Examine the factors influencing the accounting system in Saudi Arabia Essay Example

Examine the factors influencing the accounting system in Saudi Arabia Essay Example Examine the factors influencing the accounting system in Saudi Arabia Essay Examine the factors influencing the accounting system in Saudi Arabia Essay List OF ABBREVIATIONS: DZITDZIT Department of Zakat and Income Tax IFRSInternational Financial Reporting Standards FDIForeign direct investing Introduction The accounting system of a state is affected by assorted influential factors. While there is a little possibility that influential factors of two states might be equal, they can be taken as generators of national specificities. The degree of differences of every influential factor between states, implicate the deepness of accounting differences at the planetary degree. The realization of planetary accounting harmonisation issue, forces the demand of idea and comprehensive survey of factors that influence the accounting system and development in a state. Background of Saudi Arabia: The capital of Saudi Arabia is Riyadh, and Mecca ( the way of all Muslim supplication in the universe ) and Medina ( metropolis of Prophet Mohammed ) are the two holiest topographic points in the state and so, for Muslims, in the universe. Every twelvemonth many Muslims come to these metropoliss from all over the universe to do pilgrims journeies ( either Omrah or Hajj ) . Arabic is the official linguistic communication, and the Arabic calendar ( Hegira ) is used ( Shoult, 2006 ) . The official faith of Saudi Arabia is Islam, and its influence pervades all facets of life in the state, including accounting patterns and the accounting profession. Since 1970, the accounting environment in Saudi Arabia has been altering quickly. These alterations have affected about all facets of Saudi life, peculiarly political system, Legal system, Education, wellness, and most significantly civilization. Major Factors Influencing Accounting system in Saudi Arabia 1. Political System: The political system is one of the most important influences on the accounting profession in any state. Saudi Arabia is an absolute monarchy with no experience of democracy. Laws are based on the Quran and the Sunnah, and are issued by Royal Decree. The chief legislative organic structures are the Majlis al-Shura ( Council of Consultation ) and the Council of Ministers, which has the King as its caput and the Crown Prince and Prime Minister as members. The intent of the Council of Ministers is to assist the King carry out his responsibilities. The 60 members of the Majlis al-Shura, based in Riyadh, are chosen by the King. These two organic structures have the power to take enterprises or O.K. public policy ( Basheikh, 2002 ) . Saudi Arabia has neer been colonised by any Western state, but some of these states have exerted an influence on accounting in Saudi Arabia through accounting instruction or the development of the capital market. 2. Legal System Islam is the official faith of Saudi Arabia, and all facets of life are based on Islamic instructions. The chief beginning of the legal system in Saudi Arabia is the Quran, which contains guidelines non merely for the behavior of persons, but besides dogmas regulating all aspects of societal and community life. The Sunnah, incorporating Mohammed’s ( PBUH ) directives has shown as to how the ideals of the Quran can be applied in practical footings, is the 2nd beginning. Ijma and Qiyas are other beginnings ( Basheikh, 2002 ) . The former is the reading of certain Islamic traditions as decided by theologists in the first few hundred old ages of Islam, while the latter serves to decide new jobs emerging from scientific and cultural developments though the application of rules from the Quran and Sunnah ( Basheikh, 2002 ) . Accounting and Accounting policies in a state like Saudi Arabia are influenced by Islamic Sharia jurisprudence. Islam plays an of import function, based on the Sharia, on how concerns should be conducted and how accounting needs to be undertaken and the mode banking and finance should be organized, Harmonizing to Lewis ( 2001 ) . Islamic Sharia jurisprudence forms the footing of the Saudi Arabian legal system, and besides governs all aspects of commercial and fiscal minutess, which means that the fiscal ordinances laid down by Western economic systems may non be suited for acceptance in states which are influenced by Islam, due to the divergencies between Western and Muslim civilization. 3. Culture Harmonizing to Hofstede’s survey, Arab states belong to the high power distance group of states. Saudi society is divided into many folks, and by and large the ordinance of these folks depends on the personality of the person in the folk with the authorization to do ordinances ; it is about ever the caput of the folk who is in this place ( Sabri, 1995 ) . In Saudi Arabia there is an uneven distribution of wealth. As a consequence, the bulk of the population, who have limited agencies, depends on the minority, who are affluent and therefore hold power ( Sabri, 1995 ) . Furthermore, there are other features which indicate that Saudi Arabia is a high power distance society ; for case, kids normally treat their parents with great regard and parents in bend instil obeisance in their kids. In Saudi Arabia, directors make determinations dictatorially and paternalistically ( Bhuian, 1998 ) . 3.1 New civilization Contemporary Saudi civilization is influenced by Western civilization ; this consequence can be seen particularly in the younger coevals. The influence of the civilizations of developed states on Saudi civilization appears to widen to accounting in that many of the persons who set accounting criterions completed their higher instruction at universities in the USA, the UK or other Western states. Decision The influence of civilization is a common obstruction which may face accounting harmonisation in any state, and Saudi Arabia is likely to be faced with this obstruction as Saudi civilization is formed by Islam, which may conflict with IFRSs on several issues. As a consequence, there is a demand for accounting and scrutinizing STD’s to cover with the mechanisms and processs elaborated in Sharia compliant fiscal minutess in KSA. SOCPA has issued particular criterions to run into the demands of DZIT for the computation of Zakat. On the other manus, SOCPA will confront force per unit area from many interested parties to follow and implement IFRSs, one of the grounds for this force per unit area being the encouragement of FDI.The Saudi Stock Market Authority ( SMA ) began to do an attempt to pull FDI by advancing and developing the fiscal coverage of companies in order that it might be clearer and more enlightening for investors ; one of their suggestions to SOCPA was to follow IFR Ss. It would look from the above that accounting in Saudi Arabia has been influenced by Western accounting in assorted ways, and as a consequence of this the scene of accounting criterions in Saudi Arabia will unite different accounting criterions from different states. SOCPA was established comparatively late, in 1992, and hence there has been some hold in fixing accounting criterions. SOCPA has issued 21 accounting criterions so far, the most recent one being in March 7Thursday2012. Mentions: Adnan, M. and Gaffikin M. ( 1997 ) . The Shari’ah, Islamic Banks and Accounting Concepts and Practices. Accounting, Commerce and Finance: the Islamic Perspective. Paper presented at International Conference, University of Western Sydney, Macarthur, Australia Al-Jirari, A. ( 1996 ) Accountability in Islam. Available at: http//abbesjirari.com. Al-Rehaily, A. S. F. ( 1992 ) . The development of accounting in Saudi Arabia: A survey of its relevancy to the societal and economic environment. PhD thesis, University of Hull, UK Buchanan, F.R. , ( 2003 ) ,  «International accounting harmonisation: Developing a individual universe standard » , Business Horizons, May – June, 61 – 70. Jaggi, B. L. ( 1973 ) Accounting Systems in DevelopingCountries: An Appraisal The International Journalof Accounting Education and Research, Vol.9, pp.159-170.