Thanks to Saudi Arabia’s constant changes, many foreigners and ex-pats tend to immigrate and open a business in the country. Nevertheless, there are several duties and responsibilities that shareholders and managers have after setting up a business in Saudi Arabia. A number of them are generally related to specific accounting and audit requirements. These requirements must be met by the legislation in place. This is why many decide to look for the services of audit firms in Saudi Arabia.
In this article, we will talk about the basics of audit firms in Saudi Arabia. Many foreigners do not know how to fulfill these requirements so they need help to lower any type of workload in the accounting department. For this, our specialists can assist you. We will observe:
- What is an audit?
- Types of audits
- Roles and responsibilities of external audit firms
- Audit Requirements in Saudi Arabia
- How can we help you as an audit firm?
What is an audit?
Before talking about what an audit firm in Saudi Arabia is, we must first talk about what an audit is. In simple words, an audit refers to a financial report that an organization. This report is presented in an annual report by someone independent of that organization. Moreover, this report must include:
- A balance sheet.
- An income statement.
- A statement that indicates changes in equity.
- Cash flow statement.
- Notes that comprise a summary of significant accounting policies
- Other explanatory notes.
The audit´s main purpose is to form a view of the information that the financial report presents. This view is needed to see whether or not it reflects the financial positions of that organization. For instance, the authorities use that report to see if profits and losses are properly assessed or if details on what the organization owes and owns are properly recorded on it.
In addition to this, auditors must follow auditing standards that a government body sets when examining the financial report. Once they complete their work, they must write what is known as an audit report. This report explains what they have done as well as serves as an opinion drawn from their work. In most cases, listed companies and LLCs are subject to an audit each year. However, organizations can request an audit depending on several factors.
One thing auditors cannot do is be there all the time. An auditor carries out an audit only during a defined timeframe. The prime purpose of their audit services in Saudi Arabia is to form an opinion on the information they receive. Furthermore, they are not in charge of identifying all possible irregularities. In other words, they are on the lookout for any signs of potential material fraud.
Types of audits
There are several types of audits. Nevertheless, there are so many that it would be hard to list them all. The main types of audits that an audit firm in Saudi Arabia can offer are:
Internal and external audits
Internal audits are used to assess internal controls, legal compliance, the protection of assets, and other processes. This type of audit is useful for organizations that want to evaluate risk as well as find actionable ways to improve performance. This audit is performed by individuals within the organization.
Moreover, in an internal audit, reports can be sent to management, the audit committee of the organization, or the board of directors. Audit firms in Saudi Arabia provide this type of audit but it cannot replace an audit that is performed by accepted auditing standards. An audit firm in Saudi Arabia cannot provide internal audits.
However, an audit firm in Saudi Arabia can provide an external audit. External audits are audits that 3rd party conducts over an organization. Once they complete the audit, they distribute the report to shareholders and stakeholders outside of the organization. Even if external audits vary in their information, they give more confidence to shareholders and stakeholders.
Secondly, there are performance audits, which an audit firm in Saudi Arabia can also provide. Organizations can request this audit to evaluate any of the next objectives:
- Internal controls.
- Compliance with certain requirements.
- Prospective analysis.
- Program effectiveness and results.
However, these sought objectives are not mutually exclusive. For instance, if an auditor evaluates program effectiveness they might need to audit internal controls as well. They are beneficial since thanks to it, an audit firm in Saudi Arabia can help management and others that are in charge of overseeing to improve things such as:
- Improving program performance and operations.
- Reducing costs.
- Facilitating the decision-making.
- And contributing to public accountability.
Lastly, it is important to take into consideration that these audit services in Saudi Arabia are typically associated with government agencies. This is because they receive federal funding and they need to show that they use them appropriately. However, non-governmental performance audits are common.
Financial statement audits
A financial statement audit involves independent auditors from an audit firm in Saudi Arabia. These auditors report on whether the organization´s financial statements are aligned with applicable financial reporting standards. Moreover, these auditors need to accomplish, mainly, 3 things, which are:
- Identifying and assessing the risk of material misstatement, whether because of fraud or error.
- Forming an opinion on the financial statement. Either that or determining that they cannot form an opinion.
- Obtaining sufficient evidence about the existence of material misstatements.
These audits are appropriate and required when organizations seek a high level of financing. Simply put, these audits help businesses, investors, and stakeholders to make informed decisions about their companies.
Thirdly, we have operational audits. These audits are done to review the activities of an organization about specific objectives. In this case, an audit firm in Saudi Arabia analyzes processes, procedures, and systems. Furthermore, they also evaluate the operational effectiveness, productivity, and efficiency of an organization. Their main benefit is that they help organizations find an opportunity to improve and develop a recommendation.
Even though companies conduct these audits internally, they might hire audit firms to conduct them for them. Some accounting firms and Saudi company formation specialists also are management advisory service (MAS) specialists.
Lastly, there are payroll audits that review payroll processes and reports as its name implies. This audit helps organizations find and identify errors, as well as improve compliance and protect the business from fraud. A 3rd party auditor such as an audit firm in Saudi Arabia can perform this type of payroll. They review the organization´s payroll records and determine whether or not they are accurate.
If they find any errors, the audit firm searches for gaps in procedures to identify what led/could lead to inaccuracies. If they discover any vulnerability, they will allow the organization to make corrections and improve as well as maintain compliance.
Roles and responsibilities of external audit firms
It is not commonly known what an audit firm is. Simply put, the basic objective of an auditor is to check, measure, and verify the accounts of an organization to ensure they are done correctly, and without fraud.
As its name implies, an audit firm is in charge of hiring auditors to offer their services. Furthermore, audit firms have other roles and responsibilities they need to fulfill. The main ones are:
Providing opinions on the financial statements of an organization
Generally, there is a misunderstanding where some managers assume that an audit firm in Saudi Arabia creates financial statements. In reality, this is the job of company managers, where the audit firms provide reasonable assurance that the financial statements do not have misstatements. Furthermore, they also assure that they are prepared according to an accounting framework.
Furthermore, external auditors do not fix the problems; they only provide recommendations to the organizations. Audit firms in Saudi Arabia are not responsible for providing absolute assurance. They only test enough data to provide reasonable assurance.
Understanding the entity as well as the environment of the entity
Auditors recognize that a financial statement cannot exist in a vacuum even though some see accounting as number crunching. An organization charges a 3RD party audit firm in Saudi Arabia with obtaining an understanding of the company´s work environment, internal controls, and operations. To be able to do this, auditors must perform risk assessments.
Moreover, they also examine the electronic accounting information system. They do this to ensure the business does not compromise the data. They compare the organization to other businesses in the same industry and identify any irregularities.
Obtaining sufficient information to form an opinion
External auditors of an audit firm in Saudi Arabia base their opinions on all the evidence they examine while auditing. To ensure they have collected a good amount of evidence, they might need to rate the enterprise´s riskiness. The higher the riskiness is the more evidence that the auditor needs to collect before forming an opinion on the organization.
Additionally, the evidence´s quality is also crucial for the auditor. This means that the auditor might need to collect some evidence from a reliable 3rd party source to corroborate the financial information. For instance, this could be banks and/or lenders.
Being independent of their clients
Even though audit firms offer their audit services in Saudi Arabia, they still must be responsible to find an independent attitude. Furthermore, they also must maintain an appearance of independence from the organization of their clients. A lack of independence can be a deciding factor that makes the auditor fails to address audit problems. This lowers the credibility as well as the assurance of an external audit. In short, they should not serve as an officer of the business.
In addition to this, they should not have any type of financial interest in the work of the organization they are working with. An audit firm must ensure that its auditors have joint ventures or other investments in the company before the auditing process.
Audit Requirements in Saudi Arabia
Companies and organizations are subject to different audit and accounting requirements based on several factors. Some of these factors include the industry they operate in and their size. For instance, LLPs and Joint-stock companies need to appoint independent auditors to verify their accounts every year.
Other audit requirements in Saudi Arabia are that the auditor must be a certified public accountant as well as a member of SOPCA (Saudi Organization for Chartered and Professional Accountants).
Nevertheless, for statutory audits, the steps change, meaning some specific steps need to be completed. For instance, company managers need to put all relevant papers at the disposal of the auditor to verify them and draft a report. Afterward, the auditor must submit the report to obtain the approval of the shareholders. The main audit and accounting requirements that Saudi companies must fulfill are:
- Having the shareholders meet once a year.
- Preparing a financial report of the company´s activity within 3 months from the end of the financial year.
- Meeting the financial statements by the 31st of March of one year for the past one.
Lastly, if you want to know more about the audit requirements in Saudi Arabia that your business must respect, then our specialists can help you. Furthermore, we can also make recommendations on which services you can use to ensure your company complies with the legislation.
How can we help you as an audit firm?
Company Formation Saudi Arabia not only helps foreigners immigrate to Saudi Arabia, but we also help organizations stay in compliance with Saudi legislation. Furthermore, since Saudi Arabia’s laws are constantly changing, our company registration specialists will guide you. With our help, you will be able to stay in compliance with the law as well as benefit from it.
Interested in seeking our guidance for your external audits in Saudi Arabia? Email us at firstname.lastname@example.org or call us at +971 58 515 8876. By reaching us, you will be able to get an answer to every question you have regarding not only audit firms but also company formation. Contact us!
Saudi enterprises must meet the following audit requirements:
- The shareholders should meet at least once a year.
- A financial report on the company’s operations must be completed within three months of the financial year’s finish.
- Financial statements for the current year must be submitted by March 31st of the current year.
Please contact us for more details on the services offered by audit firms in Saudi Arabia.