Corporate Reporting: Saudi Arabia-Based Corporations

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Introduction

Despite the availability of many models, most business organizations face challenges associated with corporate reporting, particularly organizations in Saudi Arabia. Over the decades, annual reports have remained a cornerstone of corporate reporting. Numerous changes have happened over the years, making it challenging for most corporate entities to conduct regular reporting (Davidson & Trueblood, 1961). Technology and information, including social expectations, have changed remarkably. The rapid technological advancement has influenced the approaches to sharing critical information and data within organizational settings. One of the critical elements of a sound corporate report is the top management’s willingness to assume responsibility for its contents (Jenkins, 1994; Roberts et al., 2005). Such interventions are critical in providing the users with confidence in the reporting strategies and the contents of such reports. Most critically, the use of independent assurance of corporate reports is vital in enhancing such reports’ believability. Jenkins’ model provides the best approaches to facilitating effective reporting. This paper will review the challenges facing Saudi-based organizations concerning corporate reporting in light of the selected model.

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Corporate Reporting

Corporate reporting describes the presentation and disclosure elements of reporting, including integrated and financial reporting, corporate governance, corporate responsibility, and so forth. The international practice includes regulations that make it mandatory and voluntary disclosures to increase values for the business stakeholders. Usually, organizational communication is conducted for many reasons—such as providing relevant information to various stakeholders’ categories to enable them to make informed investment or credit decisions (Munter & Robinson, 1999; Sorrentino & Smarra, 2015). It also enables stakeholders to evaluate the uncertainties associated with the net cash flows, including providing an overview providing these organizations’ general performance. The rapid technological advancement also avails various aspects of data to investors concerning the companies of interest (Weiss & Nusbaum, 1994; Jenkins, 1994). Accounting professionals should help filter such information to get the most relevant data. In this context, the reporting is the top executive’s primary responsibility to ensure the timely release of critical information rather than waiting for the investors or other stakeholders to ask for such data.

Business Reporting

Business reporting is a critical aspect of the effective management of business organizations. It describes the process of providing an overview of how the corporation is tracking in all areas of the organization (Weiss & Nusbaum, 1994). They guide the decision-making process to enable the stakeholders to have a general look at the internal efficiencies as far as the management of resources is concerned. Reporting involves compiling and reviewing organizational information concerning different departmental areas such as sales, inventory regulation, operation, sales, and finance departments (Roberts et al., 2005). Such reports are useful guides to business stakeholders concerning the expenditure, profits, and growth of business organizations. More significantly, business reports are useful in building an audit trail of business activities such as annual budgets, sales volume, and other planning activities (May 1943). The reports act as management tools to allow for benchmarking activities by evaluating the performance of the corporation in relation to the rival firms in the same industry.

Overview of Selected Business Organizations

Organization 1: Al Abdullatif Industrial Investment Company (AIIC)

It is one of the largest business organizations that deal with a wide range of products, including integrating integrated carpets. The organization mainly specializes in Polypropylene, Polyester, nylon wool, viscose, and acrylic segments. The company is listed among the best carpet manufacturers globally. The business strategy emphasizes the need to provide quality products at affordable prices by leveraging advanced technology in producing high-quality products.

Organization 2: Lazurde Company for Jewelry

Lazurde Company for Jewelry is a Saudi-based organization, and it is located in Riyadh. The company has 19 employees in different locations and annual sales of approximately $4.39 million (USD). The company deals with a large volume of information and data relating to managing resources, including financial resources.

Organization 3: Fitaihi Holding Group

Fitaihi Holding Group is situated in Jeddah, Saudi, and is involved in managing companies and enterprises. The organization has 300 employees and generates a sales volume of up to $26.14 million (USD) (Sorrentino & Smarra, 2015). The organization’s main activities include managing its subsidiaries and participation in the management of other business organizations. The Group’s primary activities include investment and retail, with the investment sector focusing on the health care, agricultural production, and industrial sectors. The retail sector mainly deals with the sale of luxury goods and jewelry, watches, gifts, silver mantels, and parchment tables.

Reasons for Selecting the Organizations

The selected corporations are large and deal with an increased volume of data and financial management information. The companies are mandated to provide financial reporting regularly. Due to the positions of the selected business entities in Saudi Arabia’s economy, they provide the best case study concerning the challenges facing business organizations in Saudi Arabia as far as corporate reporting is concerned. Most importantly, the information concerning the chosen organizations is readily available (on the Tadawal website) for ease of reference, thus facilitating a better assessment of the identified strategic management challenge in different business settings.

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Jenkins’ Model

Saudi Arabia has witnessed the rapid growth of business entities, including large corporations and small and medium business enterprises (SMEs). However, there are numerous challenges associated with corporate reporting, thus eroding the confidence of investors confidence and other important business stakeholders (May 1943; Sorrentino & Smarra, 2015). Jenkins model involves promoting effective corporate reporting by availing relevant information about the management’s analysis of both financial and non-financial data. The concepts of business models are relatively new and perhaps are derivatives of the well-established economic theoretical perspectives. Over recent years, the adoption of models has gained wider acceptance, especially in corporate reporting. Usually, as Jenkins (1994) reveals, the nondisclosure of requirements has adverse implications for the management of business organizations.

Jenkins’ Committee’s approach can be useful in ensuring successful financial reporting. The use of informative disclosure has numerous benefits compared to the traditionally underappreciated means that they are less effective in meeting the targeted stakeholders’ information needs (Weiss & Nusbaum, 1994; Jacobson & Elliott, 1995). Other critical aspects of the model include providing a stringent approach that leverages the need to conduct a cost-benefit analysis. It has cost-limiting criteria that influence the business organization’s important disclosure—competition, litigation, and preparation and dissemination.

Application of Jenkins’ Model

Al Abdullatif Industrial Investment Company (AIIC)

The adoption of Jenkins’ model can be critical in addressing most corporations’ challenges in Saudi Arabia. The chosen corporations’ assessment—the Al Abdullatif Industrial Investment Company (AIIC), Fitaihi Holding Group, and Lazurde Company – revealed significant organizational challenges hindering effective corporate reporting (May 1943; Jenkins, 1994). For instance, AIIC lacks an adequate reporting standard to facilitate ease of access to real-time information and data by the investors (Jenkins, 1994). Most critically, the management lacks practical cost-benefit assessment to improve reporting strategies. In this regard, the adoption of Jenkins’ model is crucial in reviewing the approaches used in weighing the benefits and cost of withholding specific information from potential investors and other relevant stakeholders.

Fitaihi Holding Group

The assessment of the company’s financial reporting systems reveals significant challenges. For instance, corporate management lack sustainability management practices to facilitate the effective exchange of critical data between the organization and relevant stakeholders. Lack of support from the corporate leadership in meeting the stakeholders’ informational needs is a pressing concern as far as reporting financial information is concerned. However, the selected model provides effective intervention in addressing such organizational issues. For instance, it emphasizes the need for corporate managers to focus on the long-term sustainable value to enhance the reporting practices’ alignment with the organizational goals (Jenkins, 1994). The theoretical perspective also provides the need for salient risks to enable investors to make prudent decisions. The organizations should develop effective strategies for reporting potential risk factors, including mitigation or contingency plans to address such risks.

Lazurde Company

Like most Saudi-based organizations, Lazurde Company has numerous managerial challenges that negatively influence financial reporting. For instance, the business organization has no internal policies targeting identification and dealing with the potential risks associated with financial investments (Jenkins, 1994). The corporate leaders tend to underreport potential risks associated with certain types of portfolios within the organizational settings—the investors tend to avoid investing their finances in the company due to the high risk of the financial market’s volatilities. However, the adoption of Jenkins’ model helps address and provide frameworks for quantifying risks linked to specific investment portfolios (Jenkins, 1994). The organization’s management should commit to adopting ethical policies to promote reporting or disclosure of such threats to potential investors. Non-reporting of salient risks has seen investors making imprudent decision-making.

Critique and Current Corporate Reporting

An assessment of the chosen corporations reveals underlying challenges associated with corporate reporting. Jenkins’ model provides the best approaches to addressing such shortcomings in corporate reporting. In the absence of relevant, timely, and reliable information, investors are less likely to make informed long-term investment decisions. Some of the adverse effects of the lack of such vital data include damaging the reputation of the affected organization and reduced cash flow (Moriarty & Livingston, 2001). For instance, underreporting of profit portrays the business as being undervalued. Some of the challenges linked to the identified corporations include overreliance on historical data. Such information tends to be incomplete and can mislead, thus underlying the corporation’s future growth and attainment of long-term value.

The problem of underreporting leave investors with no comparable information. The modern reporting practices require business organizations to report non-financial issues as proposed in Jenkins’ theoretical perspective (Munter & Robinson, 1999; Moriarty & Livingston, 2001). Second, there is a lack of measurable disclosures to enable investors to gain greater insights and evaluate organizational performance trends. Usually, few corporations disclose any decision-useful data on investment or human capital, thus undermining the long-horizon investors (Munter & Robinson, 1999). Over the last few years, business organizations have continued to experience mounting pressures from various stakeholders concerning the need to incorporate social and environmental considerations in their operations to improve governance levels. Historical data are always less accurate than non-financial data. In this case, the non-financial information includes internal intangible assets such as human resource management strategies, incentive pay design, management structure design, and innovation capabilities (Weiss & Nusbaum, 1994). Availing such information can be useful in enabling investors to make prudent financial decision-making.

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However, it is imperative to note that the chosen corporations adhere to regular financial reporting. For instance, the organization provides quarterly reporting, which has been crucial in providing some decision-useful data elements. It is imperative to note that such information will not prevent users from searching for current news about corporations (Jenkins, 1994). Unfortunately, such types of information and data are based on rumors, thus are less reliable. Instead of credible data in the quarterly reporting, rumors have been associated with increased volatility in the stock exchange markets (Sorrentino & Smarra, 2015). Therefore, it is imperative to note that regular reporting allows the companies to release decision-useful data to various market players, including potential investors.

Improving Corporate Reporting

This project and the assigned course materials during the semester have provided great insights concerning the best approaches to enhancing corporate reporting, especially in Saudi Arabia settings (Jenkins, 1994). Corporate governance is rapidly changing, thus improving reporting approaches by leveraging insights from Jenkins’ model (Weiss & Nusbaum, 1994). The management of business organizations should create long-term sustainable value by adopting the following recommendations:

  • Reflecting on the long-term sustainable value goals of the corporation in the management and executive schemes. Such interventions are critical in aligning the reporting practices with the overarching organizational goals and objectives.
  • It is important to disclose and assess potential risks and highlight how the corporation’s formulated strategies align with the need to manage such risks while optimizing the long-term value creation. Risks abound in business operations, thus reporting such risks improves the investor’s level of confidence in the ability of the corporate leaders to deal with such factors
  • The executive should identify and report different salient risks associated with adverse social and environmental factors. It entails strategizing on the robust measures for preventing, mitigating, and remediating such risks and their impact on the organizational culture.
  • It is imperative to adopt international frameworks and Jenkins’ model to enable the corporation to implement meaningful reporting on their value creation approach by mainly focusing beyond financial information.
  • The management of the corporations should develop a strategy and statements on the corporation’s commitment to meeting the relevant stakeholders’ informational needs. The commitment of the business organization is a critical determiner of the effectiveness of corporate management in dealing with the stakeholders’ information needs.

Conclusion

This paper has delineated some of the challenges faced by three Saudi Arabian companies including the Al Abdullatif Industrial Investment Company (AIIC), the Lazurde Company, and Fitaihi Holding Group. The Jenkins model has been applied to theoretically examine corporate reporting as an essential part of business management in the region. Underreporting of profits and providing inaccurate historical data have been noted as some of the challenges that undervalue businesses and leave investors with little or inadequate information to assess commercial opportunities in Saudi Arabia. Significant recommendations to improve corporate reporting include reflecting on long-term value goals, focusing on meeting stakeholder needs, and disclosing and assessing potential financial, operational, and socio-political risks.

References

Davidson, H. J., & Trueblood, R. M. (1961). Accounting for decisionmaking. The Accounting Review, 36(4), 577-582.

Jacobson, P. D., & Elliott, R. K. (1995). The Jenkins committee report: What if they’re right? Journal of Corporate Accounting & Finance, 6(3), 77-86.

Jenkins, E. L. (1994). An information highway in need of capital improvements. Journal of Accountancy, 177(5), 77.

May, G. O. (1943). The nature of the financial accounting process. The Accounting Review, 18(3), 189-193.

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Moriarty, G. B., & Livingston, P. B. (2001). Quantitative measures of the quality of financial reporting. Financial Executive, 17(5), 53-53.

Munter, P., & Robinson, T. (1999). Financial reporting in the twentieth century: Where have we been, and where are we going? Journal of Corporate Accounting & Finance, 11(1), 1-13.

Roberts, C. B., Weetman, P., & Gordon, P. (2005). International financial reporting: A comparative approach. Pearson Education.

Sorrentino, M., & Smarra, M. (2015). The term “business model” in financial reporting: Does it need a proper definition? Open Journal of Accounting, 4(02), 11.

Weiss, J., & Nusbaum, E. (1994). AICPA/report of the special committee on financial reporting.

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