Standards for preparing financial statements in Saudi Arabia, foundations and concepts

Standards for preparing financial statements is a crucial step in the business world, as these lists play a major role in providing a comprehensive and accurate view of the company’s financial position.

In light of this matter, it becomes necessary for companies to seek the assistance of certified financial experts to ensure compliance with accounting standards and policies.

And this is where the role of our accredited financial office, CFOONLINE , comes in.

We are here to provide you with the expertise and guidance necessary to prepare accurate financial statements that reflect business reality and support safe decision-making.

In our article, let’s learn about the foundations, concepts, arrangement of considerations, and standards for preparing financial statements in Saudi Arabia.

Standards for preparing financial statements in Saudi Arabia

Financial statement preparation standards are the backbone of financial reporting in Saudi Arabia.

These standards are specific guidelines that govern how companies and organizations collect and present financial information.

These standards aim to achieve transparency and reliability in the financial statements, which enhances confidence between investors and stakeholders.

The concept of preparing financial statements and its importance

Preparing financial statements expresses the process of collecting and arranging important financial information related to assets, liabilities, and property rights.

These statements represent the company’s financial position at the end of a specific period. The importance of this process lies in the following:

• In providing an accurate picture of financial performance
• The ability to plan and make the right economic decisions.

IFRS standards and their application in Saudi Arabia

International Financial Reporting Standards (IFRS) is a set of globally recognized accounting standards.

In Saudi Arabia, these standards have been adopted as a reference framework for the preparation of financial statements.

This works to achieve uniformity in the presentation of financial information and facilitate the process of comparison between companies at the local and international levels.

Fundamentals and concepts of preparing financial statements

1. Principles of Revenue and Expense: The process of determining revenue and expense is based on certain guidelines to ensure that they are accurately recorded under appropriate circumstances.
2. The concept of assets, liabilities and capital: It requires the classification of financial items according to their characteristics in accordance with the approved accounting standards.
3. The role of the four financial statements: the income statement, the cash flow statement, the changes in equity statement, and the financial statement present different aspects of the company’s financial position.

Arranging considerations when preparing financial statements

1. Defining accounting policies: Companies must define accurate accounting policies that are appropriate to the nature of their business, and document them clearly.
2. Collecting and analyzing financial data: Before starting the preparation of the lists, the financial data must be collected and analyzed to ensure its accuracy and completeness.
3. Ensuring compliance with accounting standards: It requires ensuring that the financial statements are in full conformity with the approved accounting standards to avoid any deviations.
4. Additional Reports: Some cases may require additional information to be provided to interpret financial statements or clarify economic conditions.

Arranging the preparation of the financial statements

1. Income statement: It includes recording revenues and expenses for a certain period of time to calculate profit or loss.
2. Statement of cash flows: Shows the movements of cash and other financial flows of the company over a specific period of time.
3. List of changes in equity: recording changes in equity of shareholders and stakeholders during the accounting period.
4. Financial statements: reflect the position of the financial resources and obligations and the financial performance of the company at the end of the accounting period.

Fundamentals of preparing financial statements

These foundations are based on several principles, namely:

1. The continuity principle: It assumes that the company will continue to operate in the near and distant future, which affects the estimation of values and the presentation of financial statements.
2. The principle of accounting homogeneity: requires the use of the same accounting policies across accounting periods to enable comparison and accurate analysis.
3. Principle of full disclosure: Accurate and comprehensive information is required in the financial statements to provide a transparent view of the company.
4. The flywheel principle: It contributes to recording financial transactions based on their actual impact on financial performance, without regard to the timing of payment or receipt.

Frequently asked questions about standards for preparing financial statements in Saudi Arabia

The most common questions about the standards for preparing financial statements are the following:

• What is the difference between IAS and IFRS standards?

Here is a table showing the difference between IAS and IFRS standards:

aspects	IAS standards (International Accounting Standards)	IFRS Standards (International Financial Reporting Standards)
foundational aspects	Previous versions before 2001	An updated and enhanced version representing the current one
temporal coverage	It was gradually phased out over time	The main version currently supported
Consistency with IFRS	It may contain some differences or variances	Developed to standardize global standards and transparency
updates	Updated to be IFRS compliant	It is updated periodically to reflect new practices
Universal use	Its use decreases over time	Main and uniform use globally

• What are the standards for preparing financial statements?

Standards specifying how to collect and present corporate financial information to achieve transparency and accuracy.

• What are the IFRS standards and what is their role in Saudi Arabia?

International Financial Reporting Standards adopted in Saudi Arabia to unify financial declarations and increase the ability to compare companies.

• Why is order of consideration important in preparing financial statements?

Affects the accuracy and comprehensiveness of financial information, which enhances confidence and contributes to making the right economic decisions.

• What is the role of the going concern principle in preparing the financial statements?

It assumes the continuity of the company in business and affects the assessment of values and risks in the financial statements.

• Can accounting policies be changed between accounting periods?

It is possible, but the principle of accounting homogeneity must be adhered to and any changes documented and disclosed.

• What is meant by the flywheel principle in the preparation of financial statements?

Refers to the recording of financial transactions according to their actual economic impact, regardless of the timing of payment or receipt.

In conclusion:

We explore the importance of financial statement preparation standards in Saudi Arabia and how IFRS standards are applied to achieve transparency and accuracy in financial reporting.

We also explored the foundations and concepts of preparing financial statements, in addition to the importance of arranging considerations when preparing statements.

We would like to renew our invitation to you to seriously consider using our accredited financial office, CFOONLINE, for financial statement preparation services.

Whatever the size of your business or the size of your financial operations, we provide skilled financial experts based on accurate standards and help you get the most out of your financial reports.

Contact us today to start achieving your financial success.

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