Implementing IFRS in Saudi Arabia: evidence from publicly traded companies

Abstract

Purpose The Saudi Organization for Certified Public Accountants (SOCPA) requires that International Financial Reporting Standards (IFRS), as endorsed in Saudi Arabia, be used by all listed and unlisted companies. This study aims to provide insight into IFRS implementation problems, based on a survey sent to Saudi Arabian companies listed on Tadawul, the Saudi stock market (i.e. financial hub in the Middle East). Design/methodology/approach The survey focused on the impact that IFRS conversion has had on companies, their accounting and their finance strategies. The benefits and challenges of the adoption of IFRS are analyzed, including matters pertaining to the level of understanding and experience with IFRS, perceptions about the quality of IFRS and the impact of adoption of IFRS on consolidated equity and net income. Findings The survey had a response rate of 72 per cent. The results indicate a majority of respondents support conversion to IFRS as it results in higher quality financial reporting; the most important expected benefits of adopting IFRS include greater reporting transparency and improved comparability with other businesses; other expected benefits include harmonization of internal and external reporting, and increased cross-border investment opportunities; the IFRS process is costly and ties up resources because of its complexity and training needed and companies expect increased volatility in reported financial results that will impact share option plans and/or other incentive plans tied to profits. However, the authors find strong support among preparers of the financial statements for IFRS, as evidenced by higher agreement among respondents to the survey on the benefits of adopting IFRS, rather than on the costs of its adoption. Furthermore, the analysis shows that the likelihood of Saudi Arabian firms that are in favor of adopting IFRS decreases if the audit firm is one of the Big 4. The reason for this negative relationship could be that the cost of transition toward IFRS will be high. Therefore, Saudi Arabian firms will not favor a transition toward IFRS when their audit firm belongs to the Big 4. Most difficult to implement IFRS, as listed by respondents, include those on financial instruments, revenue, leases and employee benefits. Originality/value The authors show how economic and environmental factors play a critical role in the IFRS implementation process. This study should be important to all countries worldwide that are in the process of adopting IFRS.

Impact of corporate governance mechanism on IFRS adoption: A comparative study of Saudi Arabia, Oman, and the United Arab Emirates

“…(2006) suggest that successful IFRS implementation is influenced by several factors such as country size, economic and political factors, and cultural differences. Prior studies provide evidence that local and international accounting standards are impacted to a large extent by surrounding environmental factors – social, political, legal, and economic – that may affect the accounting system in a country ( Nurunnabi et al., 2020 ). Cieslewicz (2013) indicates that people affect institutions by their culture where accounting depends on these institutions.…”

“…Further, Hope et al. (2006) and Nurunnabi et al. (2020) advocate that accounting standards, including IFRS could be influenced by different factors, including culture, political regime, country size, and economy.…”

“…This potentially has implications for other developing economies that have recently adopted IFRS. Further, the current study could be beneficial to understand how Saudi Arabia manages the adoption of IFRS with meeting the requirements of Islamic law requirement ( Nurunnabi et al., 2020 ). Accordingly, the current study opens valuable insights into different issues related to the current practices of IFRS compliance in these countries, earnings management, the quality of financial reporting, and the role of CG mechanisms in maintaining the best practices in these issues.…”

Unprotected Insurance: a Case from Jiwasraya

“…Although it causes the assets of insurance companies to fall, IFRS 17 will make financial statements more transparent and make it easier for stakeholders to understand financial statements [14]. Mohammad, K., & Han (2020) [15] who surveyed companies listing on the Saudi Arabian stock market concluded that the majority of respondents supported the conversion to IFRS because it produced higher quality and transparent financial reports. Financial report transparency is essential because information asymmetry makes it difficult for consumers to evaluate the quality of insurance company policies and allows both parties to act opportunistically [16].…”

The impact of conservatism and secrecy on the IFRS interpretation: the case of Tunisia and Egypt

“…Economic and environmental factors, including the national culture, play a critical role in the IFRS implementation process. These factors need to be considered by all countries worldwide that are planning to adopt the IFRS (Nurunnabi et al, 2020).…”