Kingdom of Saudi Arabia, one of the Recent Additions in IFRS Family

Lavin Nalinababu

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Consistent and comparable financial information is the crux of accounting for businesses. Accounting standards have always posed challenges to cross-border investments and to companies that wish to expand their services overseas. “ One global financial reporting network”, that promotes harmonization of accounting standards can help investors in formulating better investment decisions on time. This is made possible with the International Financial Reporting Standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB).

For understanding the requirement of a common global language for business affairs, numerous countries have decided to embrace IFRS, and Kingdom of Saudi Arabia is no exception. The Saudi Organization for Certified Public Accountants (SOCPA) has adopted and transitioned to the new standard, that requires all companies except the one in the banking and insurance sectors to follow  IFRS. Additional disclosure requirements were included in certain standards, to reflect sharia or local law. Considered as a significant milestone in the country’s economy, the implementation of IFRS will augment the quality of reporting along with boosting foreign direct investment.

Unlike Generally Accepted Accounting Principles (GAAP), which was widely used in Kingdom of  Saudi Arabia, IFRS gives a bigger picture of the financial reporting standards and promises greater transparency and clarity.

Key Difference between Saudi GAAP and IFRS

AreaGAAPIFRS
Fair presentation of financial statements  Not guaranteedPromises a ‘true and fair view’ of financial statements
Disclosure of Critical Accounting JudgementsNot required 

Mandatory

 

Comparative periodComparative period should be the same 

Comparative period may be shorter or longer

 

Presentation of expenses 

Expenses should be presentedbased on function

Presenting expenses will be based on function or nature
Inventory valuation

Weighted average, FIFO and LIFO.

LIFO is not allowed

Incorporation costsIncorporation Costs can be capitalizedCapitalization is not allowed
Investment propertiesAccounting for investment properties are valued at cost.Investment property shall be measured based at cost or fair value

 

With the implementation of IFRS, it’s not just the accounting sector that is going to witness massive change. It would most likely impact various other areas of an organization, ranging from taxation and marketing to sales and human resources. As such, there are many companies that are not confident about the transition, as they are scared about the expected changes in financial statements.

Proper planning and preparation and the help of an advisory firm that can provide you advice on GAP analysis, transition and reporting processes of the standards, eases the process of IFRS implementation.

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