Saudi Arabia Accounting Standards

Accounting Standards are primarily used for financial reporting, without established accounting framework a country cannot ensure transparency, gain investors trust or ensure compliance. Saudi Arabia being one of the wealthiest economies in the Middle East has done notable advancements to integrate their local accounting standards with international accounting practices while making sure that they align with the region’s economic conditions. Saudi Arabia implemented International Financial Reporting Standards (IFRS) for most of the companies which reshaped traditional accounting practices and become more organized and internationally recognized.

Many accounting firms operating in Saudi Arabia help businesses to strictly follow the regulatory accounting Saudi standards in order to stay compliant and protect companies from legal actions. In this blogpost, we will further elaborate the regulatory framework of KSA and its impact on companies.

Understanding Accounting Standards

Accounting standards are the set of rules and policies that is used to structure bookkeeping and other accounting operations across businesses. These set of rules improves the transparency and serve as a guideline for companies to report their financial statements. The International Accounting Standards Board (IASB) plays the foundational role in setting the international financial reporting standards (IFRS). It includes all kind of financial entities including liabilities, assets, expenses, revenues and stakeholders share. Accounting standards define the timing, method, and presentation of recognizing, measuring, and reporting economic events. Bank, investors and regulatory industries depend on these accounting principles to make sure that they remain relevant and provide accurate information in reporting to IFRS and establish limits for financial reporting metrics.

Regulatory Framework of Saudi Arabia

Despite of fact that KSA strictly follow IFRS, it adopts some changes according to the regional values, such as it integrates Zakat (Islamic tax) and make industry-specific adjustments for banking, insurance, and real estate industries because of their unconventional monetary systems. Accounting firms plays a pivotal role for businesses to understand and following these intricate legal standards.

Some of the governmental regulatory bodies dedicated to supervising these legal standards are given below,

1.     Saudi Organization for Chartered and Professional Accountants (SOCPA)

SOCPA is the main regulatory body to set and overlook accounting standards in KSA, it was established to make certain that the country complies with the global accounting practices while also take a note of regional financial conditions and requirements. It not just issues guidelines but also offers training to ensure that businesses thoroughly understand and adhere to IFRS standards.  SOCPA also came up with local Saudi Generally Accepted Accounting Principles (Saudi GAAP), which was the primary accounting standard before the country shifted to IFRS. Although IFRS is the legally followed accounting standard across KSA yet Saudi GAAP still influences various departments and certain accounting principles.

2.     Capital Market Authority (CMA)

Capital Market Authority looks after the companies that are listed publicly and ensure that they comply with IFRS to up lift the trust of investors and to make them stay competitive in the market. Its major goal is to maintain Investor’s confidence, set ethical financial practices and boost the outcomes of capital markets in KSA. With this enforcement to IFRS compliance CMA strengthen accountability across the region which bring and attract international investors to have a clear view of financial statements and make better decision about putting their money in Saudi Businesses.

3.     Ministry of Commerce (MoC)

Ministry of commerce is mainly responsible for regulating the requirements of financial reporting. It also promotes commercial activities to welcome trade opportunities and expand growth possibilities. It is accountable for businesses licensing, consumer protection, commercial law enforcement and e-commerce oversight.  It also mandates financial reporting standards for businesses operating in Saudi Arabia and demands accurate bookkeeping, proper financial statements documentation and compliance with the legal standards.

With the alliance of SOCPA, CMA, and the MoC, Saudi Arabia balances global accounting norms with local financial realities, ensuring its books speak both the language of the world and the rhythm of its economy.

IFRS Integration in Financial Reporting

Adoption of IFRS fully reformed the accounting practices in the kingdom and made them more aligned with the global business standards.

This transition was done in two main stages given below,

•  IFRS for Authorized Companies

IFRS have been legally followed in KSA since 2017, and all the publicly listed companies were required to fully comply with the international financial reporting standards. This not just improved the trustworthiness and clarity of financial statements but also attracted foreign investors and stakeholders which promoted cross boarder business activities in Saudi Arabia. It also opens the door for Saudi Businesses to expand internationally by verifying that their financial statements meet the international reporting standards.

•  IFRS for Small and Medium Enterprises (SMEs)

Exploring the perks of IFRS, KSA later recognized the need for it for small and medium enterprises as well and introduced a specially tailored version for SMEs. These accounting requirements were simpler but assured alignment with legal accounting standards. Since, SMEs has always been major contributors to Saudi Economy it was mandatory to provide them structured financial reporting framework. This customized set of standards gave them a facility to operate productively while not being worried about the hurdles of IFRS.

Why Accounting Standards Matter and its Key benefits?

As the adoption of IFRS radically reshaped the country legal framework, many companies found it critical to adopt to these laws, but it appeared as a fruitful transition for the region to support countries future goals and objectives including Saudi Vision 2030. Some of the major benefits of IFRS adoption in KSA are given below.

1.     International Alignment and Disclosure

One of the foremost benefits of accounting standards is the improved comparability of financial statement in global markets. Since IFRS is followed globally so their implementation put Saudi businesses forward and competitive to Worldwide partners.

2.     Enhancing Foreign Investor Confidence

International accounting standards helps to advance the trust of investors and stakeholders. They further help to make clarity in financial statements and document them in organized manner which gives a clearer insight of company’s financial standing. Many funding partners prefer to put their money in the companies that uncompromisingly follow internationally aligned standards.

3.     Strengthening Capital Market Accessibility

IFRS compliance makes it easier to expand capital in both international and local markets. It also enables firms to access bonds, international funding options, and get their names listed in global stock exchange which unlocks new revenue streams.

4.     Operational Efficiency and Economic Growth

These accounting standards over all improves financial reporting by minimizing inefficiencies and precisely documenting and verifying each financial transaction. This results in cost saving in financial management and auditing process. With overall strengthened businesses and broaden foreign investments facilitates in building a resilient and stable economy.

5.     Improved Decision-Making for Businesses

With the deeper understand and clarity of finances, authorities are able to make smarter decisions and forecast upcoming capital challenges. This assists them to proactively allocate resources, risk mitigation and upgrade business performance.

Addressing Accounting Standard Hurdles with SS&CO

Along with Rewards comes responsibilities, following the legal accounting standards can be hard nut to crack specifically for less skilled businesses. Regulatory accounting Saudi Arabia demands professional accountants to fully have a grip of IFRS and the advancements that are made in it. The key hurdles faced by Saudi companies includes,

• Increased expenses of latest accounting software implementation, system upgradation and regular training costs.
• Difficulty in implementation of making adjustments as per international Reporting standards
• Aligning the accounting software and internal teams according to the IFRS demands.
• Challenges specifically related to certain industries because of their rare financial structure and legal requirements

SSCOKSA is one of the top-tier accounting firms that serves as a great source of helping hand in dealing with all above mentioned difficulties. We have expert accountants on board, empowering you to not only grasp but seamlessly adhere to ever-evolving standards of local and international laws. Book today for consultation and gain a snapshot of our expertise and invest in us with absolute confidence.