15 Hidden Liabilities On Your Balance Sheet (and How Actuaries Find Them)
Most balance sheets look neat. Assets on one side. Liabilities on the other. Numbers tied back to invoices, contracts, and payments already made. Audited. Signed off. Filed. But that neatness is misleading.
Traditional accounting is backward-looking. It records what has already happened. What has been paid. What has been invoiced. What has been legally crystallised. Real risk does not work that way. Real liabilities form quietly, over time, long before cash ever leaves the bank.
In 2026, that gap matters more than it ever has in the UAE.
With Corporate Tax firmly in place under Federal Decree-Law No. 47, enhanced audit activity by the Federal Tax Authority, and increasing alignment with IFRS substance-over-form principles, “hidden” no longer means “unnoticed.” It means exposed. It means questioned. Often retroactively.
This is where actuarial thinking enters the balance sheet. An actuary does not ask, “What did this cost last year?” An actuary asks, “What has already been earned, promised, incurred, or triggered, even if payment happens later?”
That distinction is the difference between a stable balance sheet and a sudden earnings shock. Or worse, an audit adjustment with penalties. Throughout this article, we examine 15 hidden liabilities commonly missed or understated in UAE financial statements, across people, contracts, regulation, tax, and emerging risks and explain how actuarial services uncover, quantify, and defend them using probability, modelling, and forward-looking assumptions.
We begin where most hidden liabilities start. With people.
Category A: The “People” Risks (HR & Benefits)
Employee-related liabilities are the most underestimated risks on UAE balance sheets.
They accumulate quietly. They grow with time. And they are often misunderstood because they sit at the intersection of HR, finance, tax, and regulation.
From an actuarial risk management perspective, people are long-duration liabilities. You are not paying for today’s workforce. You are paying for future resignations, retirements, medical claims, incentives, and benefits already earned through service.
1. The Salary Inflation Gap in End-of-Service Benefits (EOSB)
Most companies calculate EOSB based on current salary. The gratuity accrual looks reasonable. It matches payroll records. It ties neatly to HR data. It passes a surface-level review.
The reality
Employees do not resign or retire on today’s salary. They leave in five, ten, or fifteen years, on a higher salary. Sometimes significantly higher. Promotions, merit increases, market adjustments, and inflation all compound over time.
If you ignore future salary growth, you understate the liability today. Under IAS 19, EOSB is a defined benefit obligation. The obligation accrues with service. The value must reflect the future benefit, discounted back to today.
This is where many balance sheets quietly drift out of compliance.
The actuarial fix
A qualified pension actuary applies a salary escalation assumption based on historical data, industry benchmarks, and expected inflation.
Using actuarial models, the future gratuity payout is projected for each employee. That future amount is then discounted to present value using a compliant discount rate. The result is a liability that reflects economic reality, not just payroll convenience.
Done correctly, this also protects tax positions. Under Corporate Tax, properly valued IAS 19 liabilities support accurate deductions. Understated liabilities today often mean overpaid tax tomorrow. This is classic actuarial consulting value: precision now, stability later.
2. Medical Insurance IBNR (Incurred But Not Reported)
Companies assume their medical cost equals the premium paid. Once the invoice is settled, the liability feels complete.
The reality
Healthcare costs do not stop at the policy renewal date. Claims occur continuously. Many are reported late. Others are still being processed when financial statements close. These are known as IBNR, incurred but not reported.
In the Northern Emirates, this risk has intensified. As of January 2025, mandatory dependent coverage tied to visa renewals has materially increased utilisation. Insurers price this risk later, usually at renewal, not when it is incurred.
That lag creates a hidden liability. A company may show clean medical costs today, only to face a 20–30% premium increase next year driven by claims already incurred.
The actuarial fix
A healthcare actuary uses utilisation data, claim lag patterns, and demographic profiles to estimate IBNR. This is not guesswork. It is a statistical projection. By recognising IBNR as a provision, companies gain early visibility into true healthcare costs and avoid sudden budget shocks. This is a practical application of actuarial risk analysis, translating data into foresight.
3. The “Voluntary” Savings Scheme Transition Deficit
Many employers moved employees to the new Voluntary Alternative End-of-Service Benefits Savings Scheme under Cabinet Resolution No. 96 of 2023. The old gratuity was “frozen.”
On paper, the problem looked solved.
The reality
A frozen liability is still a liability. The accrued gratuity up to the transition date remains payable when the employee exits. If it is not funded, it becomes a deferred cash outflow. For long-serving employees, that outflow can be significant. Companies that ignore this face a cash flow cliff years later, precisely when senior employees retire together.
The actuarial fix
An actuary performs a settlement valuation. This calculates the exact amount required today to fully extinguish the legacy EOSB obligation, without triggering accounting or tax disputes. This approach converts uncertainty into certainty. It allows management to decide whether to fund now, fund gradually, or carry the liability knowingly. That decision should be deliberate. Not accidental.
4. Unvested Long-Term Incentive Plans (LTIPs)
Retention bonuses. Phantom shares. Share options vesting in three or five years. Many companies only recognise the cost when the benefit vests.
The reality
Under IFRS, LTIPs must be accrued over the service period. The obligation builds as the employee renders service, not when the cheque is finally written. Failing to accrue creates an artificial profit today and a sudden P&L hit later.
The actuarial fix
A risk management actuary applies probability-weighted attrition modelling. Not all employees will stay to vest. That matters. Using actuarial modelling software, expected payouts are adjusted for resignation risk and recognised proportionately over time.
This produces smoother earnings and defensible financials. And it keeps surprises out of the vesting year.
People-related liabilities are long-term, compounding, and audit-sensitive. They sit under IAS 19 scrutiny. They affect tax deductions. They influence cash flow planning. Most importantly, they are already earned. Ignoring them does not remove the obligation. It simply delays recognition, usually to the worst possible moment.
Category B: Operational & Contractual Risks
Operational liabilities rarely feel theoretical. They are tied to leases, customers, warranties, and long-term commitments. Everyone knows they exist. The problem is timing. Cash leaves later. Risk exists now.
From an actuarial risk management perspective, these liabilities are created the moment a contract is signed or a product is sold, not when the bill arrives.
5. Lease Restoration Costs (Dilapidations)
Most commercial leases in the UAE require the tenant to return the property to its original condition. Fit-outs removed. Flooring restored. Cabling stripped. Warehouses repainted. Offices handed back as a shell. Because this happens years later, many companies ignore it entirely.
The reality
Dilapidation is not optional. It is a contractual obligation triggered on day one of the lease. The only uncertainty is the amount and timing. When lease terms end, companies often face a large, sudden construction bill that was never provisioned. Under IFRS 16, restoration obligations must be recognised as part of the lease liability.
The actuarial fix
An actuary estimates the future restoration cost using current construction pricing, expected inflation, and lease-specific conditions. That future amount is then discounted back to present value. This produces a defensible provision that reflects economic reality, not optimism.
When documented correctly, these provisions may also support Corporate Tax deductibility, provided they meet IAS 37 criteria. This is a practical example of actuarial services turning contractual fine print into measurable numbers.
6. Warranty Claims and the “Bathtub Curve”
Revenue is booked immediately when products are sold. Warranty costs appear later – scattered, unpredictable, and often treated as a rough percentage of sales.
The reality
Product failures do not occur evenly over time. They typically follow a “Bathtub Curve.” High failure rates early (manufacturing defects). Low failure rates in the middle. Rising failures again as products age. Simple averages miss this pattern completely. The result is under-provisioning early and sudden spikes later.
The actuarial fix
Using survival analysis, a core actuarial modelling technique, actuaries estimate when failures are most likely to occur. This creates a time-specific warranty provision rather than a blunt percentage. More importantly, it converts a vague reserve into a specific, defensible provision under IAS 37. Specific provisions are generally deductible. General provisions are not.
This distinction matters.
7. Onerous Contracts
Long-term fixed-price contracts. Construction. Facilities management. IT services. Outsourcing agreements. At signing, margins look healthy.
The reality
Inflation changes everything. Labour costs rise. Materials increase. Energy prices move. When future costs exceed contracted revenue, the contract becomes a liability. Under IAS 37, expected losses must be recognised immediately, not spread over the remaining contract life. Many companies delay recognition, hoping conditions improve. Auditors rarely share that optimism.
The actuarial fix
An actuary projects all remaining costs using updated assumptions and compares them to fixed future revenue. The full expected loss is recognised today. This forces management visibility. It also provides the data needed to renegotiate, exit, or restructure contracts before losses deepen. This is actuarial risk analysis applied to operational decision-making.
8. Customer Loyalty Program “Breakage”
Points issued to customers sit on the balance sheet as a deferred liability. In many companies, that number grows quietly every year.
The reality
Not all points will ever be redeemed. Customers forget. Accounts lapse. Programs change. This unused portion is called “breakage.” Failing to model breakage overstates liabilities and understates profit.
The actuarial fix
Actuaries analyse redemption behaviour using historical data and customer segmentation. Expected breakage is estimated and recognised under IFRS 15. This legally reduces the liability and improves reported profitability, without aggressive accounting. It is simply better measurement.
Operational liabilities are contract-driven. Auditors read contracts carefully. Tax authorities do the same. If an obligation exists, ignoring it does not make it disappear. It simply delays recognition, often into a year when profits are already under pressure.
Category C: Regulatory & Tax Risks
Regulatory liabilities are different. They are not driven by contracts with customers or employees. They are driven by interpretation, of law, intent, substance, and probability. In the UAE’s post-Corporate Tax environment, these risks have moved to the centre of audit focus. Tax authorities do not ask whether a position was convenient. They ask whether it was defendable.
From an actuarial risk management perspective, regulatory liabilities are uncertainty problems. The question is not “Will this be challenged?” It is “What is the probability it will be challenged and at what cost?”
9. Uncertain Tax Positions (IFRIC 23)
Aggressive deductions. Management fees. Related-party charges. Timing differences. Positions that technically work, until they are reviewed.
The reality
Under IFRIC 23, companies must assume the tax authority will examine positions with full knowledge of all facts. If it is not probable that the authority will accept the treatment, a provision is required. This is where many balance sheets fall short. Companies often take an “all-or-nothing” view: either fully provide or not at all. That is not what the standard requires.
The actuarial fix
An actuary applies probability-of-acceptance modelling. Each tax position is assessed for challenge likelihood and potential outcome. The provision reflects a weighted average, not a worst case, and not blind optimism. This approach produces smoother earnings and stronger audit defence. It is also aligned with how regulators think.
10. Transfer Pricing True-Ups and Interest-Free Intercompany Loans
Intercompany services charged at flat rates. Loans advanced with little or no interest. Historically tolerated. Increasingly questioned.
The reality
The Federal Tax Authority is focusing on substance. From 2026, specific interest deduction limitations and enhanced transfer pricing scrutiny will target structures designed to suppress taxable profit. A pricing adjustment does not arrive quietly. It comes with tax, penalties, and interest.
The actuarial fix
Using actuarial modelling software, actuaries apply Monte Carlo simulations to test pricing ranges under arm’s length conditions. Rather than defending a single number, companies defend a statistically justified range. This shifts the discussion from opinion to probability. It also provides early warning of exposure, before audits begin.
11. VAT Audit Exposure and Statistical Extrapolation
Minor errors in individual invoices. Incorrect VAT treatment applied consistently over time. Often dismissed as immaterial.
The reality
VAT audits do not assess errors one invoice at a time. The FTA applies statistical sampling. An error identified in a small sample can be extrapolated across multiple years, up to the five-year statute of limitations. A small issue in Year 5 can become a large liability overnight.
The actuarial fix
Actuaries use the same statistical techniques regulators rely on. Sampling methods estimate maximum probable exposure across the population of transactions. This allows companies to quantify risk accurately and decide whether to submit a voluntary disclosure. Voluntary disclosures usually mean lower penalties. Waiting for an audit rarely does.
Regulatory liabilities do not give second chances. Once an audit starts, probabilities collapse into outcomes. Interest and penalties compound quickly. Companies that quantify exposure early control timing, messaging, and cash flow.
Category D: Financial & Emerging Risks
These liabilities rarely sit neatly in accounting checklists. They emerge from markets, macroeconomics, technology, and regulation evolving faster than financial statements. They are also the risks boards worry about most because when they crystallise, they do so suddenly.
From an actuarial risk management standpoint, these are volatility risks. The task is not to predict the future perfectly, but to quantify plausible downside and prepare for it.
12. Expected Credit Losses (IFRS 9)
Trade receivables recorded at face value. Minimal provisions based on historical default rates. Comfortable assumptions drawn from calm years.
The reality
IFRS 9 is forward-looking. Historical losses are only a starting point. In an economic slowdown, customer behaviour changes. Payment cycles stretch. Defaults cluster. Correlations rise. If provisions rely solely on the past, assets are overstated.
The actuarial fix
Actuaries build Expected Credit Loss (ECL) models incorporating macro-economic overlays. GDP growth, sector stress, interest rates, and customer concentration are layered onto historical data. The result is a probability-weighted estimate of future defaults, not a reactive write-off after the damage is done. This protects both asset values and audit credibility.
13. Currency Devaluation Risk
Assets or liabilities denominated in volatile regional currencies. Common examples include EGP, PKR, and TRY exposures. As long as exchange rates remain stable, the risk feels theoretical.
The reality
Currency devaluations are not gradual. They occur in steps. A single policy decision can erase years of operating profit overnight. Accounting standards recognise translation differences, but they do not quantify risk.
The actuarial fix
Actuaries apply Value-at-Risk (VaR) modelling to foreign exchange exposures. This estimates the maximum expected loss over a defined period at a given confidence level. VaR does not predict the exact outcome. It defines the scale of plausible damage. That insight guides hedging decisions, pricing strategy, and capital buffers.
14. Environmental Remediation and ESG Obligations
Industrial sites. Storage facilities. Legacy operations. Environmental risk often sits outside finance, until it does not.
The reality
The UAE’s sustainability agenda is tightening expectations. Polluter-pays principles are gaining force. Environmental obligations are increasingly enforceable. Clean-up costs are uncertain. Legal exposure is asymmetric. Ignoring these risks does not reduce them.
The actuarial fix
Actuaries model environmental remediation using probabilistic cost distributions. Scenarios reflect contamination severity, regulatory response, remediation technology, and legal penalties. The output is not a single number. It is a range with confidence levels. This supports compliant provisioning today and prevents sudden balance sheet shocks tomorrow.
15. “Key Person” Risk Valuation
Founder-driven businesses. Executives holding client relationships, regulatory knowledge, or strategic control. The risk is obvious but rarely quantified.
The reality
If a key individual exits unexpectedly, the impact is financial. Revenue disruption. Delayed decisions. Client attrition. Recruitment costs. Yet most companies treat this as an operational issue, not a balance sheet risk.
The actuarial fix
Actuaries quantify key person risk by modelling replacement timelines, revenue dips, and recovery periods. This analysis supports appropriate key person insurance coverage levels. When structured correctly, such coverage can be tax-efficient. More importantly, it forces boards to confront concentration risk honestly.
Financial and emerging risks are no longer distant possibilities. They are live exposures shaped by global markets, regional policy, and business concentration. Companies that quantify them early control outcomes. Those that do not react under pressure. In the final section, we bring everything together. What this means for balance sheets, enterprise value, and 2026 readiness.
Conclusion
A balance sheet is often treated as a record. In reality, it is a forecast. Every liability represents a future outflow that has already been triggered, by service rendered, contracts signed, risks taken, or positions adopted. What differentiates resilient organisations from fragile ones is not whether these liabilities exist. It is whether they are understood.
Without actuarial insight, a balance sheet becomes a list of hopes:
- Hope that staff turnover stays low
- Hope that inflation remains stable
- Hope that auditors interpret contracts kindly
- Hope that regulators do not look too closely
Hope is not a control framework. Actuarial analysis replaces hope with probability. It forces forward-looking recognition. It aligns accounting with economic reality. And in the UAE’s 2026 compliance environment, it increasingly determines whether profits are sustainable or illusory.
Do not attempt to fix everything at once. Start with one category, most organisations begin with Category A (People Risks) because the data already exists and the impact is material. Run a focused actuarial diagnosis this quarter. What you uncover will shape tax planning, cash flow strategy, audit outcomes, and enterprise value.
FAQs:
There is no single answer. The recommended approach depends on workforce age profile, turnover, profitability, and access to liquidity. From an actuarial risk management perspective, partial pre-funding combined with accurate IAS 19 valuation offers the best balance. It smooths cash flow while preserving flexibility.
Hidden liabilities reduce EV directly. Buyers adjust valuation for unrecognised obligations, often applying conservative assumptions. Companies with robust actuarial consulting reports face fewer price chips and faster deal execution.
Management owns the financial statements. Auditors assess reasonableness. Well-documented actuarial models, aligned with IFRS and supported by data, significantly reduce dispute risk.
No. SBR affects Corporate Tax liability, not financial reporting standards. IAS 19 still applies for compliant financial statements.
A legal obligation arises from contracts or law. A constructive obligation arises from established practice or expectation. Both require provisioning if payment is probable and measurable.
Higher attrition reduces long-term liabilities like EOSB. However, assumptions must be evidence-based. Overstating attrition to suppress liabilities invites audit challenge.
The lease liability must be remeasured for exchange differences. This creates P&L volatility, which actuarial risk analysis can help quantify and manage.
Yes. Actuaries model breach frequency, severity, regulatory fines, and recovery costs to support provisioning and insurance decisions.
Allocation should follow economic substance. Actuarial valuation clarifies each party’s share based on service, funding, and exit terms.
High-quality corporate bond yields are preferred. Where unavailable, government bond proxies adjusted for duration are commonly used. Consistency and documentation matter most.
References
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https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2024/issued/ias19.html. IFRS Foundation - Mercer. “Actuarial Accounting Valuations | IAS 19 Liability Valuations.” Mercer Middle East. Accessed December 2025.https://www.mercer.com/en-ae/solutions/retirement/actuarial-valuations/
- International Accounting Standards Board. IFRS 9 Financial Instruments. IFRS Foundation. Accessed December 2025.https://www.ifrs.org/issued-standards/list-of-standards/ifrs-9-financial-instruments/
- International Accounting Standards Board. IFRS 16 Leases. IFRS Foundation. Accessed December 2025.https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/
- International Accounting Standards Board. IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IFRS Foundation. Accessed December 2025.https://www.ifrs.org/issued-standards/list-of-standards/ias-37-provisions-contingent-liabilities-and-contingent-assets/
- Bank for International Settlements (BIS). IFRS 9 and Expected Loss Provisioning — Executive Summary. BIS, 2017. https://www.bis.org/fsi/fsisummaries/ifrs9.pdf
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https://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-reporting/pol-tp-mragl.pdf - ACCA (Association of Chartered Certified Accountants). “IAS 19 Employee Benefits.” ACCA Global. Accessed December 2025.https://www.accaglobal.com/pk/en/member/discover/cpd-articles/corporate-reporting/mcqs/ias19-benefitsmcq.html
- IFRS Community. “Employee Benefits (IAS 19) Knowledge Base.” IFRSCommunity.com. Accessed December 2025.
https://ifrscommunity.com/knowledge-base/ias-19-employee-benefits/. IFRS Community - IFRS Foundation. IFRS 16 Leases — Project Summary and Feedback Statement. IFRS Foundation, 2016.
https://www.ifrs.org/content/dam/ifrs/project/leases/ifrs/published-documents/ifrs16-project-summary.pdf - IFRS Foundation. Expected Credit Losses — Webcast Slides. IFRS.org, 2019.https://www.ifrs.org/content/dam/ifrs/project/fi-impairment/exposure-draft-2013/webcast/expected-credit-losses-slides.pdf
- Prima Consulting. “How Audit‑Ready IAS 19 Valuations Are Delivered in UAE, KSA, and Pakistan.” PrimaConsulting.org, August 28, 2025.https://primaconsulting.org/audit-ready-ias-19-valuations/
- Insights UAE. “IAS 19 Disclosure Rules, Actuarial Assumptions for UAE Financial Statements.” Insights UAE, 2025. https://ae.insightss.co/ias-19-disclosure-rules/
- Push Digits. “Employee Benefits Under IAS 19.” PushDigits.ae. Accessed December 2025.https://www.pushdigits.ae/standards/ias/ias19-employee-benefits/
