Saudi Accounting Framework

Saudi Accounting Framework
in comparison with 
IFRS Framework
IFRS Framework

Muhammad Asif Iqbal  ‐ Technical Advisor, SOCPA

ICAP KSA Chapter, Khobar
h h b
March 7, 2012
 Agenda
• Stat
Status of Accounting Standards in Saudi Arabia
s of Acco nting Standards in Sa di Arabia
• SOCPA IFRS Convergence Project
• Analysis of some major differences between 
Saudi GAAP with IFRSs

2
STATUS OF ACCOUNTING STANDARDS 
IN SAUDI ARABIA

3
 Regulatory Framework
Regulatory Framework
SOCPA regulates Accounting profession:
g gp
Saudi GAAP as issued by SOCPA (in Arabic) are applicable on all 
type of companies.

There are two main regulators besides SOCPA:
 Capital Market Authority (CMA)
( )
Regulates all listed companies.
 Saudi Arabian Monetary Agency (SAMA)
Saudi Arabian Monetary Agency (SAMA)
Regulates all Banks, Insurance companies and IFRSs are 
followed.

4
 Saudi Accounting Framework
Saudi Accounting Framework
In the absence of SOCPA standard / opinion on a
particular accounting matter, relevant standard
issued by IASB should be considered.
considered

IIn the
h absence
b off both,
b h accounting
i standard
d d or
the professional opinion or an application
approved d by
b SOCPA and d which
hi h is
i one off the
h
locally or internationally generally accepted
applications.
li i
5
 Adoption status of IAS/IFRS
Adoption status of IAS/IFRS
Although the accounting standards issued by SOCPA are 21 in total, 
the General Presentation and Disclosure Standard covers six topics 
that are addressed individually by the following IFRSs: 
• IAS 1 Presentation of Financial Statements
• IAS 7 Cash Flow Statements
• IAS 8 Accounting Policies, Changes in Accounting Estimates and 
Errors
• IAS 10 Events after the Balance Sheet Date
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
• IFRS 5 Non current Assets Held for Sale and Discontinued
IFRS 5 Non‐current Assets Held for Sale and Discontinued 
Operations. 

6
 Adoption status of IAS/IFRS
Adoption status of IAS/IFRS
• 18
18 currently effective IFRSs have direct 
currently effective IFRSs have direct
corresponding SOCPA Accounting Standards
• 6 currently effective IFRSs are partially covered by 
y p y y
SOCPA Accounting Standards
• 9 currently effective IFRSs have no corresponding 
y p g
SOCPA Accounting Standards
• 3 SOCPA Accounting Standards have no 
corresponding IFRSs

7
 IFRSs having direct corresponding 
SOCPA Accounting Standards
d d
1. Presentation of Financial Statements (IAS 1) 
2. Inventories (IAS 2) 
3. Construction Contracts (IAS 11) 
4. Income Taxes (IAS 12) 
5
5. Property Plant and Equipment (IAS 16)
Property, Plant and Equipment (IAS 16) 
6. Leases (IAS 17) 
7. Revenue (IAS 18) 
8. Accounting for Government Grants (IAS 20) 
g ( )
9. Foreign Currency (IAS 21)
10. Related Party Disclosures (IAS 24) 
11. Consolidated and Separate Financial Statements (IAS 27)
12. Investments in Associates (IAS 28) 
13. Earnings Per Share (IAS 33) 
14. Interim Financial Reporting (IAS 34) 
15
15. Impairment of Assets (IAS 36)
Impairment of Assets (IAS 36)  
16. Intangible Assets (IAS 38)
17. Operating Segments (IFRS 8) 8
18. Business Combinations (IFRS 3) 
 IFRSs having partial corresponding 
SOCPA Accounting Standards
SOCPA Accounting Standards
1. Cash Flow Statements (IAS 7) 
2. Accounting Policies, Changes in Accounting Estimates and Errors 
(IAS 8) 
3 Events After the Balance Sheet Date (IAS 10) 
3. Events After the Balance Sheet Date (IAS 10)
4. Borrowing Costs (IAS 23)
5. Provisions, Contingent Liabilities and Contingent Assets (IAS 37) 
, g g ( )
6. Financial Instruments ‐ Recognition and measurement (IAS 39)
7. Non‐Current Assets Held for Sale and Discontinued Operations 
(IFRS 5)

9
 IFRSs having no corresponding 
SOCPA Accounting Standards
SOCPA Accounting Standards
1. Employee Benefits (IAS 19) 
2. Accounting and Reporting by Retirement Benefit Plans (IAS 26) 
3. Financial Reporting in Hyperinflationary Economies (IAS 29) 
4
4. Interests in Joint Ventures (IAS 31)
Interests in Joint Ventures (IAS 31) 
5. Financial Instruments ‐ Presentation (IAS 32) 
6. Investment Property (IAS 40) 
7. First‐time Adoption of IFRSs (IFRS 1) 
i i d i f S ( S )
8. Insurance Contracts (IFRS 4) 
9. Exploration for and Evaluation of Mineral Resources (IFRS 6) 
10. IFRS 7
11. IFRS 9

10
 SOCPA Accounting Standards having no 
p g
corresponding IFRSs 

1. RESEARCH AND DEVELOPMENT COSTS

2. ACCOUNTING FOR ZAKAT
3. ADMINISTRATIVE AND MARKETING EXPENSES

11
 SOCPA Accounting Standards 
under development
d d l
SOCPA is currently working on the following eight standards:
y g g g
1. Financial instruments (IAS 32)
2. Liabilities and contingencies (IAS 37) 
3. Cost of software (IAS 38) 
4. Agriculture (IAS 41) 
5. Share dividend (IFRS 2) 
( )
6. Investment Property (IAS 40) 

12
 SOCPA Professionals opinions and 
interpretations
1. Presentation and depreciation of idle assets. 
2. Presentation of early production of trees. 
3. Amendment of productive age of fixed assets that is depreciated but still 
utilized. 
4. Under construction entity to prepare incomplete set of financial 
statements?
5.
5 Capitalization of financing cost of fixed assets
Capitalization of financing cost of fixed assets.
6. Revaluation of fixed assets that is depreciated but still utilized. 
7. Accounting treatment for real estate units prepared for sale by 
participation in time
participation in time.
8. Impairment of investment securities
9. Costs and Revenue during Commissioning Period

13
SOCPA IFRS CONVERGENCE 
PROJECT
14
 Convergence Approach
Convergence Approach

Determine whether each Develop IFRS‐equivalent

IFRS meets specified
IFRS meets specified g
Saudi Accounting Standards
criteria set out in for the local regulatory framework with
changes such as removing optional
local /sharia requirements
treatments and adding disclosure
requirements where appropriate
requirements, where appropriate

Present the Saudi Accounting 
Standards so developed for
approval of SOCPA Board after
approval of SOCPA Board after 
completing the due process
 Convergence Approach
Convergence Approach
• Ultimate
Ultimate objective is full convergence with 
objective is full convergence with
IFRS 
• Simplified standards for non public interest 
Simplified standards for non public interest
entities
• Application date of converged standards at a 
A li i d f d d d
later date with the option of voluntary early 
application
li i
• SOCPA Survey
• A team of consultants has started working 
16
based on grouping of standards 
 SOCPA Survey
SOCPA Survey
Introduction

SOCPA iis currently

tl considering
id i to
t issue
i its
it accounting
ti standards
t d d based
b d on the
th IFRSs
IFRS
after reviewing the local regulatory and other requirements. Purpose of this survey is
to seek input from all the relevant stakeholders for identifying such issues based on
which SOCPA may make modifications in the current text of IFRSs in order to be
applicable in the Kingdom.
Access to IFRS

You may refer the IFRSs electronically from the following website of IASB:

http://www.ifrs.org/IFRSs/IFRS.htm

CPD credit

SOCPA will allow CPD credit of 1-15 hours depending upon the nature of your
responses.

17
‘Marathon’ ahead
Critical success factors for IFRS
conversion projects
i j
Leadership

Strategy Communication

Critical 
Success
Success 
Factors
Time Resources

Project Management Knowledge

 The task ahead – what is required to 
win the Marathon?
win the Marathon?
Teamwork & Partnership
required within each entity and among all external stakeholders

IFRS Convergence is not just a ‘Finance/Accounting’

issue but ‘Entity wide’ issue and also it is a ‘Country Wide’
issue.
COMPARISON OF  SAUDI STANDARDS 
WITH IFRS

21
 Quick comparison amongst principal statements

Principal Statements Principal Statements
IFRS
SOCPA
Balance Sheet Statement of Financial Position

Statement of Income Statement of Comprehensive Income

(A separate Statement of income is required 
if two statement approach is followed)
Statement of Cash Flows
f h l Statement of changes in equity
f h i i
Statement of Changes in Shareholders’  Statement of Cash Flows
Equity
Notes to the financial statements  Notes to the financial statements 

Note the difference in sequence of the statements 

22
Key differences between IFRS and SOCPA 
‐ General
Fair presentation 

SOCPA Accounting Standards IFRS

• No such presumption • There is a presumption that application 

of IFRS would lead to fair presentation.

23
Key differences between IFRS and SOCPA 
‐ General
Departure from IFRS

SOCPA Accounting Standards IFRS

• Not required. • IAS 1 requires specific disclosure for 

departures from IFRS.

24
Key differences between IFRS and SOCPA 
‐ General
Critical accounting judgments

SOCPA Accounting Standards IFRS

• IAS 1 requires disclosure of critical 
• Not required. judgments made by management in 
applying accounting policies.

25
Key differences between IFRS and SOCPA 
‐ General
Statement of unreserved compliance with IFRS

SOCPA Accounting Standards IFRS

• IAS 1 requires specific disclosure for 
• Not required. explicit and unreserved statement of 
compliance with IFRS.

26
Key differences between IFRS and SOCPA 
‐ General
Presentation of financial statements 
Classification of liabilities
SOCPA Accounting Standards IFRS

• Liabilities for which contractual  • Liabilities are classified as non‐current

arrangements have been made for 
t h b d f only
l if refinancing
fi i isi completed
l t d before
b f
their settlement from other than  the end of the reporting period.
current assets should be removed 
from current liabilities before issuing 
the financial statements.  Examples of 
these liabilities are:
– Short‐term loans which will be 
paid by the proceeds from long‐
id b th d f l
term loans.
– Commercial debts agreed to be 
settled by issuing capital stocks
settled by issuing capital stocks. 

27
Key differences between IFRS and SOCPA 
‐ General
Presentation of Balance sheet
Current Vs Non‐current
Current Vs Non current 

SOCPA Accounting Standards IFRS

• Deferred taxes are presented as • Deferred taxes are presented as non‐

current or non‐current based on the
nature of the related asset or liability.
y
current.
(Note: In the joint convergence project on
income taxes, IFRS is expected to converge
with US GAAP and hence present deferred
tax as current or non
non‐ current based on the
nature of the related asset or liability)

28
Key differences between IFRS and SOCPA 
‐ General
Presentation of financial statements 
Extra ordinary items
Extra ordinary items

SOCPA Accounting Standards IFRS
• Saudi GAAP specifically requires  • IAS 1 prohibits any items to be
disclosure for Extra‐ordinary items. disclosed as extraordinary items.

29
Key differences between IFRS and SOCPA 
‐ General
Presentation of financial statements 
Income statement expense classification
Income statement expense classification

SOCPA Accounting Standards IFRS

Required to present expenses based on Entities may present expenses based on

function (for example, cost of sales, either function or nature (for example,
administrative).
) salaries, depreciation).

Note: There is a separate SOCPA standard However, if function is selected, certain

on “Administrative and Marketing disclosures about the nature of expenses
Expenses”, which requires the mustt be
b included
i l d d in
i the
th notes.
t
Administration and Marketing Expenses
to be disclosed separately – which clearly
indicates that presentation should be by
“Function”.
30
Key differences between IFRS and SOCPA
‐ General
Presentation of financial statements 
Comparatives

SOCPA Accounting Standards IFRS

Comparative period may be shorter or

Comparative period should be similar.
longer with disclosure of reasons for the
same.

31
Key differences between IFRS and SOCPA 
– Balance sheet
Balance sheet
Inventories 
Measurement method
Measurement method
SOCPA Accounting Standards IFRS
• Weighted
g average
g method is a • LIFO is prohibited, however the entity 
p y
preferable method for similar items. can choose FIFO or weighted average 
However, FIFO or LIFO methods may be cost method for valuing its inventories.
used provided reasons and quantifying
the difference with weighted average is
disclosed.
• Same cost formula must be applied to 
all inventories similar in nature or use 
• Consistent cost formula for all to the entity
to the entity.
inventories similar in nature is not
explicitly required.

32
Key differences between IFRS and SOCPA 
– Balance sheet
Balance sheet
Inventories 
Reversal of inventory write‐downs
Reversal of inventory  write downs
SOCPA Accounting Standards IFRS
• Not covered Previously recognized impairment 
y g p
losses are reversed, up to the amount 
of the original impairment loss when 
the reasons for the impairment no 
longer exist
longer exist.

33
Key differences between IFRS and SOCPA 
– Balance sheet
Balance sheet
Inventories 
Measuring inventory at net realisable value even if above cost
Measuring inventory at net realisable value even if above cost
SOCPA Accounting Standards IFRS
• Permitted, but based on a specific 
p Permitted only for producers’ 
y p
product (precious metals). inventories of agricultural and forest 
products and mineral ores and for 
broker‐dealers’ inventories of 
commodities.
commodities

34
Key differences between IFRS and SOCPA 
– Balance sheet
Balance sheet
Inventories 
Measuring inventory at net realisable value even if above cost
Measuring inventory at net realisable value even if above cost

35
Key differences between IFRS and SOCPA 
– Balance sheet
Balance sheet
Property plant and equipment 
Measurement after initial recognition
Measurement after initial recognition

SOCPA Accounting Standards IFRS

• Measured at cost less accumulated • Benchmark treatment – measure the

depreciation and impairment losses. asset at cost less accumulated
• Revaluation is prohibited. depreciation and impairment losses.
• Allowed alternative treatment –
measure assets at their Fair values with
the changes in fair values being
credited to a revaluation reserve shown
under equity of the entity.

36
 Key differences between IFRS and SOCPA ‐
Cash flow statement
Cash flow statement
DIRECT VERSUS INDIRECT METHOD
SOCPA Accounting Standards
Only specifies format of indirect method
in the presentation standard
IFRS
• Financial statement preparers have a 
choice between the direct and the 
indirect method in presenting the 
operating activities section of the 
statement of cash flows. IAS 7 
recommends the direct method of 
presenting net cash from operating
presenting net cash from operating 
activities. 
37
Key differences between IFRS and 
SOCPA ‐ Cash flow statement
SOCPA ‐
SOCPA  Cash flow statement
Cash and Cash Equivalents

SOCPA A
SOCPA Accounting Standards
i S d d IFRS
SOCPA Standard for “Cash Flow
• IAS 7 gives guidance to state that cash 
Statement” does not refer to a specific
equivalents should be “when it has a 
period with regard to cash equivalents.
equivalents
short maturity of, say, three months or 
less from the date of acquisition.”

38
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment 
Capitalization of Dismantling and Site Restoration Costs

SOCPA Accounting Standards IFRS

• No guidance in the standard. Provision on site‐restoration and 

dismantling is mandatory. To the extent it 
relates to the fixed asset, the changes are 
added/deducted (after  discounting) from 
the asset in the relevant  period.

39
Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment 
Capitalization of Dismantling and Site Restoration Costs

40
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Depreciation on components of an asset
Depreciation on components of an asset

SOCPA Accounting Standards IFRS

• Not covered. • Components of an asset with differing 

patterns of  benefits must be 
depreciated separately.

41
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Depreciation on idle asset
Depreciation on idle asset

SOCPA Accounting Standards IFRS

• Depreciation is not calculated on the  • Should be depreciated even it is idle, 
fixed assets that were determined to  but not if it is held for sale
be disposed of immediately upon 
taking that decision. However, there is 
no mention of idle assets.
• Opinion issued by SOCPA ‐ assets that 
were permanently idle and still in the
were permanently idle and still in the 
entity’s possession should be – if 
material – should be separated from 
other assets and their depreciation 
should be suspended.

42
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Government Grants
Government Grants

SOCPA Accounting Standards IFRS

• Not covered. The Saudi standard on   • Government grants received in

Government Grants requires it to be   connection with acquisition of PPE
accounted for as owner’s equity. may be offset against the cost.

43
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Reassessment of useful life, residual value and depreciation method
Reassessment of useful life, residual value and depreciation method

SOCPA Accounting Standards IFRS

• Reviewed only when events or  • Requires annually. 
changes in circumstances indicate.
• Opinion issued by SOCPA 

44
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Measurement of self constructed asset
Measurement of self constructed asset

SOCPA Accounting Standards IFRS

• Fixed asset that is self‐constructed,    • On the same basis as acquired asset.

shall be recognized at the lower of 
cost  or fair value when it is ready for 
use.   The difference between the cost 
of the  asset and its fair value shall be 
charged  to the fiscal period in which 
such asset is ready for use.
such asset  is ready for use.

45
Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Measurement of self constructed asset
Measurement of self constructed asset

46
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Compensation for impairment
Compensation for impairment

SOCPA Accounting Standards IFRS

• Only losses are recognized when  • Compensation from third parties for 
becomes receivable. Unrealized gains  impairment or loss of items of PPE are 
are not recognized. included in the profit and loss account 
when the compensation becomes 
receivable.

47
Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Compensation for impairment
Compensation for impairment

48
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment
Revenue during commissioning period
Revenue during commissioning period

SOCPA Accounting Standards IFRS

• Covered only to the extent of  • Costs of testing whether the asset is 
capitalizing pre‐operating costs. No  functioning properly, after deducting 
mention of incidental revenue. the net proceeds from selling any 
items produced while bringing the 
asset to that location and condition 
(such as samples produced when 
testing equipment) should be
testing equipment) should be 
captailized;

49
 Key differences between IFRS and 
SOCPA –– Balance sheet
SOCPA 
Property plant and equipment
Revenue during commissioning period
Construction work in progress (CWIP)
CWIP are recognized at cost of materials and services needed to fabricate
CWIP are recognized at cost of materials and services needed to fabricate 
the plant and equipment plus salaries and other costs that can be 
specifically identified as necessary costs to have the plant ready for its 
intended use and other overheads allocated on a systematic basis as well 
y
as capitalized borrowing costs. The cost of CWIP is reduced by the net 
proceeds from sale of products during commissioning phase.
Related Party Transactions
y
The company has sold part of its testing products during the year to one of 
its related parties which amounted to 117.3 million.

50
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Intangible Assets
Incorporation Costs

SOCPA Accounting Standards IFRS
May be capitalized Not allowed to be capitalized

‐ 51 ‐ 51
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Intangible Assets
Measurement after initial recognition

SOCPA Accounting Standards IFRS
Should be measured at its historical cost Can be held at cost or at fair value.
less accumulated amortisation.

‐ 52 ‐ 52
Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Intangible Assets

‐ 53 ‐ 53
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Borrowing Costs
Qualifying Assets
SOCPA Accounting Standards IFRS

Limited to fixed assets that take  Includes inventories that require 
substantial period of time to get ready  substantial period of time to bring them in 
for its intended use or sale saleable condition

‐ 54 ‐ 54
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Property plant and equipment 
Impairment assessment
SOCPA Accounting Standards IFRS

• SOCPA also lists various factors
however initially the impairment is
assessed by comparing the gross
undiscounted cash flows from the
assets with its carrying value.
• If gross cash flows are higher than
carrying amount = no impairment
• If ggross cash flows are lower than
carrying amount = impairment is
recognized based on discounted cash
flows.
• IAS 36 has a list of external and internal
indicators of impairment.
• If there is an indication that an asset
may be impaired, then the asset's
recoverable amount is calculated –
which is higher of assets net selling
price or value in use.
• The difference between recoverable
amount and carrying value is
impairment.

‐ 55 ‐ 55
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
INVESTMENT PROPERTIES
Accounting for investment properties
SOCPA Accounting Standards IFRS

Shall be valued at cost. Investment property shall be measured at 
SOCPA allows only disclosure of the fair  its cost or fair value
value information in the explanatory 
notes to the financial statements

‐ 56 ‐ 56
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Financial instruments
General
SOCPA Accounting Standards
• SOCPA has issued a separate standard
dealing with investment in securities –
however the guidance is limited and
detailed aspects are not covered.
• Practically companies are applying
IFRS where guidance in SOCPA is not
available.
• No guidance available regarding
accounting of derivatives.
derivatives
• No guidance on hedge accounting
‐ 57 ‐
IFRS
• Separate standards for accounting and
disclosure of Financial instruments has
been issued which contains extensive
guidance.
• The standards are being further
enhanced and looks into all aspects of
financial instruments like classification,
recognition and measurement, de‐
recognition impairment etc.
recognition, etc
• Detailed guidance available for
accounting for derivatives and hedges
57
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA  Balance sheet
Financial instruments
Classification
SOCPA Accounting Standards IFRS
• Financial instruments can be      • Financial instruments can be classified 
classified as
classified as  as
as 
– Trade securities – At fair value through profit or loss 
– Available for sale (which includes trading and 
– Held to Maturity
Held to Maturity designated
g instruments))
Loans and receivables is specifically  – Available for sale
not mentioned as the SOCPA standard  – Held to Maturity
deals with Investment in securities
deals with Investment in securities  – Loans and receivables
Loans and receivables
only 
• Transfers between classes is  ordinarily  • Transfer between classes is permissible 
permissible. if certain conditions are met.

‐ 58 ‐ 58
 Key differences between IFRS and 
SOCPAFinancial instruments
SOCPA  – Balance sheet
Balance sheet
Measurement
SOCPA Accounting Standards
SOCPA Accounting Standards IFRS
• On acquisition, Securities shall be • Initially, financial assets and liabilities
measured and recorded at cost. The should be measured at fair value
cost includes the purchase price and all (i l di transaction
(including i costs, for
f assets
the expenses incurred by the and liabilities not measured at fair value
enterprise for the purpose of acquiring through profit or loss).
the securities.
• Determination of FV: IAS 39 provides a
• Determination of FV: Securities which hierarchy to be used in determining the
have no active market and there are fair value for a financial instrument and
no sufficient indicators to allow assumes that fair value of the
determination of market value instrument cannot be determined only
objectively (e.g. Equity securities) then in rare cases.
the cost is considered as most
appropriate objective and reliable
measurement of the fair value of
securities.
‐ 59 ‐ 59
 Key differences between IFRS and 
SOCPA – Balance sheet
SOCPA –
SOCPA  Balance sheet
Financial instruments
Impairment

SOCPA Accounting Standards IFRS

• Decline in fair value is considered • Decline in fair value is considered 

other than temporary if there are permanent and the security is 
certain indicators proving its continuity considered impaired if the decline in its 
or these indicators could indicate the fair value below cost is significant or
nature of the decline prolonged. 
• Significance of the decline and period • Other qualitative factors are also to be 
has to be considered while considered
considered.
determining whether the decline in fair
value is to be considered as
impairment.

‐ 60 ‐ 60
 Key differences between IFRS and 
SOCPA – Income statement
SOCPA –
SOCPA  Income statement
Foreign Currency

SOCPA Accounting Standards
• Foreign currency transactions are
recognized and reported in Saudi Riyals
only.
IFRS
• A foreign currency transaction shall be
recorded on initial recognition in the
recorded,
functional currency, which may be
other than the presentation currency.

‐ 61 ‐ 61
Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Employee benefits
Post employment benefits
Post employment benefits

SOCPA Accounting Standards IFRS
• Limited guidance available however • Detailed guidance is available under IAS
the standards do require the long 19 for post employment benefits.
term obligations to be discounted to
• The accounting requires the Companies
reflect the current costs.
costs
to discount their obligation under the
• Practically, companies are accounting
defined benefit plans and reflect the
for the End of Service Benefits (EOSB)
current costs in their financial
obligations based actual payments
statements – the present obligation is
that the Company would require to
usually determined based on actuarial
make – few companies are using the
advice.
actuarial valuations also.

‐ 62 ‐ 62
Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Employee benefits
Post employment benefits
Post employment benefits

‐ 63 ‐ 63
Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Taxation and Zakat

SOCPA Accounting Standards IFRS

• Zakat is charged to income statement • Income tax is covered and is a charge to

if the Company is wholly owned by the income statement
Saudi shareholders otherwise it is • No separate standard available to deal
charged to equity with Zakat
• Income tax is charged to the income • Deferred tax is provided for all
statement if the Company is wholly temporary differences
owned by non non‐local
local shareholders
otherwise it is charged to equity
• Deferred tax requirements are similar
to IFRS however IFRS is much more
d t il d
detailed.

‐ 64 ‐ 64
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA  Special Topics
Leases
Criteria for classification as finance lease

SOCPA Accounting Standards IFRS
Prescriptive – should satisfy one of the Principle based ‐ substance over form
following four conditions to be classified requirement – transfer of substantially all
as finance lease risks and rewards incident to ownership is
to be considered while deciding the
• 90% of the value of the assets classification of the lease
• 75% of the life of the assets
• Bargain
g p purchase option
p
• Transfer of ownership at the end of the
lease term

‐ 65 ‐ 65
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA  Special Topics
Interim financial reporting 
Minimum contents
SOCPA Accounting Standards IFRS

• Minimum contents
– Balance sheet
– Income statement
– Cash flows statement
– Selected explanatory notes
• A statement that results for the interim 
period may not give an accurate 
indicator of the annual operating  • No such statement required
results is required to be included
• Minimum contents
– Condensed statement of financial 
d d ff l
position
– Condensed comprehensive income
– Condensed statement of changes in 
Condensed statement of changes in
equity
– Condensed cash flow statement
– Selected explanatory notes
Selected explanatory notes

‐ 66 ‐ 66
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA  Special Topics
Interim financial reporting 
Integral vs discrete approach
SOCPA Accounting Standards IFRS

• Requires the totality approach which  • Generally allows the integral approach 
considers that each period of the fiscal  but also allows discrete approach in
but also allows discrete approach in 
year is an integral part of the whole  certain cases like changes in estimates.
fiscal year.

‐ 67 ‐ 67
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Interim financial reporting 
Comparatives

SOCPA Accounting Standards IFRS

• The comparative balance sheet reflects  • The comparative balance sheet reflects 
the balances as at the end of the  the balances as at the end of the last 
corresponding period. financial year. 
• For example in the financial statements  • For example in the financial statements 
for interim period ended 30 June 2010  for interim period ended 30 June 2010 ‐
‐ the balance sheet comparative  the balance sheet comparative should 
should show balance sheet as at 30
should show balance sheet as at 30  show balance sheet as at 31 December
show balance sheet as at 31 December 
June 2009. 2009.

‐ 68 ‐ 68
69
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Consolidated and separate financial statements
Minority interest
Minority interest

SOCPA Accounting Standards IFRS
Shall be presented as a separate  Shall be presented within equity 
component of the equity section separately from the parent shareholders’ 
equity

‐ 70 ‐ 70
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Related Parties

SOCPA Accounting Standards IFRS
• Transaction oriented – e.g.  • Relationships between a parent and its 
disclosure to identify controlling  subsidiaries shall be disclosed 
party not needed as long as there  irrespective of whether there have 
were no transactions
t ti been transactions between them.

• External auditor is also a related  • External auditor is not a related party
party
• Detailed disclosures required for all 
• No mention of disclosure for  types of management compensation
management compensation
management compensation

‐ 71 ‐ 71
 Key differences between IFRS and 
SOCPA – Special Topics
SOCPA –
SOCPA  Special Topics
Agriculture

SOCPA Accounting Standards IFRS
• Does not allow the same through  • Measure biological assets/producing 
one of its opinion cattle (non‐current assets) at fair value

‐ 72 ‐ 72
CONCLUSION

73
 End Note
End Note
► Transparency and integrity of financial reporting 
p y g y p g
is essential for financial stability and growth.

► Effective financial reporting depends not only on 
high quality accounting standards but also on 
the consistent and faithful application of those 
the consistent and faithful application of those
standards.

► The financial crises have further strengthened 
the case for convergence of global financial 
reporting standards
reporting standards.
74
 Thank you
y

Questions & Comments
asifiqbal@socpa.org.sa

The views expressed in this presentation are those of 
Th i d i thi t ti th f
the presenter. Official positions of the SOCPA are 
determined only after extensive due process and 
deliberation.

75