What is Qawaem in Saudi Arabia?

The digital transformation has been on a rapid rise since Saudi Arabia, for that reason the government is prioritizing initiatives like Qawaem. Qawaem allows businesses to submit their financial data to the Ministry of Commerce through an electronic platform that boosts efficiency and transparency. The word Qawaem in Arabic means “statements” or “lists,” and the Qawaem program in Saudi Arabia is a significant step toward modernizing the corporate financial reporting, regulatory oversight, and digital governance. For businesses, auditors, financiers, and regulators alike, it is a key part of the operating environment. This article will further explore the structure, operational needs, and regulatory requirements of Qawaem, along with the challenges businesses encounter and some best practices for compliance.

History and Purpose of Qawaem in Saudi Arabia

The Qawaem in Saudi Arabia was introduced by the Ministry of Commerce along with the Saudi Organization of Certified Public Accountants (SOCPA) and Zakat, Tax and Custom Authority (ZATCA). It was operational from 1^st January 2015; however, it was enforced from 11 October 2015. The Program included the following purposes,

• Conversion of paper-based financial statements into electronic formats to reduce manual processing and errors
• Elevating the proficiency, credibility, and accessibility of the financial data of companies.
• Having a more detailed view of the economic database of the financial performance of any regulator, decision maker, or investor
• Facilitation in staying in line with the legal audits, taxation, and commercial regulatory needs.
• Modifying corporate governance by offering standardized formats and guidelines for better oversight.

Key Features and Elements of Qawaem

Electronic submission & XBRL taxonomy

One of the critical features of Qawaem is to use electronic platforms for the submission of financial data and the XBRL standard for tagging the data. This assists in the data being analyzed properly, compared, and processed digitally instead of depending on PDF or paperwork

Scope of application

Although the initial rollout came with a focus on bigger enterprises that were operating in KSA, the features later expanded in 2015, and paper submissions were phased out eventually. Later in 2016, companies were encouraged to submit their financial statements via Qawaem.

Regulatory linkages

The Qawaem Program also impacts the other regulatory areas, which include:

• The Zakat, Tax, and Custom Authority (ZATCA) utilize data from Qawaem to assess tax and zakat filing.
• The Saudi Central Bank (SAMA) also asks companies to use Qawaem data when offering financing to businesses.
• The MCI has aligned submission deadline obligations under corporate regulatory provisions, imposing fines for non-compliance.

Deadlines and compliance

Businesses need to submit their audit financial statements via Qawaem within a 6-month period from the end of the financial year. In case of delay in submission, businesses are exposed to regulatory consequences, fines, and even imprisonment.

Benefits and Strategic Rationale

• Better Quality of Data and Decision Making: The e-submission facilitates the regulators to get access to organized data, which they use for analytics, sectoral classification, and policy making
• Evolving from paper to digital practices mitigates manual labor errors, storage, handling, and delays, resulting in improved turnarounds.
• The presence of verified and audited financial data gives confidence to investors, aids the financial institutions in assessing risks, and fosters a capital market environment
• Saudi Arabia is working speedily towards e-government to back the goals of Vision 2030, and Qawaem takes a major part in achieving those goals.
• Through electronic filing, not only is the compliance process simplified, but it becomes more efficient
• Businesses can meet deadlines, which protects them from any legal consequences like penalties, fines, etc.
• Better accessibility to financial data through Qaweam for banks, regulators, and counterparties, which gives them benefits in negotiations
• It motivates the companies to build more structured and audited records that adhere to the legal standards like IFRS and SOCPA, which overall improves the quality of financial data.

Strategic Implications for Stakeholders

For investors and financiers

Qawaem offers a well-assembled database for audited financial statements across many companies, which builds a better and computable environment for assessment of risks, investment due diligence, and sectoral examination. Hence, financial institutions must integrate Qawaem data for credit scoring and risk analysis. Businesses that offer timely and quality submissions get favors, while, on the other hand, companies that fail to comply show a weakness in their governance.

For audit firms and accounting professionals

Audit firms in KSA have a vast range of opportunities, but with opportunities come obligations; they have to make sure that the clients submit through Qawaem to keep up with the standards. This transformation forces the criticalness of professional audit services, standard-setting alignment, and professional education in tagging software usage. This shows that accounting experts must rely on digital tools.

For companies (local & foreign) operating in Saudi Arabia

Businesses that are registered in KSA must adhere to the Qawaem obligations as well. This is mainly important for multinational companies with local branches in KSA. They must make sure that their financial statements are up to the mark of Saudi Qawaem standards. Qawaem is important to build clarity in financial data, which gives better visibility for companies to manage not just compliance but also improve their reporting, as stakeholders oftentimes rely on this data.

For regulators and policymakers

Qawaem supports the makers of policies in getting financial information across businesses, sectors, and geographies. It assists them in defining more informed economic policies, sectoral regulations, and monitoring of corporate health. This change also aids in fulfilling the Saudi Ambition of building a digital economy.

Challenges in the Implementation of Qawaem in Saudi Arabia

Although Qawaem offers multiple advantages to businesses, certain challenges come with implementing a nationwide electronic financial statement system.

• Technical Training: Businesses and audit firms are obliged to tag their financial statements with the XBRL taxonomy, which not everyone is familiar with. It demands training, investment in software, and change management.
• Compliance Monitoring: In the beginning, the guidelines were not enforced strictly; however, now, the ministry is working strongly towards it and has presented strict warnings of cancellation of licenses, fines, and even imprisonment in more critical cases for non-compliance.
• Quality of Data: The electronic systems are also sometimes not very accurate. This means that the financial statements’ quality, like audit quality, consistent accounting headings, must not be ignored. Taxonomy mapping with tax/zakat forms still needs alignment.
• Burden on Small Businesses: Small businesses might find the process to be more complicated and therefore can face resistance or a requirement for phased implementation.
• Change Management: Moving from paper to digital and making sure that auditors and regulators adopt the latest techniques involves cultural, process, and systems change, which can be, at times, difficult to implement
• Privacy and Confidentiality: Although the goal of Qawaem is to make the data available and transparent, it sometimes compromises the confidentiality of sensitive information. Therefore, it is important to utilize secure platforms with multifactor authentication.

Core Qawaem Compliance Practices

The Saudi-based businesses should consider the following steps related to Qawaem to mitigate the challenges and to simplify the implementation process.

• Thoroughly understand your filing Obligations: Always, if your company falls in the category of Qawaem submission. Such as large enterprises like Joint stock and LLC are required to follow the obligations, while the smaller entities can operate through complying with different local regulations
• Assemble Audit Ready Statements: All the statements presented must be audited through a licensed auditing firm and should be in the correct formats
• Prepare for XBRL Tagging: Work collaboratively with your auditor or vendor to make sure that all the financial data is as per the XBRL taxonomy used by the MCI for Qawaem. Use dedicated software for this purpose
• Meet the Deadlines: Submit all the required data within six months after the financial year end to stay protected from any fines and penalties or even removal from the commercial register
• Verification of Submissions: Once you have filed, it’s essential to keep a track of your submission status through the Qawaem portal or the commercial registry system
• Maintain complete internal record: Make sure that all your internal records are as per the guidelines, like your accounting headings, audit opinion, and supporting schedule must be in line with the regulatory taxonomy, as any mismatch leads to legal consequences
• Stay Current with the Regulatory Changes: As the Saudi regulations keep evolving, it is important to stay updated with any recent changes in submission formats, audit needs, and enforcement practices.

How SS&CO KSA Assists in Qawaem Compliance

In Saudi Arabia, businesses must stay compliant with Qawaem to operate without any legal stumbling block. SSCO KSA being the no. 1 chartered accountants operating in KSA understand what it takes to adhere to the Qawaem Regulations completely. We offer support to our clients through:

• Proficient in financial reporting and financial statement management as per Qawaem guidelines
• Keep your filing systems compliant with MCI and SOCPA guidelines
• Register and submit the financial statement using the Qawaem E-platform
• Prepare and review audited financial statements to ease the process and avoid rejections
• Keep a track of deadlines so that you are always compliant around the year

With SS&CO KSA, compliance becomes smooth sailing. We promise that every report will be spotted on and every submission is right on the money.