Companies to benefit from IFRS adoption in Kingdom
Companies in Saudi Arabia are facing an era of change in their accounting practices due to changes being implemented by the Saudi Organization of Certified Public Accountants (SOCPA) to support the “One Global Financial Reporting Framework” vision of International Accounting Standards Board (IASB). This is according to Ahmed Reda, MENA consumer products and retail leader at EY.
Reda said SOCPA has endorsed International Financial Reporting Standards (IFRSs) with some modifications resulting in additional disclosures and ensuring compliance with Shariah. SOCPA required all listed companies to apply endorsed IFRSs from 2017 whereas unlisted companies will be adopting from 2018.
He said by issuing the Q1 results under IFRS, listed companies in Saudi Arabia have successfully taken the initial step in this direction.
“The transition to IFRS promises transparent, comparable and consistent financial information to guide investors in making optimal investment decisions. Some of the key benefits that the companies will enjoy from IFRS adoption include: increased foreign direct investment (FDI), enhanced quality reporting, transparency and comparability, and more transparency to perform risk assessments on financial statements and other ratios,” Reda said.
He said companies in the Kingdom should consider whether they want to be early adopters of the standards, which will be applicable in the next one to two years (i.e. IFRS 9, 15 and 16). “This may help them to improve their financial reporting while also avoiding a second wave of change in 2018, which could result in efficiencies in the longer term,” Reda added.
“The availability of skilled resources will also remain a challenge for the next few years. Further, IFRS compliance is not a onetime exercise. Companies should retain or hire the necessary resources to ensure smooth and seamless compliance of IFRS. This incorporates setting up consultative groups to be accessible to react speedily to challenges confronted and training and development of their employees.”
Starting from 2018, all entities which are not listed are required to adopt IFRS with an option to apply IFRS for small and medium enterprises (SMEs).
“Accordingly, they need to start assessing the impact and learning from the experience of listed companies as the transition is not merely an accounting change but will have an organizational wide impact including taxation, marketing, sales, procurement, contracting, human resources and others,” he said.