With SOCPA’s deadline of 2017 looming, companies are starting to realise the implications of adopting the requirements of International Financial Reporting Standards (“IFRS”). Many are actually finding the
effects to be broad ranging and significant in practice whilst others indicate that they think it will be less of an impact. the impact of IFRS on the structure of the balance sheet and reported results have a direct impact on credit ratings, analysts assessments, borrowing costs and dividend payment policies, all of which affect the performance of shares on the exchange.
It is considered that the application of IFRS has a far more reaching impact than just affecting the accounting entries which requires careful management of stakeholders.
IFRS affects financial results and changes the shape of the balance sheet. It can affect key performance indicators against which management are assessed and change liquidity ratios, impacting the cost of debt for entities.
Anticipating these changes in advance of the adoption date allows entities to manage the impact of IFRS and potentially make changes in advance to negate any detrimental effects.
Valuation opportunities
Omar Al Sagga, Deputy Country Leader in PwC Saudi Arabia confirms that IFRS poses a significant challenge to companies but the adoption and transition rules also present significant opportunities. Al Sagga states that “the adoption of IFRS in Saudi Arabia is presenting listed entities with an opportunity to fair value property and other similar assets as at the adoption date.
Previously, under SOCPA companies had to recognise such assets at their historic cost. Adoption of IFRS allows entities to demonstrate a more current financial position and potentially create distributable reserves that otherwise would not exist”.
PwC is seeing entities engage with its valuation experts as a result. Companies are taking advantage of the adoption rules to create additional value in the balance sheet that previously was not recognised.
Streamlining and saving costs
In addition to the valuation opportunities, streamlined processes and reporting can be introduced, saving costs and improving the accuracy and speed of the financial reporting processes giving management better information for decision making purposes.
Omar Al Sagga indicates that entities are seeing that the adoption of IFRS enables complex groups to standardise both policies and procedures across operations, including those of internationally located subsidiaries where IFRS is often an allowed reporting framework.
IFRS is being seen as a conduit for not only improving the quality of financial reporting but also as a tool for saving costs and improving performance.