The Compatibility Between Saudi Accounting and International Standards

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International Accounting Standards are a set of accounting standards adopted by various countries around the world, to harmonize and internationalize accounting standards and practices. This study aims at looking at the benefits of achieving compatibility between Saudi Accounting Standards and International Accounting Standards. This will be achieved by highlighting the generally accepted accounting principles. In addition, this will be done through credible sources to support the study’s arguments. The sources will also be significant in analyzing the weakness of the study’s arguments.

Aims of this study

This research project aims to assess the development of accounting standards in Saudi Arabia in terms of achieving compatibility with international accounting standards. This project will evaluate how the differences between local accounting standards and international accounting standards could affect the financial situations of companies in the country.

Objectives of the study

The main objective of this study is to find the benefits of achieving compatibility between Saudi accounting standards and international accounting standards.

The secondary objectives will be:

  1. To evaluate how the differences between local accounting standards and international accounting standards could affect the financial situations of companies.
  2. To assess the development of accounting standards in Saudi Arabia in terms of their achieving compatibility with international accounting standards.

Research questions

The following is the main research question. What are the benefits of achieving compatibility between Saudi accounting standards and international accounting standards?

The secondary questions will be:

  1. How will the differences between local accounting standards and international accounting standards affect the financial situations of companies?
  2. How will the accounting standards in Saudi Arabia be compatible with international accounting standards?

Literature Review

The debate on the need for countries to adapt and comply with international standards led to the passing of certain legislations. These legislations require publicly traded companies, whose countries are member states in the European Union to implement the International Financial Reporting Standards (IFRS) in 2005. However, countries around the world have been reluctant in complying and implementing the standards (Gannon & Ashwal 2004).

Saudi Arabia among other countries should be motivated to implement internationally accepted standards to access the capital markets. However, issues such as the size and sophistication of the industry have led to the emergence of certain accounting practices (Taplin 2002).

The adaptation and compliance by the country should be informed by factors such as the economics of Saudi Arabia, the business environment, political, social, and legal structures of the country. Globally, organizations such as IASB, WTO, OECD, IMF, and World Bank have adopted and are committed to global standardized practices. Complying with the international accounting standards will enable Saudi Arabia’s accounting standards to be at par with the required standards, brought about by globalization (Graham & Neu 2003).

Adaptation and compliance of Global Generally Accepted Accounting Principles (GAAP) will help the country to avoid duplicative costs. These duplicative costs are related to the transactions involved in the national and international accounting standards. Accounting standards setting attracts additional costs for the country. This explains why IAS is presented by most countries compared to GAAP (Tang 2000). The application of both IAS and GAAP is guided by a set of two different regulations. The compliance of both IAS and GAAP attracts additional costs involved in the preparation of the two or more sets of financial statements, required by the two accounting bodies. GAAP compliance encourages trade within and outside the country as well as cross-border listings (Chen 1999).

IAS is more effective when applied to a particular business environment. It is also significant in facilitating the application of accounting standards in countries with unique business environments. Saudi Arabia’s business arrangements may require more sophisticated accounting standards. Such will be critical in addressing the country’s specific business issues. GAAP may be more effective in the Saudi Arabia business environment compared to IAS to the uniqueness of the country’s business environment (Ampofo and Sellani 2005).

International trade standards not only facilitate trade but also facilitate investment decision-making. Compliance with international accounting standards will help the country and its various business sectors to make better and more informed decisions. Global GAAP facilitates the process of decision-making, resulting from its ability to simplify the process of interpreting and comparing financial statements. Therefore, the country will experience more growth in the business sector, resulting from better accounting standards and informed decisions making (Wahlen et al. 2000). In the quest for harmonization and internationalization of the accounting standards, the regulatory bodies should take into account the difference of the countries involved. This means that the country should introduce a system that facilitates the application of the national as well as international standards (Murphy 2000).

Large companies have existing reporting systems, which give them leverage over the small companies (Marsden 2002). They can comply at minimal costs compared to the small companies, which lack an existing reporting system. The government’s move to privatize state-owned corporations has shifted attention to private companies. This brings out the level of compliance of the private companies (Al-Shammari, Brown &Tarca 2008).

Investment by large companies in the country is likely to be influenced by the business environment of the country. Large companies attract foreign investment and acquire foreign stock exchange listings (Pagano, Roell & Zechner 2002; Hossain, Perera & Rahman 2007; Saudagaran & Biddle 2007). To avoid government intervention and damage to their reputation, large companies are more likely to comply with international accounting standards. Therefore, Saudi Arabia needs to create an even better business environment that attracts low operation costs, by complying and implementing international accounting standards.

The political system of Saudi Arabia plays a major role in influencing the level of compliance and the adoption of the International Accounting Standards among various business sectors. Government involvement and regulation on the various businesses sectors are done with the aims of achieving commonality. Businesses in the same industry will aim at producing the same level of compliance leading to the improvement of the national accounting standards (Glaum and Street 2003).

To achieve this, the various industries in Saudi Arabia will have to embrace a common practice of disclosure involving financial issues. This is to meet the regulatory requirements of the national accounting standards. To comply with the international accounting standards, businesses from the various sectors will have to align their compliance according to the international standards that apply to their sector. The state is therefore expected to experience a different level of compliance, due to the difference in the industries in the country. The banking industry is likely to report a higher level of compliance than the manufacturing industry.

This is attributed to the need by banks to maintain clean records in their reporting, as required by the law. The players in the banking industry have a higher profile, and cannot risk losing their reputation over lack of accounting standards compliance. They also need to create investor confidence by fulfilling legal requirements to keep off government intervention (Al-Shammari, Brown &Tarca 2008).

It should be noted that the internationalization and harmonization of the international accounting standards and national accounting standards will depend on the following issues. First, it will depend on the ability of the Saudi Arabia government and regulatory bodies charged with the responsibility to oversee accounting policies and implementation. This is to properly introduce and offer guidance on the legal and accounting requirements of the international accounting standards.

This is also to offer guidance on the requirements of the national accounting standards versus the requirements of the international accounting standards in the process of compliance. This also depends on the ability of the international accounting standards to handle complex transactions involving cross-border transactions in different sectors (Al-Shammari, Brown &Tarca 2008).

The implementation of the International accounting standards should be executed without misplacing the existing accounting system. This should be discouraged due to the negative implications that the process may have on the local investors and citizens of that country. In cases where the international standards were introduced without much success in terms of compliance, the international accounting standards could not deal with complex transactions without denying the citizens their right as provided by the law.

For instance, while the national accounting standards are formulated to suit the business environment of the country, the introduction of the international accounting standards may affect the current business order by overlooking important areas such as pension schemes and the retirement benefits of the citizens of that country. The nature of this transaction according to the environment of that country may be the contribution factor forwards this problem (Al-Shammari, Brown &Tarca 2008).


Data collection method

The data for this research will be collected using the survey method. This study will employ the use of a self-administered questionnaire as the tool for collecting data. The questionnaire used for this study will have both open and closed-ended questions. The aim of formulating this kind of questionnaire is to help in facilitating accurate answers from the respondents.

Pre-testing of the questionnaires

The researcher will pre-test the questionnaires, before being administered to the respondents for the study. The pre-test will not involve potential respondents. The researcher will use discretion to hand out ten of the questionnaires to students from a different institution outside the selected sample. This will help the researcher to determine whether the questions asked will be understood and accurately responded to by the respondents. The aim of pretesting is to reduce the level of error during the filling out of the questionnaire by the respondents, and also during the analysis stage of the study. Adequate time for pre-testing and rectification for the research will be allocated within the time frame of the research.

Data Analysis Technique

The researcher will edit the data to ensure that the data are accurate, consistent with the intent of the question and other information in the survey, uniformly entered, complete, and arranged to simplify the coding and tabulation. After the collection of filled-in questionnaires, the questionnaires will be carefully checked and coded to eliminate errors arising from the respondents.

Data presentation

The researcher acknowledges that using graphical and tabular devices is an integral element in the data analyzing process and a requirement before testing the hypothesis (Cooper 2003). A statistical software program, SPSS (Statistical Package for Social Sciences) will be used for in-depth data analyses. The descriptive statistics will be presented graphically using several data presentation tools available including bar graphs, pie charts, and the histogram. The researcher will also use tabulation where necessary to present the findings.

Ethical considerations

Ethics is norms or standards of behavior that guide moral choices about our behavior and relationships with others (Cram101 Incorporated 2006). Before data collection, the researchers will address several issues to avoid unethical activities during their study.

The researcher will ensure that the research protocol is followed by obtaining permission from the institution administration, before commencing with data collection. The researcher will introduce himself, explain the purpose of the research and explain how the well-being of the respondents will be adequately protected. The researcher will be assuring all respondents of confidentiality by providing anonymity in the questionnaire.

The researcher will avoid coercing the respondents into participating in the research. This will help to avoid causing discomfort, pain, or embarrassment to the respondents. The researcher will also avoid fraud by not faking data that have not been collected.

Resources you need/Access to primary and secondary data

Periodicals will also be used to gather the primary data for the study. Trade organisation’s journals and magazines will be used to gather information about the trends in the accounting standards. The study will also include the use of journals and articles as secondary sources of data. These sources will be accessed in academic publications posted on the institution’s virtual library.

Project Schedule

Steps Description Due date
1 Week -1-2: Area of interest identified 2ndApril
2 Weeks 3-4: Topic selected/form submitted 16thApril
3 Weeks 4-5: Topic refined to develop dissertation proposal 30thApril
4 Weeks 5-8: Proposal written and submitted 3rdMay
5 Stage 1: Chapters 1-3 completed 17thMay
6 Stage 2: Collection of data and information 29thMay
7 Stage 3: Chap 4 (Results, Analysis and Discussion and Chapter 5 (Conclusions, Implications and recommendations) 12thJune
8 Stage 4: Writing up 28thJune
9 Stage 5: Final project draft prepared 10thJuly
10 Submission of Project 15thJuly


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