Saudi Accounting Standards

The aim of this research project is to assess to what extent are the Saudi accounting standards suitable for foreign investors, also, to evaluate how could changes between local accounting standards and the international accounting standards affect firms' financial situation. In order to reach these aims, this research depends on discuss some studies which have discussed this issue either in the Saudi environment or other countries experiences. The findings of this research showed that the Saudi financial reports and statements are unsuitable for the foreign investors, either in prepare or in present and disclose them. These findings have been reached by presented several studies have discussed this issue in some countries including the Kingdom of Saudi Arabia, therefore, the methodology of this research relied on reading and presenting some related studies.

Introduction:

The kingdom of Saudi Arabia (KSA) is looking for International trade liberalization, and producing the facilities to the foreign investments. It is obvious in numerous steps have taken by the Saudi government. The most important one is joining the World Trade Organization (WTO) in 2005. At last, the Saudi government opens the door to the foreign investments by giving permission to foreign companies and establishments in different sectors such as industry, banking, insurance, and service sector.

In relation to the financial markets, the government has given permission to Gulf countries citizens, and the foreign workers to trading in the Saudi Stock Market (SSM) which is called Tadawul, as a start point in opening the way before the international investments attraction without any obstruction.

On the other hand, the Saudi corporations use local accounting and auditing standards unlike some developed countries and the other Gulf countries which use the international accounting standards (IASs), which have been prepared by the International Accounting Standards Board (IASB), in preparing their financial statements. This dilemma may cause some troubles in reading the financial statements of the Saudi corporation and making decisions as well. This is because of the differences between the depending on the local standards in publishing financial reports and statements. In addition, the Saudi investing environment has its local properties, and influenced by some religious factors and criteria such as Zakat standard, which is alternative of the taxes of the international systems. Therefore, this study aims to find out that either the local accounting and auditing standards are suitable for foreign investors' requirement or not.

Currently, The trading openness among the countries is one of the most important challenges. Although there are so many advantages for the trading openness, there are so many obstacles and difficulties that should be studied to insure their positive attitudes and avoiding their negative ones. Opening the way before the foreign investment in the Kingdom of Saudi Arabia and allowing the foreign capitals to taking part in the stock exchange is a turning economical point in the Saudi economical environment.

The importance of this research may not lie in that it is the first research in that field. It lies in its time, accompanied with issuing the permission to the foreigners to possess in the Saudi financial market during the following five years. The importance of that subject lies, also, in the huge challenge before the Saudi authorities concerning with inserting the local and foreign companies into the Saudi financial market. These companies are looking for the suitable and sound principles to invest their capitals.

This research aims to discover if the Saudi accounting and auditing standards suitable for the foreign investors' requirements or not, through clarify the importance of the differences between the different standards according to some studies which have discussed other countries experiences. Furthermore, this research tries to limit these differences and clarifies the suitability of these differences for the foreign investors. In addition, this research provides some recommendations. During his try to reach his aim, the researcher tries to answer the following question:

To what extent do the differences influence the foreign investors' decisions?

To what extent do the differences change the financial situation of companies?

To what extent do the supplying and public disclosure of the financial reports and statements of the Saudi corporation to foreign investors and decision makers?

Literature review:

There are a number of research have studied the influences of the corporations' financial reports and statements prepared according to the accounting standards on the elements of these financial reports and statements. Also, there are several studies have studied the differences between the financial reports and statements among a country and the other, and the extent differences come as a result of different types of activities and establishments, and the importance of these differences to the investors.

Muis (1999) clarifies the differences in the accounting standards in dealing with the financial published data in different countries. This difference causes essential contradictions in the findings and information reflected by these data. It is enough to mention in that place two cases. The first was when the British government started in the beginnings of 1970s to sale a part of its share in British Petroleum Company (BPC) in New York Stock exchange. The security of Exchange commission (SEC) demand to readjust the net profits in the last two balances according to the Federation of Accounting Standards Board, FASB. The adjusting the balance decrease the net profit with 67% and 70% in succession. The second case was with the first German company, registering in the New York Stock exchange in 1993. Delmar - Benz Company was asked to adjust the net profit of December 1993 according to the (FASB). The net profit of the company decreased from profit from 429 million dollars to loss of 1.283 billions dollars.

Clark, Mansfield and Tickell (2001) assume that the converting from a local accounting standards into the international accounting standards producing some anxiety for companies leaders and their shareholders; especially, after the famous issue when Daimler Benz's converted from the German accounting standards into the US standards (1993) which led from a profit in its net profit into loss.

Weasels (1990) clarified that there are (194) multinational companies work all over 23 countries declared that the general rate of information disclosure saved by the companies of the developed countries does not exceed than 49% of the minimum of the required level of disclosure. This level may reach 66% in the advanced countries. In Britain, the level of information disclosure reaches 73% and in Saudi Arabia does not exceed 46% and decrease in Hungarian until 8%.

Another study assesses the disclosure level of financial reports and statements of the Saudi publicly listed firms in the (SSM), and found that the average of the Saudi publicly listed firms which disclose the voluntary information is 33%, and referred that to the Saudi legislation which do not require to present such information (Alsaeed, 2006).

A study for Chio and Davish (1983) discusses the existing differences among the current companies in (IASB) committee in applying the international accounting standards in different fields such as: the accounting of fame, postponed taxes, renting contracts, inflation accounting, dealing with the changes in the price exchange, the Accumulated financial statements.

In the Chinese case and Responding to the modifies in the Chinese economic systems, there were significant attempts during the last fifteen years to follow the international accounting and auditing standards instead of the Chinese accounting and auditing standards. In order to narrow the gap between the Chinese economy and the industrialised countries ones (lin, 1998).

Methodology:

In the last two decades, the western accounting thoughts concern more with the research's methodology in the accounting practices. So many studies look for the importance of methodology in accounting practices. In addition, there are other studies produced contemporary methodologies with specific nature for the accounting phenomena concerning with the invisible factors of researches.

From previous mentioned points, it is clear that this research should depend on a subjective base trying to produce a deep study of the local environment, identifying some limits depended on in the literature review.

In the case of raring and novelty of the contemporary methods (the explanation and critical methods) in the accounting research, this research depends on the positive attitude to achieve the research's aim, explaining the phenomenon according to the previous studies.

According to the requirements of the used research's methods, there are two hypotheses as the following:

The financial reports and statements of the Saudi corporations are unsuitable for making decisions by the foreign investors and financial statements beneficiaries.

Giving permission to the foreign investments in the Saudi financial market will cause essential changes in the accounting standards which are used in preparing the financial reports and statements of the Saudi companies.

Results and Discussion:

According to the previous studies, the importance of accounting standards can be noticed and the effects of the differences between local standards and the (IASs) show how could that affects investors decisions. Therefore, the Saudi legislations must make a step and change some of its financial policies before opening the (SSM) to foreign investors. One of the most important regulations must be changed is preparing the financial reports and statements according to the Saudi accounting standards, and convert that to the international accounting standards.

In other words, in order to encouraging foreign investors, some related steps must be taken to make the publicly listed firms' financial reports and statements, either in prepare or represent and disclose them, reliable to making decisions. However, changing the followed accounting standards is not an easy process, because this could significantly affect corporations financial situation. Thus, gradually converting from the local accounting standards into the (IASs) would be a successful way to create an appropriate trading environment to reach the trading openness goals without a disastrous impact on the financial market.

Conclusion:

This study has aimed to assess the suitability of the Saudi financial reports and statements for foreign investors. However, from exploring some studies which have discussed some countries including Saudi Arabia it was found the they must to be converted to the (IASs) to be suitable for foreign investors. Therefore, the methodology of this research was relying on reading and presenting some related studies.

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