Transcript الفصل الثالث

Towards Better Disclosure and Transparency
in Saudi firms: Overview
Dr. OBAID ALMOTAIRY
Department OF Accounting College of Business & Economics
QASSEEM UNIVERSITY
Saudi Arabia
[email protected]
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Second Middle East and North African
Forum on Corporate Governance
“Improving Transparency and Disclosure”
Beirut, June 3-5 - 2004
Outline
1.
2.
3.
4.
Introduction
Capital Market Overview
The Legal Framework for Disclosure
Monitoring and Enforcement of
Reporting and Disclosure Standards
5. Disclosure Practices
6. Enforcing Transparency and Disclosure
7. Challenges in Enforcing Disclosure
and Transparency
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1. Introduction
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During the 1990s, Saudi Arabia realized the
importance of reconstructuring the economy and
underwent liberalization and privatization
programes.
The country’s modern infrastructure and ongoing structural reforms are paving the way
for a greater private sector role in the
economy and a better future for the country.
The rationale behind creation of the Supreme
Economic Council, followed by the Saudi
Arabian General Investment Authority and many
other institutions, the last of which was the
issuance of the Capital Market Law (mid 2003).
2. The Saudi capital market is the largest in the
Middle East in terms of market capitalization,
which is over $ 127 bio.
Sectors
No. of Companies
Banking
9
Industrial
24
Cement
8
Service
17
Electricity
1
Agricultural
9
Telecomunication
1
Total
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69
In Saudi Arabia, the capital market is undergoing changes
3. The Legal Framework for Disclosure
The main regulations governing corporate governance in SA:
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The Companies Law (1965) was the primary
authoritative reference for the accounting &
auditing profession in SA (which requested
public companies to appoint auditors
During the early of the 1980s, SA had been
engaged to developing its own accounting and
auditing standards.
The Ministry of Commerce (MoC) as the major role
player in SA that exercise control over corporations
on behalf of the government issued the first two
national accounting standards in SA in 1986 and
became effective in 1990. These standards are
(1) Objectives and Concepts of Financial Accounting;
and
(2) General Presentation and Disclosure Standard.
The Legal Framework for Disclosure
Continued..
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Two years later in 1992, the Saudi Organisation for
Certified Public Accountants(SOCPA) was established.
During the last 10 years SOCPA worked heavily on
providing CPA examinations, developing accounting and
auditing standards, overseeing professional ethics,
establishing CPA quality review programs, and organising
training courses to provide continuous professional
education for CPAs.
The
development
and
reviewing
of
all
accounting
standards in SA is the responsibiliy of the Accounting
Standards Committee (ASC), which is part of SOCPA.
By the end of 2003 there were 20 Statements of Financial
Accounting Standards in effect and they covered most
business transactions and events relevant to public
companies in Saudi Arabia.
Generally, Saudi Accounting Standards deal with topics
covered by the USA, the UK and international accounting
standards plus topics of local importance.
The Legal Framework for Disclosure
Continued..

All
listed
companies
must
announce
the
annually and quarterly reporting of financial
results. They are required to submit quarterly
financial statements within 3 weeks of the
quarter
end.
Annual
financial
statements
reviewed by the auditors are to be submitted
within 3 months of the end of the year.
Since 1994 publicly listed companies in SA are
required to set up an audit committee.
Banks are meeting accounting and disclosure
standards prescribed by SAMA, which are in
line with International Accounting Standards
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4. Monitoring and Enforcement of Reporting &
Disclosure Standards
• In Saudi Arabia, it is difficult to name
exactly the body involved in monitoring and
enforcement
of
reporting
and
disclosure
standards because of the absence of the
securities
regulator
(e.g
the
Saudi
securities commission).
• These functions are currently undertaken by
various bodies, in varying degrees, such as:
1. the MOC (through
Management (CGM)),
its
Companies
General
2.SOCPA, and
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3.Saudi
Arabian
Monetary
Agency
(SAMA)
Monitoring and Enforcement of Reporting and Disclosure Standards
… Continued…
•The CGM of the MOC is currently the body involved in the
review of all annual reports, financial statements and
offering documents issued by listed companies. The CGM, with
its legislative power, can take enforcement actions against
listed companies, in cases of serious non-compliance, and
impose sanctions, which serve to deter improper financial
reporting.
•SOCPA regulates the reporting and disclosure standards.
However, the scope is restricted to the practising members
of SOCPA in their capacity as auditors of listed companies.
As SOCPA has no authority over listed companies, it is
unable to monitor and enforce compliance with reporting and
disclosure requirements by the companies.
•The Stock Control Department of SAMA oversees the
implementation
of regulations for share trading and daily
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transactions.
5. Disclosure Practices
Studies by academics have found that:
•High compliance with the mandatory requirements
in most industries;
•The level of voluntary disclosure is low;
•The implementation of accounting and auditing
standards need investigation.
•Lack of adequate enforcement.
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6. Enforcing Transparency and Disclosure
• At the beginning of 2003 the MoC issued Ministerial
Resolution No. 2217, which requires all listed companies to
include a report by the directors, CEO and CFM, requiring
them to confirm the information contained in the financial
statements and disclose compliance with the Companies
Law.
• It is expected that these confirmations would add value to
the information in the financial statements.
• However, this Resolution has not been adopted for several
reasons:
1. The directors fight against
2. The close emergence of the Saudi securities exchange.
•11 Accordingly, the MoC saw that the requirement for such
confirmations could be delayed or removed.
7. Challenges in enforcing disclosure and transparency
In the IFAD Report "GAAP Convergence 2002", SaudiArabia has been listed as one of countries,
together with Iceland and Japan, which do not
intend to converge its own accounting standards
with IFRS.
The emergence of the Saudi Securities and Exchange
Commission, with its focused mandate, would seek to
facilitate listings and improve transparency
through disclosure requirements.
How, why and what should corporate governance look
like in Saudi Arabia is the most challenges.
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Thank you for your attention
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