matters with the Companies Registrar at the Ministry of Trade and the Iraq Securities Commission where applicable. We work alongside accounting firms and auditors.