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Implementation of IFRS in Saudi Arabia

Implementation of IFRS in Saudi Arabia will have several impacts on businesses according to the document. It will 1) increase transparency in business through more accurate financial statements, 2) help companies learn from each other's experiences implementing IFRS, and 3) attract more foreign investment by improving the comparability of financial statements across borders.

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72 views6 pages

Implementation of IFRS in Saudi Arabia

Implementation of IFRS in Saudi Arabia will have several impacts on businesses according to the document. It will 1) increase transparency in business through more accurate financial statements, 2) help companies learn from each other's experiences implementing IFRS, and 3) attract more foreign investment by improving the comparability of financial statements across borders.

Uploaded by

Jacques Owokel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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-of-

IFRS-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), 61-

83.

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.

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