What Are the Accounting Standards in Saudi Arabia?

Accounting advisory and all other accounting services in Saudi Arabia are provided in accordance with the accounting standards. Accounting standards are the set of rules based on which accounting procedures are carried out all over the world.

All countries have an accounting framework designed such that neither does it contradict local laws nor International Accounting Standards. Although every region has its own rules and own regulations that may not have existence in any other region, therefore such an accounting standard is made applicable that covers all aspects of local laws. Some tasks within the organization, particularly accounting, require consistency and unity. Accounting standards are the cornerstone of financial reporting as they ensure the credibility of financial statements by providing a consistent accounting framework.

You might be wondering why accounting standards are important and why the accounting standard used in a certain region should not contradict the International Accounting Standards. In this blog we’ll explain the accounting standards applicable in Saudi Arabia.

What are Accounting Standards?

An accounting standard is a common set of principles, standards, and procedures that define the basis of financial accounting policies and practices. The use of accounting standards assists in the generation of uniformity in recording procedures, disclosures and other financial transactions. Accounting standards improve the transparency of financial reporting in all countries.

The International Accounting Standards Board (IASB) was established in 2001 as a replacement for the Internal Accounting Standards Committee (IASC). This board is an independent and private body responsible for the development and approval of International Financial Reporting Standards (IFRS).

Role of IASB

IASB is responsible for all the financial reporting-related tech matters of IFRS foundation. The organization has full discretion in developing and advancing its technical agenda, with certain consultation requirements involving the Trustees and the public. This includes the preparation and issuance of IFRSs (excluding Interpretations) and exposure drafts, in accordance with the due process outlined in the Constitution. Additionally, it has the authority to approve and issue Interpretations developed by the IFRS Interpretations Committee.

Why Are Accounting Standards Useful?

Accounting Standards;

1. Improves transparency of financial reporting in all countries
2. Specify the recognition, measurement and presentation of economic events, for example leases, depreciation, revaluation or measurement and recognition of intangible assets.
3. Financial institutions such as banks, investors, regulatory agencies and external entities depend on accounting standards to ensure relevancy and accuracy of information.
4. Ensure consistency and uniformity in financial statements
5. Open doors of career opportunities for individual in accounting all over the world
6. Helps establish common international accounting language
7. Allows everyone to use a single accounting framework to record all financial transactions.

Accounting Standards in Saudi Arabia

The body in Saudi Arabia responsible for regulations of Accounting Standards in Saudi Organization for Certified Public Accountants (SOCPA). The accounting standard used in Saudi Arabia is issued by SOCPA that are fully in compliance with IFRS. The standard provided by SOCPA also includes requirements on matters that are specific to Saudi Arabia and not covered by International Financial and Reporting Standards (IFRS) such as Zakat or religious tax.

After the announcement of Vision 2030, since 2017, the businesses operating in Saudi Arabia were required to adhere to Internal Financial Reporting Standard (IFRS) by International Accounting Standard Board. Vision 2030 is aimed at attracting investment from all across the world and likewise, the implementation of IFRS was to tell the world that the financial reporting in KSA is trustworthy and transparent. This set of standards offers guidance to organizations on how to prepare, present, and report their financial statements

The Saudi Organization for Chartered and Professional Accountants (SOCPA) is responsible for regularly updating the standard with respect to global changes. It is crucial for the businessmen to stay informed about the updated to ensure the compliance. Accounting advisory and other accounting services in KSA are savers in case you have difficulty in adhering to accounting standards.

As per financial reporting requirements in Saudi Arabia, businesses must submit their annual financial statements by 31^st March of proceeding reporting year.  These financial statements must comprise of statements of profit and loss, cash flow and balance sheet.

Let’s overview the International Financial Reporting Standard.

International Financial Reporting Standard (IFRS)

SOCPA has adopted IFRS in KSA. Here is a brief guide regarding IFRS and how these standards cover all aspects of accounting.

The International Financial Reporting Standards are globally recognized principles for financial reporting regulated by the International Accounting Standard Board. The IFRS framework consists of 17 sections that cover different aspects of accounting.

There are total of 17 sections and 2 more are in the pipeline. IFRS 1 i.e. First time adoption of International Financial standards sets out the procedures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing its general-purpose financial statements. IFRS 2 & 3 deal with shared-based payment and business combination respectively. IFRS 4 is about insurance contracts. Non-current Assets Held for Sale and Discontinued Operations are covered in IFRS 5. The aspect of Mineral asset is covered in IFRS 6 ‘Exploration for and Evaluation of Mineral Assets’. IFRS 7 deals with Financial Instruments: Disclosures. IFRS 8 is regarding the operating segments. One of the most important IFRS is IFRS 9, dealing with financial instruments. Accounting for consolidation is complex and therefore IFRS 10 deals with the consolidated financial statements. Joint arrangements have been discussed in IFRS 11 and disclosure of interests in other entities in IFRS 12. IFRS 13 sets out principles for fair value measurement. Regulatory Deferral Accounts has been covered in IFRS 14. The crucial aspect of business is Revenue from Contracts with Customers, which is thoroughly explained in IFRS 15, another important reporting standard. IFRS 16 and 17 deal with leases and insurance contracts respectively. IFRS 17 replaces IFRS 4 and sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of IFRS.

IFRS 18, Presentation and Disclosures in Financial Statements, is likely to replace IAS 1 and will come in effect from 2027. IFRS 19, Subsidiaries without Public Accountability: Disclosures, specifies reduced disclosure requirements that an eligible entity is permitted to apply instead of the disclosure requirements in other IFRS Accounting Standards.

Wrapping UP

Having gone through the details of Saudi accounting standards and IFRS, in a nutshell, I’ll conclude that ensuring compliance with financial reporting standards is extremely necessary as accounting procedures is the backbone of every business. Seeking accounting advisory and accounting services is crucial for businesses to ensure compliance and to focus on growth-oriented objectives.

SS&CO KSA: Your Trusted Partner

Companies operating in Saudi Arabia need the best accounting and advisory firms to outpace their competitors. If you are looking for a top financial services company, don’t look beyond SS&CO Global. We believe that maintaining a strong accounting and financial framework is crucial for success.

At SS&CO KSA, our area of expertise is offering thorough advisory services to businesses in Saudi Arabia. Our best accountants assist companies in maximizing their finance and accounting operations. The main goal of our top accountants is to provide firms with the knowledge and skills necessary to handle challenging financial situations.