The Ministry of Industry and Advanced Technology (MoIAT) introduced the National In-Country Value (ICV) program in 2017 to increase the contribution of local industries and support their integral role in advancing economic and social development in the UAE. ICV certification evaluates a supplier’s contribution to the UAE economy through local spending, investments, Emiratization, etc. and issues an ICV certificate reflecting their total ICV score.
Capturing Specific Costs through Modified Trial Balance and Codes
As per the ICV certification guidelines, all figures entered in the ICV template should align with the supplier’s latest audited financial statements. However, traditional trial balance and account codes may not separately capture the specific costs required for ICV calculations such as manufacturing costs, third party spend, Emirati payroll costs, training costs, etc.
MoIAT recommends that suppliers appropriately modify their existing trial balance and account codes to separately capture such ICV-specific costs. This helps ensure an efficient certification process for the current and future years in the following ways:[1]
l Easily Reconcile Figures
With separate account codes, it becomes easier to reconcile the ICV template figures with the audited financial statements. The auditor can quickly validate the ICV-related costs without going through other non-related accounts.
l Quick Data Extraction
At the time of certification, the required data can be extracted directly from the trial balance or segregated cost statements rather than manually compiling figures from various non-segregated accounts. This saves time and reduces errors.
l Streamline Calculation Process
Dedicated codes for key ICV components like manufacturing costs and emiratization benefits streamline the calculation process. Components are automatically totaled up from their respective codes rather than manually calculating totals.
l Facilitate Future Certifications
The modified codes facilitate a smoother certification process for the coming years as well. Figures can be directly uploaded from past financial records rather than re-compiling data each time. This also reduces duplication of efforts.
l Easy Tracking of ICV Performance
It helps suppliers easily track their ICV performance over time on each component. For example, they can monitor trends in local sourcing percentages or emiratization numbers year-on-year. This supports strategic decision making and continuous improvements.
Suggested Approach for Modifying Trial Balance and Codes
Some suggested approaches for suppliers to modify their existing trial balance and account codes are:
- Establish distinct cost centers or codes for key ICV components like manufacturing costs, third party spend, emiratization payroll, training costs, etc.
- Break down manufacturing costs into material, labor, production overheads with further splits for local and imported components.
- Segregate third party spends into local and foreign vendor payments.
- Create separate codes for emiratization benefits like salaries, allowances, bonuses, training costs, etc.
- Consider activity-based costing principles to assign overheads to cost objects on a cause-and-effect basis.
- Map new codes to traditional accounts but in a manner that segregates ICV-related costs.
- Involve internal and external auditors to validate code modifications meet guidelines and financial reporting needs.
- Provide training to accounting staff on correctly populating new codes in daily transactions.
- Periodically review code performances and enhance as required based on lessons learned.
Benefits of Modified Codes in Practice
Table 1. Example trial balance before and after code modifications by a manufacturing supplier
| Trial Balance | Before Modification | After Modification |
| Raw Materials | AED 5 million | AED 3 million local |
| AED 2 million imported | ||
| Production Labor | AED 2 million | AED 1.8 million UAE nationals |
| AED 0.2 million foreign workers | ||
| Overheads | AED 1 million | AED 0.6 million factory overheads |
| AED 0.4 million design & development |
By segregating raw material and labor costs, the supplier can now easily calculate local sourcing and emiratization percentages for ICV. Overheads are also separated based on their functions. This granular view was not possible with traditional codes.
FAQs
Q. Is modifying codes mandatory for ICV certification?
A: No, modifying codes is not mandatory but strongly recommended by MoIAT. Certification is still possible with traditional codes but segregated codes streamline the process.[2]
Q. What if the company has already begun the financial year?
A: Code modifications can be implemented from the next financial year. For ongoing year, figures can be mapped to new codes post-closing for future certifications.
Q. How will this affect financial reporting?
A: New codes can be mapped to traditional accounts to avoid any financial reporting issues. Statutory requirements take precedence over ICV needs.
Q. Can you provide some code modification examples?
A: Refer to Table 1 for a manufacturing example. Other examples could include separate codes for local consultancy fees, rental payments, expatriate salaries, CSR spend, etc.
[1] Ministry of Industry & Advanced Technology National In-Country Value (ICV) Certification Guidelines for Suppliers. pdf. March 27, 2024
[2] Ministry of Industry & Advanced Technology National In-Country Value (ICV) Certification Guidelines for Suppliers. pdf. March 27, 2024