Implementation of IFRS in Saudi Arabia PDF

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Implementation of IFRS in Saudi Arabia Introduction Recently, Saudi Arabia joined other countries in implementing the International Financial Reporting Standards (IFRS). Presently, except for companies in the insurance and banking sector, other companies in Saudi Arabia must follow the standards of accounting practiced in KSA as required by Saudi Organization for Certified Public Accountant (SOCPA). Also, the Saudi Arabian Monetary Authority (SAMA) governs the firms in the banking and insurance sector (Deloitte, 2016). Studies regarding the implementation of IFRS in Saudi Arabia are quite limited. Some studies have attempted to address the fundamental problems experienced in the process of implementing IFRS (Almotairy & Alsalman, 2011). According to these authors, Saudi Arabia stands out among the GCC countries not in need of IFRS for all its beneficiary companies. In fact, in support of this statement, a previous study has revealed that only companies enlisted with the Saudi Arabia Stock Exchange are eligible to implement IFRS while others are not allowed (Alqahtani, 2010). The companies that have been allowed must follow the regulations of the Saudi Accounting Standards (SAS) as issued by SOCPA. With other researches having looked at the challenges of implementing IFRS as well as the companies allowed to use it, this paper takes another direction of looking at the impact of implementing IFRS on businesses. IFRS Implementation and Impact on Business One impact of implementing IFRS is that it will increase the level of transparency in business through the introduction of accurate financial statements. Also, the experiences of implementers during the transitions period of a country can be of help to other companies wanting to do the same. This can be seen using an early case in Turkey where companies with publicly traded

shares, traded companies, and publicly owned companies were advised to implement IFRS (UNCTAD, 2007). After these companies implemented the IFRS, it was noted that transparency increased within their dealings. Also, they would serve as examples to other companies who wanted to implement IFRS later on through sharing their experiences with them. Contrary to this, still on Turkey’s case, the implementation of IFRS by companies led to learning institutions changing the curriculum to include courses of IFRS in the undergraduate and post graduate session. This is because of the complaints companies used to raise claiming that training employees on the use of IFRS was quite costly to them and therefore it would save costs if graduates left universities already having some knowledge in IFRS. Another impact of IFRS is that it is likely to contribute to more efficiency in financial reporting. This would lead to a positivity in the relationship within the different sectors of a firm. Implementing IFRS alongside corporate governance also impacts transparency positively in terms of disclosing statements of finance. Finally, Saudi Arabia is likely to enjoy a stronger linkage between disclosure and liquidity levels in the sector of banking after implementing IFRS (Daske & Gebhardt, 2006). Moving on, efficient IFRS implementation by Saudi Arabia is likely to see more reduction in forecasting errors and dispersion by the companies that implement IFRS. According to Byard et al (2010), a forceful implementation of IFRS by the European Union on the environmental information of a financial analysts helps to reduce the forecast errors and dispersion for countries with accounting standards that seemed different with those of IFRS. Also, the forecast errors are likely to reduce further for companies with stronger appeal for transparency in reporting financial matters. Such findings show the essential roles enforcement

bodies play and other incentives at firm-level to establish the impact of IFRS on a forceful platform of operations. The other impact of implementing IFRS in Saudi Arabia is that it would lead to a satisfying development of practices associated with accounting in multinational companies. According to Hellman (2011), the empirical research from Sweden suggested that global accounting standards seemed to have high quality under IFRS implementation and would lead to other benefits revolving around market-related economy, increased value of the stock market, liquidity increase, and a reduced rate of capital. However, Hellman noted that a widespread implementation of IFRS may not lead to the desired changes in the practices of local accounting since the legally implemented IFRS versions might not completely correspond to the IFRS that IASB (International Accounting Standards Board) issues because the existence and functionalities of organizations tend to vary across geographical boundaries. The final impact of implementing IFRS in Saudi Arabia revolves around the improvement of comparability in the financial statements which attracts investment across boarder in great numbers. DeFond (2011) observed that the components of IFRS leads to uniformity in accounting standards that later improve the comparability in the financial statements. The study of DeFond evaluated the changes likely to occur in a foreign investment firm with mutual firms after implementing IFRS. It was established that there is an increase in mutual fund ownership at foreign level since IFRS contributes to enhanced comparability. Also, IFRS leads to more foreign investment in with a history of strong credibility of implementation. In conclusion, the level of impact due to IFRS implementation in every country across the world has been shown to vary based on the location of a country and the firms found there.

For Saudi Arabia, it has been established that IFRS implementation is likely to come with various benefits leading to further implementation.

References Almotairy, O. S., & Alsalman, A. M. (2011). Challenges facing adopting IFRS in Saudi Arabia. In 1st Annual Journal of International Accounting Research Conference. Alqahtani, S. (2010). The Relevance of IFRS for Saudi Arabia: Stakeholders Perspective (Doctoral dissertation, PhD Thesis, Stirling University, UK). Byard, D., Li, Y., & Yu, Y. (2011). The effect of mandatory IFRS adoption on financial analysts’ information environment. Journal of accounting research, 49(1), 69-96. Daske, H., & Gebhardt, G. (2006). International financial reporting standards and experts’ perceptions of disclosure quality. Abacus, 42(3‐4), 461-498. DeFond, M., Hu, X., Hung, M., & Li, S. (2011). The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability. Journal of accounting and economics, 51(3), 240-258. Deloitte. (2016). Adoption of IFRS in Saudi Arabia. Retrieved 20 October 2019, from https://www2.deloitte.com/bh/en/pages/about-deloitte/articles/on-malta/adoption-ofIFRS-in-sa.html Hellman, N. (2011). Soft adoption and reporting incentives: A study of the impact of IFRS on financial statements in Sweden. Journal of International accounting research, 10(1), 6183. UNCTAD secretariat, (2007), Review of practical implementation issues of International Financial Reporting Standards: Case study of Turkey, Trade and Development Board Commission on Investment, Technology and Related Financial Issues. Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting Twenty-fourth session Geneva....