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IFRS - Transformation
Agenda for Saudi
Corporates

3rd Saudi-Pak Accountancy

Symposium – Riyadh
May 15, 2014

Organized by ICAP KSA

Chapter
Here today

Gavin Steel
PwC ME
Conversion Leader

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Origin of IFRS
IASC (International
Accounting Standard
Committee)
• Introduced in 1973
• Issued the IAS’s (International Accounting
Standards)

• Introduced in April 2001

• Succeeded IASC
IASB (International
• Introduced IFRSs( International Financial
Accounting Standard
Reporting Standards)
Board)
• Introduced IFRIC (International Financial
Reporting Interpretation Committee)

IFRS is now widely applied around the world.

Today over 140 countries either require or permit the use of IFRS for public
company reporting

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 International Financial Reporting Standards
What are International Financial Reporting Standards (“IFRS”)?
 IFRS is a single set of high quality, understandable and enforceable global accounting standards that
require transparent and comparable information to be disclosed in general purpose financial statements.
 They comprise:
 IAS’s (Standards issued prior to the formation of the IASB)
 IFRS‘s (Standards issued post the formation of the IASB)
 IFRIC’s (Interpretations)
 SIC (Standing Interpretations Committee)
 There are
 28 IASs (part of them were superseded by IFRSs. Or withrawn)
 14 IFRSs
 16 IFRICs
 13 SIC
Where do they come from?
 The International Accounting Standards Board (“IASB”) establishes the standards through a consultative
process
 The IASB has 16 full time members
 The IASB is the independent standard-setting body of the IFRS Foundation – a not for profit organisation
 The IFRS Foundation is an independent, not-for-profit private sector organisation working in the public interest.
 The Foundation is run by a board of Trustees
 The IFRS Interpretations Committee has 14 members appointed by the Board of Trustees
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 SOCPA
• The Saudi Organisation for Certified Public Accountants (SOCPA) was established under Royal Decree No. M12 in
1991

• SOCPA’s responsibilities include development and approval of accounting and auditing standards . It operates
under the supervision of the Ministry of Commerce.

• All banks and insurance companies are required to adopt IFRS (SAMA requirement),

• In 2013, SOCPA approved an IFRS convergence plan by which listed entities other than banks and
insurance companies would be required to report under SOCPA standards that will be IFRSs with
some modifications – “ IFRS as adopted in Saudi Arabia”

• Listed entities are required to adopt in 2017; and

• Remaining entities are required to adopt in 2018

• IFRS in Saudi Arabia will be similar to the standards issued by the IASB with possible modifications in three
respects:

• Adding more disclosure requirements

• Removing optional treatments; and
• Amending the requirements that contradict Shariah or local law, taking in consideration level of
technical and professional preparedness in the Kingdom

• The IFRS transition is part of a project called “SOCPA project for transition to International
Accounting and Auditing Standards”

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The Global Move to IFRS

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

First “IFRS”
IASB issued
Formed in KSA
announces KSA Adopts
2001 IFRS for
adoption of
IFRS listed entities
EU announces
adoption of EU listed
IFRS for listed entities adopt
entities IFRS

141 countries
19 Countries 70 countries
have adopted
using IFRS adopted IFRS
IFRS for
Previously the reporting for listed
listed
referred to as framework companies Continued
companies
International adoption of
Accounting IFRS
Standards expected
(“IAS”)

• Saudi Arabia is the only country of the G20 that has not adopted IFR

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Why IFRS?

There are numerous reasons as to why countries (and businesses) are supporting the move to IFRS:

• Access and movement of global capital:

• Investor confidence
• Access to broader investment base
• Better supplier / payment terms for businesses
• Lower costs of capital
• Improved liquidity in the market

• Regulatory
• Better comparability of financial reporting
• Improved transparency

• Business
• Improves the skills of workforce
• Standardises processes / procedures and policies across a group
• Lowers costs

The support for IFRS adoption is broad:

• International Organization of Securities Commissions (IOSCO);
• International Federation of Accountants (IFAC);
• Securities and Exchange Commissions (SEC);
• Basel Committee;
• The World Bank;
• International Monetary Fund (IMF); and
• The European Commission /all support the adoption of IFRS

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IFRS adoption in Saudi Arabia
Conversion timeline

Opening IFRS
Balance Sheet
(1 January 2016) December 31, 2016 December 31, 2017
= Transition Date = Comparative period = Expected reporting date

IFRS 1 limits full

retrospective IFRS
application

SOCPA Use IFRS standards

in force at the
Dual reporting & reconciliations reporting date

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 Key considerations for conversion in Saudi Arabia

Listed entities;
• First balance sheet needed as at 31 December 2015 – 18 months away.

Unlisted entities
• First balance sheet needed as at 31 December 2016 – 30 months away.

Issues arising:
• Gap differences need to be identified quickly across the group – this is not a head office issue alone

• Data requirements

• Processes and system changes potentially required to capture the right data

• Resource requirements – recruitment and training solutions

• Reconciliation processes to ensure dual reporting can be accomplished in the transition year

Accordingly
• The conversion require s immediate planning to assess how to manage the process and address the technical
complexities, the legal complexities, systems updates and training the employees.

• Companies need to quickly assess what additional assistance / resources are required to perform the conversion
and to enable them to meet the deadline of 2017.

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IFRS conversion – the key message

Activities
People Entities

Starting
Transactions point
EVERY CONVERSION
EXERCISE IS
DIFFERENT

Management Systems

Centralisation Data
Geography

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 IFRS conversion
What are the challenges of a conversion?

Do I have the right What activities I Will the conversion affect

Where to start?
people? should be doing? the systems I am using?

Should the conversion How to involve

Can I generate all How to account for all
start at the group level management in the
the required data? transactions?
of subsidiaries level? decision making?

How should the conversion process be designed?

Design a flexible
Design a Ensure to address
approach to involve
comprehensive anticipated issues Agree milestones
all parties at your
approach before it happens
entity

Have the right governance structure and decision

making capabilities
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The Conversion Approach
“Guiding you through the conversion”

The PwC IFRS (or equivalent)

conversion methodology
typically follows a three-phase
Project and approach as illustrated
change opposite:
People management
Processes GAP Analysis and
Roadmap: involves a
detailed gap analysis, which
produces a roadmap for
successful conversion;
Gap analysis
and Conversion Embedding Conversion: results in the
roadmap
production of the first IFRS
financial statements;

Embedding: ensures that

systems, processes, policies
Financial Systems and behaviours are adopted
Policies manage- to report efficiently under
ment and
IFRS (or equivalent) on an
reporting
ongoing basis.

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IFRS adoption in Saudi Arabia
Illustrative effort and impact of selected IFRS to SOCPA differences

high
Derivatives
Impairment and hedging
Consolidation
, JV’s &
Financial associates
Financial statements effects

Disclosures instruments

Employee
Fixed assets benefits
Investments
Zakat/ Taxes
Intangible
assets
Business Leases
OCI combination
Related
parties Inventory
Investment
properties
Borrowing
costs

Implementation effort/complexity high

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Finance Systems Architecture and Data Flows

Output Requirements XBRL filing / IFRS / SOCPA

- External Applications Zakat / Tax Reporting
Reporting

Integration
Finance & Accounting Logical Data Flow

Reporting Delivery
E-mail Standard Reports
Business
Intelligence
Web Reports Fin Reporting Bridge

Financial Applications – Consolidation, Planning / Budgeting and Reporting

Planning / Management Financial
Consolidation
Budgeitng Reports Reports

Integration

Financial Applications - differences between business units / subsidiaries (Oracle, SAP, Microsoft)
Other P2P

PO AP Projects
Workflow
GA
PO AP
Master
Data O2C
Management
AR CM

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14
 Global CoA design

ERP and Policies Reconfiguration - Design considerations

1. Utilize multiple accounting

Co X (Legal Entity) representations and ledgers -
Transactions are still carried out only once
2. Optional secondary accounting
representation, based on adoption of
Co X (Primary Co X (Secondary
accounting policies and IFRS convergence
Ledger) Ledger)
Accounting strategy
IFRS GAAP SOCPA
Reporting 3. Allow
Reporting
Currency (SAR) Currency (SAR) 1. Dual reporting
2. Automated IFRS adjustments
(different accounting treatment for
Sub-ledger Sub ledger
accounting accounting same transaction)
3. Develop reconciliation reports
Sub ledger Transactions
Transaction 4. Audit trail of moving away from dual
AP AR FA Others reporting and reconciliation environment
to one converged reporting

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15
Reporting considerations and process summary
Transaction Processing
Perform
Record Manage
Intercompany
Transactions Interfaces
Accounting
Record Transactions -
The process of determining, creating,
approving and posting transactions to
the ledger
Perform Intercompany Accounting
The process associated with
intercompany invoicing, posting of
transactions, settlement, dispute,
reconciliation and query management
Manage Interfaces -
Refers to the management of interfaces
between the ledger and other systems
(multiple ERP systems, legacy systems,
sub-ledgers, etc.)
Maintain Accounting Master Data
Maintain Accounting Master Data: Includes the chart of accounts / code block, cost center structure, profit center
structure, legal entity structure, and various other dimensions / elements for accounting data
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Close and Consolidation
Reconcile Close Books &
Accounts Consolidate
Reconcile Accounts -
The process of establishing the
reconciliation policy and approach,
performing reconciliations, resolving
issues and obtaining approval
Close Books and Consolidate –
Refers to the monthly, quarterly, half
yearly and / or annual process of
booking period end entries, closing the
ledger, consolidating financial result
and producing the trial balance
Analysis and Reporting
Perform Perform Perform
Statutory Regulatory Management
Reporting Reporting Reporting
Perform Statutory Reporting -
The process of creating standard
financial statements (balance sheet,
income statement, cash flow etc) and
supplementary reporting in accordance
with relevant accounting principles.
Perform Regulatory Reporting -
The process of creating statutory and / or
regulatory reports and submitting to the
appropriate authority
Perform Management Reporting -
The management reporting process
refers to the creation of reports designed
for internal management use and
decision support
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In a Nutshell..

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What questions should you be asking now?
Considerations for management and audit
committees

1. Planning Are you aware of what needs to be done?

2. Applying IFRS 1 Have you considered the implications of

the relevant exemptions?

3. Accounting Have you considered all the relevant

policies options and new standards?

Are you managing stakeholders’

4. Stakeholders
expectations?

How will the entity conduct business as

5. Embedding IFRS
usual?
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IFRS – top 10 pitfall considerations

1. Understanding and analysing impact on financial performance

2. Commitment and involvement at all levels of the organization
3. Underestimation of the amount of work involved, scale and complexity of the
conversion
4. Unprepared team to deal with the technical issues encountered.
5. Shareholder and analyst communication
6. Data availability and system requirements
7. Coordination with regulatory reporting requirements
8. Re-alignment of management information systems
9. Risk management
10. Uncompleted embedding of IFRS changes, resulting in spreadsheet accounting

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Our experience says

• Do not delay the process – act now!

• Have the FD as the Project Sponsor
• Define clear project and governance structures
• Implementation plan should have clear milestones and timelines
• Educate stakeholders early in the process
• Align IFRS conversion with entity’s strategic objectives
• Financial reporting solutions should be sustainable
• Make sure your advisors do not do it too for you, but do it with you
• Understand where IFRS is going

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 The information contained in this presentation is for general guidance on matters of interest
only. The application and impact of laws can vary widely based on the specific facts involved.
Before taking any action, please ensure that you obtain advice specific to your circumstances
from your usual PricewaterhouseCoopers client service team or your other tax advisers. The
materials contained in this presentation were assembled in September 2013 and are based
on the law enforceable and information available at that time.

© PricewaterhouseCoopers, May 2014. All rights reserved. PricewaterhouseCoopers refers

to the network of member firms of PricewaterhouseCoopers International Limited, each of
which is a separate and independent legal entity.

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