Public Sector Accounting Standards have been adopted in Saudi Arabia to enhance the quality of financial and accounting operations within public entities.
Implementing these standards is a key pillar of Saudi Arabia’s Vision 2030, which aims to strengthen the local economy and keep pace with global developments.
In today’s article, we will discuss Accounting Standards in the public sector and highlight the transition project toward the accrual basis of accounting.
Public Sector Accounting Standards
In line with Vision 2030 and Saudi Arabia’s efforts to develop its economic status, Accounting Standards in the public sector have been officially adopted.
International Accounting Standards refer to the set of principles developed by the International Public Sector Accounting Standards Board (IPSASB). These standards guide the preparation and disclosure of financial reports in the public sector.
To date, these standards have been applied in nearly 100 countries. Saudi Arabia adopted them to foster better economic practices. However, the Kingdom introduced several adjustments to these standards, such as adding essential disclosure requirements.
The Saudi government also emphasized that if an alternative within the Accounting Standards is deemed unsuitable for application in the Kingdom, it will be replaced with justification provided.
For more details about these Accounting Standards, visit the official website of the Saudi Organization for Chartered and Professional Accountants (SOCPA).
Transition Project to the Accrual Basis
In light of advancements in knowledge fields, Saudi Arabia adopted the idea of transitioning from the cash basis to the accrual basis of accounting.
The transition project, based on public sector Accounting Standards, was officially launched in the year 1438 AH.
The accrual basis refers to recording revenues and expenses based on the occurrence of the event, regardless of the actual date of payment or receipt.
One of the benefits of the accrual basis is the ability to determine the value of assets and liabilities at any given time, without the need for periodic financial closures.
The transition project is built on four key phases:
-
Phase 1: Assessing the current state and evaluating existing practices.
-
Phase 2: Developing a realistic and executable transformation plan.
-
Phase 3: Implementing the plan across all entities and sharing lessons learned.
-
Phase 4: Verifying that accounting systems and personnel can operate under the accrual-based accounting framework.
Difference Between Accrual and Cash Basis
There are many differences between the accrual and cash bases of accounting, including:
-
The accrual basis provides more accurate financial data, while the cash basis gives limited financial insights.
-
The accrual method offers information about all assets, unlike the cash basis, which does not reflect non-cash assets.
-
The accrual basis supports effective cash flow management, whereas the cash basis presents raw figures without context.
-
The accrual basis is more expensive to implement due to the need for more workforce and advanced technology.
Accounting Standards: Why Shift to Accrual Accounting?
Many ask, “Why shift to accrual accounting?” The answer lies in the numerous advantages this system offers.
Some of the key benefits of applying accrual-based Accounting Standards include:
-
Providing a clear financial outlook, which aids decision-making.
-
Enabling accurate estimates and planning for future financial periods.
-
Financial preparation for upcoming projects and activities.
-
A clear view of the financial position, helping compare revenues with expenditures.
Business Pillars Company, a Saudi firm of accountants and legal auditors, offers professional bookkeeping and accounting services within the Kingdom.
Their services are delivered by seasoned professionals with in-depth knowledge of financial and organizational accounting practices.
In conclusion, we have explored the public sector Accounting Standards in Saudi Arabia and the Kingdom’s approach to implementing them. We also discussed the difference between cash and accrual accounting and learned about the advantages of the accrual-based system.
Read also:
Social Security in Saudi Arabia and Its Developed System
Internal Control System in Companies and Its Components
Saudi National Foundation Day and the Difference Between It and Saudi National Day
Point-of-Sale System Accounting and the Importance of POS Systems for Business Owners