IFRS and Saudi accounting standards: a critical investigation

Abstract

Despite a substantial move toward convergence between principles-based International Financial Reporting Standards (IFRS) globally, there has been little research examining the differences between national standards and IFRS. The purpose of this study is to investigate the differences between IFRS and Saudi accounting standards (Saudi GAAP) issued by the Saudi Organization for Certified Public Accountants (SOCPA). Saudi Arabia is a member of G20 and the largest oil exporter in the world. The study finds that there are major differences between Saudi GAAP and the 15 IFRS standards studied: IAS 1 Presentation of Financial Statements; IAS 7 Statement of Cash Flows; Zakat and IAS 12 Income Tax; IAS 16 Property Plant and Equipment; IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; IAS 17 Leases; IAS 19 Employee Benefits; IAS 21 The Effects of Changes in Foreign Exchange Rates; IAS 24 Related Party Disclosures; IAS 34 Interim Financial Reporting; IAS 36 Impairment of Assets; IAS 38 Intangible Assets; IAS 40 Investment Property; IAS 41 Agriculture; and IFRS 9 Financial instruments. To the best of our knowledge, this is the first study on differences between Saudi GAAP and IFRS, and the findings thus make a valuable contribution to accounting regulation literature. The findings are innovative and will be helpful to local standard setters (SOCPA), international standard setters (IASB), and preparers and investors. The findings suggest that urgent training is required for the effective implementation of IFRS in Saudi Arabia.

Appendix: The CMA resolution on transition to IFRS, 2016 (three phases)

In 2016, the CMA announced the Board of Commissioners’ resolution which obligates listed entities to adopt IFRS as endorsed by the SOCPA who had announced that entities listed on the Saudi stock exchange should implement IFRS starting from January 1, 2017. Reporting requirements relating to progress on IFRS transition phases were as follows:

Phase one:

During the period from 21/8/2016 to 1/9/2016, listed entities should disclose the following on the Tadawul website:

1. Whether an IFRS transition plan—which should include as an example, the determination of the target date to approve the accounting policies—had been prepared. Where a plan had not been prepared, the listed entity should determine the target date for preparing the plan. Such target dates should be set to assure the transition to IFRS before 1/1/2017.

2. Whether an IFRS experienced and specialized external consultant had been hired. Where a consultant had not been hired, the listed entity should disclose if it has a plan to hire a consultant and determine the target hiring date. Such target dates should be set to assure the transition to IFRS before 1/1/2017. If there is no plan to hire an external consultant, the listed entity should disclose the reasons for not hiring a consultant

3. Whether an entity’s internal team responsible for the IFRS transition plan and its implementation had been formulated. Where a team had not been formulated, the listed entity should disclose the reasons for not doing so

4. IFRS transition process difficulties, if any, which the listed entity is facing

5. The target date for the preparation of the first set of IFRS financial statements and the periods covered by such financial statements

The aforementioned board resolution exempts those entities that are ready for IFRS transition from making these disclosures, stipulating that such entities instead disclose (i) that they have readily available IFRS financial statements, and (ii) any significant effects experienced as a result of implementing the IFRS

Phase two:

During the period from 30/9/2016 to 30/10/2016, listed entities should disclose the following on the Tadawul website:

1. Phase one disclosures updates

2. Whether the accounting policies necessary for the preparation of IFRS financial statements had been approved. Where the accounting policies had not been approved, the listed entity should determine the target date for approving the aforementioned accounting policies. Such target dates should be set to assure the transition to IFRS before 1/1/2017

Where the entity is ready to implement IFRS, it would be exempted from the above disclosures, stipulating that the entity should disclose (i) that it has readily available IFRS financial statements, and (ii) any significant effects experienced as a result of implementing IFRS

Phase three:

During the period from 1/1/2017 to 31/1/2017, listed entities should disclose the following on the Tadawul website:

1. Phase one and two disclosures updates

2. Whether an IFRS financial statement had been prepared, and the periods over which such financial statements had been prepared. Where an IFRS financial statement had not been prepared, the listed entity should disclose the reasons for not doing so, and the target date for preparing such financial statements

3. The significant effects experienced by the entity as a result of implementing IFRS, the moment the entity can determine such effects. Where the effects of implementing IFRS are immaterial, the listed entity should disclose so

4. Any hindrances that might affect the listed entity’s ability to prepare IFRS financial statements

5. The extent of the listed entity’s readiness to prepare IFRS financial statements for 2017 Quarter 1 within the applicable regulatory period

The Authority might request the listed entities to make any additional disclosures the Authority finds to be necessary in relation to the IFRS transition plan

1. Source: CMA (2016)