Deloitte | A Middle East Point of View | Spring 2016 | 7
IFRS
Getting it right
Adoption of IFRS in Saudi Arabia
The Kingdom of Saudi Arabia (KSA) is soon set to join
130+ countries across the globe in the application of
International Financial Reporting Standards (IFRS). Today,
all companies in Saudi Arabia, other than banks and
insurance companies, must follow accounting standards
generally accepted in KSA as issued by the Saudi
Organization for Certified Public Accountants (SOCPA).
Banks and insurance companies are regulated by the
Saudi Arabian Monetary Authority (SAMA-the Saudi
Arabian central bank) and are already required to
comply with IFRS.
In an era of globalization of businesses and markets,
financial information prepared and audited according
to national accounting Generally Accepted Accounting
Principles (GAAP) no longer satisfies the needs of users
8 | Deloitte | A Middle East Point of View | Spring 2016
whose decisions are more international in scope. Saudi
Arabia has recognized the need to participate in the
opportunities offered by globalization and consequently,
SOCPA approved an IFRS Convergence Plan, called the
“SOCPA Project for Transition to International
Accounting & Auditing Standards.” Under this
convergence plan, all listed companies are required to
adopt IFRS for financial periods beginning on or after
January 1, 2017, and all other entities for financial
periods beginning on or after January 1, 2018. Unlisted
entities may opt for an early adoption of IFRS from
January 1, 2017. SOCPA is in the process of adopting
IFRS for small- and medium-sized entities (SMEs) to be
effective in 2018 for use by non-publicly accountable
entities.
Since Saudi Arabia joined the Group of Twenty Finance
Ministers and Central Bank Governors (G20) in 2009,
the adoption of IFRS has been viewed as an important
milestone in the country’s future economic development
and has been working towards this end ever since.
The convergence of national GAAP with IFRS (Fontes
et al, 2005, p. 416) promises “transparent, comparable
and consistent financial information” to guide investors
in making “optimal investment decisions” (Jacob and
Madu, 2004, p. 357.)
Increased foreign direct investment and enhanced
quality reporting, transparency and comparability are
some of the key benefits that the country will enjoy
from IFRS adoption. As KSA moves to reduce its
dependency on oil, quality, transparent information,
comparable to other preparers of IFRS reporting, will
serve to attract direct foreign investment to the country.
The view that adoption of IFRS improves quality of
financial information is critical to its adoption. If
companies do not view the application of IFRS as
beneficial to their business, then they are likely to face
greater challenges in complying. As countries have over
the years transitioned to IFRS, a common recurrence
noted is that small businesses were slow to comply
because they could not immediately see the benefits
of the transition.
IFRS reporting is significantly more onerous than Saudi
GAAP, in that its application will necessitate additional
disclosures that will contribute to better informing
the users.
The step change of moving from Saudi GAAP to IFRS
comes with its challenges to corporates, practitioners
and regulators alike. Some of the key challenges are
the limited resource pool from which to draw upon,
as well as Saudi’s unique national practices. KSA is
geographically the second largest state in the Arab
world after Algeria, having a population of 32.2 million
Since Saudi Arabia joined the Group of
Twenty Finance Ministers and Central
Bank Governors (G20) in 2009, the
adoption of IFRS has been viewed as an
important milestone in the country’s
future economic development and has
been working towards this end ever since
Deloitte | A Middle East Point of View | Spring 2016 | 9
people. Yet despite its size and population, the number
of qualified Saudi accountants is a low 300. Compare
that to Canada that has a similar population and has
over 100,000 qualified accountants and the United
Kingdom that boasts in excess of 200,000, the
seriousness of the shortage is glaring and one which
will need to be addressed if the adoption of IFRS and
the regulation thereof by SOCPA is to achieve the
desired results. The shortage of skilled accountants in
Saudi Arabia is partially bridged by the numerous
expatriates that have moved to the Kingdom, yet the
Arabic language poses yet another challenge. All
statutory financial statements prepared in accordance
with Saudi GAAP are required to be filed with the
relevant authority in Arabic. It is expected that this
requirement will continue with the transition to IFRS.
Consequently, there will be added pressure on Arabicspeaking qualified accountants to ensure that
compliance with IFRS is, literally, not lost in translation.
A further challenge is the unique national practices of
the country. Compliance with strict local laws and
Sharia’ law may not always be in accordance with IFRS.
Additional disclosure requirements have been added to
some standards, mainly to reflect Sharia’ or local law.
Also, going forward, SOCPA may from time to time
decide to amend any IFRS requirement that contradicts
Sharia’ or local law, also taking into consideration the
level of technical and professional preparedness in the
Kingdom. Adding disclosures or removing an option
from a standard would not normally prevent an entity
following the standards from asserting compliance with
IFRS. However, amending the requirements would
generally prevent an entity following the standards from
asserting compliance with IFRS if the amendment has a
material effect.
Getting it right
Careful planning and preparation by corporates,
practitioners and regulators over the next one to two
years will determine the success or otherwise of the
effective IFRS implementation in the Kingdom.
Stakeholders should put in place adequate resources
to support the sustainable implementation of IFRS. This
includes setting up consultative groups to be available
to respond promptly to challenges faced by users.
Another critical element underlying the successful
implementation of IFRS will be the assistance given to
key stakeholders, including regulators, with training and
dedicated required resources to interpret and apply the
requirements of IFRS. It is imperative that the various
stakeholders are integrally involved, because a smooth
transition to IFRS cannot be achieved without their
support.
The resource shortage will likely continue for some
years, but it is now that the industry and policy makers
need to act, in order to begin to see the fruit in the near
future. Extensive education is needed in schools and
universities through the targeted allocation of resources.
by Paul Manduca, Partner, Audit, Deloitte Middle East
IFRS
There will be added pressure on Arabicspeaking qualified accountants to ensure
that compliance with IFRS is, literally, not
lost in translation