1-The Transformation to international accounting and auditing standards.
2. Board of Directors decisions on transformation:
A. The board of Directors of the Saudi Organization for Chartered and Professional Accountants (SOCPA), has decided to apply all international accounting standards in one go after completing the approval process by the organization. The decision will take effect starting with financial statements from 1-1-2017 for entities listed in the financial market. As for other entities, the application of the standards shall be on financial statements prepared for financial periods beginning on 1-1-2018, with the permission for those entities to apply the standards from period 1-1-2017. These dates can be revised and pushed back should any new developments arise with regards to the transformation plan.
The board also decided to apply the international audit standards after the completion of their approval by SOCPA all at once, provided that the application of these standards on the related audit or inspection work begins on or after the period 1-1-2017, unless new developments prevent the application from happening.
B. Small and Medium-Sized Entities (SMEs) are defined as those entities that publish financial statements of general purpose for outside users and are not subject to public accountability. The definition is according to the decision taken by the board of directors of SOCPA with regards to the adoption and application of the first section of the International Standard for SMEs as part of SOCPA's third phase standards in the transformation plane.
Entities are subject to public accountability in the following cases:
(1) When its intellectual proprietary or debt instruments are traded on a public market or are in the process of being issued for trading on a public market (national, foreign, or over-the-counter trading be it local or regional)
(2) When it uses assets belonging to a wide sector of external parties as one of its main activities. This applies to banks, credit unions, insurance companies, brokers, securities dealers, investment funds and investment banks.
In other words, the entities that are obliged to apply the international standards in their full version are the ones under the supervision of the Capital Market Authority, such as companies listed on the financial market, in the process of listing, having debt instruments traded on the financial market, or entities that are financial institutions such as investment funds. Other entities may apply the international standard for SMEs instead of applying the international standard in its full version.
C. SOCPA's board of directors has reviewed in its third session, which convened in 12/03/1437 H (23/12/2015), the updates and changes to international standards since its decision to adopt a transformation plan to implement international standards in 2012. Considering the fact that the new standards and their updates were issued to eliminate confusion or complexity in existing standards, the board decided in this regard the following:
* Mandating the technical committees to update the transformation plan to correspond with the latest international standard, including existing standards or any new standards, and to adopt those new and updated standards instead of the canceled ones even if their date is later than the date of application of international standards in the kingdom.
* Urging entities to apply the new standards as soon as they are approved by the SOCPA's Board of directors, instead of the canceled standards, as this lessens the cost of switching to the new standards upon the date of their application. Entities may continue to apply the canceled standards which are according to the international standard still valid after 2017.
D. The board has decided in its fourth session, which convened in 16/4/1437 H (26/1/2016), that Small-and Medium-Sized Entities (SMEs) should apply the International Financial Reporting Standards (IFRS) for SMEs alongside the accounting standards for non-profit entities set by SOCPA.
E. The board has previously issued a decision stating that "International Standards on Auditing should be applied all at once after the complete approval of the standards by SOCPA, and that the application should initially be on auditing or review related work on the first of January 2017, unless an obstruction arises and prevents the application from taking place".
And since there were some inquiries regarding the meaning of "auditing or review related work" and whether it meant the date of the engagement signing or the beginning of the auditing and reviewing work.
And by submitting the inquiry to the Audit Standards Committee, it issued the following decision:
The term "audit or review related work" means the annual audits of financial statements, preliminary financial statements review, assurance work, or other services, which starts from (or after) 1-1-2017, regardless of the date of contract with the client. So, in light of that:
(1) International standards shall apply to audit, review, and assurance work or any other services conducted by the auditor on any engagement beginning from (or after) 1/1/2017, including financial statements auditing or review and assurance work or any other services related to financial statements prior to the aforementioned date.
(2) International standards shall be applied on auditing and reviewing of financial statements for the years or financial periods ending after 1-1-2017, even if the date of the engagement was prior to this date.
F. The board has decided to allow companies that are making their first financial statements for their first financial year to apply the international standards in its full version or apply the intentional standard for SMEs (whichever is applicable to it) provided that these companies' first financial year ends in 2017.