BUSINESS

Tips for financial reporting transition

December 13, 2017
Omar Al Sagga
Omar Al Sagga

By Omar Al Sagga•

IN a move to adopt international best practices and open up the markets to outside investors, the Kingdom of Saudi Arabia is in the process of adopting International Financial Reporting Standards (IFRS). The use of IFRS provides businesses with a common global language, making company accounts understandable and comparable across international boundaries.

Mandated by the Saudi Organization for Certified Public Accountants (SOCPA) in 2012, the transition is now in its second phase. Companies listed on the Saudi Stock Exchange were required to be IFRS compliant by Jan. 1, 2017, whereas unlisted entities have until Jan. 1, 2018.

Transition to IFRS is a complex process. The technical accounting conversion exercise is just one element. To fully embed the standards into an organization requires a fundamental transformation of the way in which it operates - necessitating changes to systems, processes and importantly, people. Personnel across the organization - both financial and non-financial - require upskilling to deal with the rigors of IFRS. Such transformation, if done properly, can result in far-reaching benefits to the organization.

With a number of the country’s more significant businesses having now made the transition, what has been the experience so far, and what can unlisted entities learn from those that have gone before them?

The experience so far

During the course of 2017, listed companies have been required to publish interim IFRS-compliant financial statements. Only those companies that sufficiently planned and prepared in advance have successfully navigated the IFRS transition period.

Many companies have not viewed the application of IFRS as being beneficial to their businesses, or have simply looked at it as an accounting exercise. These organisations are continuing to experience challenges in complying with the standards, and in order to fully embed IFRS, further investments will be required.

Those that took the necessary measures to prepare for the transition have been able to successfully navigate through the complex steps and are already reaping the benefits of broader transformational change.

What can private companies learn?

The experiences of listed companies with the adoption of IFRS provide useful insights for privately held entities to consider as they assess how they will achieve compliance with IFRS by 1 January 2018.

Here are a series of pointers to consider as you approach the deadline:

• Start planning early: Those who are only now starting are definitely late. Entities should not delay the process and should act immediately to ensure a smooth transition.

• Upskill and train your finance teams on IFRS: Make sure your accounting advisors do not do the conversion for you, but do it with you. This will transfer knowledge and ensure IFRS reporting sustainability within an entity.

• Do not underestimate the necessity of strong change management and project management offices running the conversion effort: The human element of the change should not be underestimated, and needs to be managed.

• Embed the changes into financial reporting systems: IFRS changes not fully embedded in the financial reporting systems (i.e. spreadsheets and manual processes) are not sustainable in the long-term. Short cut measures and sub optimal solutions will only increase risks, potentially requiring significant effort to rectify.

• Involve external auditors early in the process so that key issues are agreed up-front before the conversion to IFRS advances too far.

• Assess the potential implications of new standards early: In particular, the implications of adopting IFRS 16 should be considered as this particular standard, more than most, has the potential to significantly change the shape of financial statements. Companies need time to structure agreements, lease contracts, and potentially negotiate bank covenants before the standard becomes applicable in 2019.

• Be ready for more changes in the future: Build a financial reporting function that is ready and capable of managing change, both with internal and external stakeholders. Being proactive, anticipating the implications and planning ahead enables an entity to sail smoothly through such changes.

Fully complying with the requirements of IFRS in the Kingdom is expected to create value not only for reporting entities, but also for the business community as a whole. It allows entities to standardize processes that reduces costs and improves the quality of data available to stakeholders. The adoption of IFRS is just the first major change to financial reporting processes within the Kingdom. As entities adopt new technologies, we expect continued investment to be required to meet ever increasing demands from stakeholders. Getting IFRS right, upfront, will enhance the ability of entities to meet these challenges.

• The writer is KSA Assurance Leader and Deputy KSA Leader


December 13, 2017
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