1. introduction
Accounting systems in Saudi Arabia was shown to be imported from developed countries. Although in Saudi Arabia, the accounting principle and structures were primarily constructed from Western countries, the new accounting system has been reformed to adapt the unique Saudi Arabian environment. The various factors might explain how the new accounting system emerges. This paper will analyze how the three main factors-economy environment, taxation policies and foreign accounting standards and principles affect accounting systems in Saudi Arabia.
2. Economy environment
The commodities of the natural resources have enormous impact on accounting system in Saudi Arabia. Nature products involve minerals, oil and nature gas. According to the Organization of the Petroleum Exporting Countries (OPEC, 2013), 18% of the world’s proven petroleum was discovered in Saudi Arabia. Saudi Arabia now ranks as the largest exporter of petroleum (OPEC, 2013). The oil and gas account for nearly 50 per cent of gross domestic product. Although Saudi Arabia has the largest continuous sand desert all around the world, the earnings of oil and gas occupy most of its export revenues. Because the national revenue in Saudi Arabic rely on the export of petroleum, the revenue valuation focus on the annual production and the global price fluctuation, which is different from other developed countries like U.K. and U.S.A.
Before the oil was discovered in Saudi Arabic, the accounting system did not record the oil revenue. At that time, Saudi Arabic was highly dependent on the basic activities, such as fishing, pearling, agriculture, ship-building and commerce. Although people record the amount or the volume of each production they made in different...
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... Accounting and Finance, School of Management The University of Hull
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Saudi Arabia and Qatar are both independent, Middle Eastern nations located on the Arabian Gulf peninsula. They share the same religion, same ruling style and same ruling religion. They are both Islamic monarchies where Wahhabism—a fundamentalist sect of Islam—is the primary faith among their people and the faith of their ruling families. Their economies follow nearly identical paths, as oil wealth is the primary sector of both of their Gross Domestic Products (GDPs) and largely controlled by the government. Both Saudi Arabia and Qatar are economically oil-driven Wahabist kingdoms; however, Qatar 's lack of reliance on Wahhabism coupled with its acceptance of its own ephemerality has
Lucas Pacioli was the first to describe a system of debts and credits in accord with journals and ledgers in 1494. These basics came together to be the concoction for what is known as accounting. Since the formal establishment of accounting in 1494, the field has expanded as the demands of the ever-changing economy became greater. The industrial revolution created the first jump in the field forcing the creation of sectors within. Since this first creation of sectors, accounting as a field has been creating more specific sects to accommodate a large variety of areas. The most common and large sects created this far include public and private accounting. Although both sects carry the same basis for their work, the variation between the two lies in their demographic, demands, and decoration.
They increase the spending on connectivity and human resources (Saudi Arabia Emergence Innovation Kingdom, 2014). Saudi Arabia is the largest economy in the Middle East and the richest Arab country. The economy of Saudi Arabia is entirely based on oil (Smetoolkit.org, 2014). Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world (Saudiembassy.net, 2014). Exports now in the kingdom include all economic sectors.
Sulaiman, M. b., Nik Ahmad, N. N. & Alwi, N., 2004. Management accounting practices in selected Asian countries: A review of the literature. Managerial Auditing Journal, 19(4), pp. 493-508.
Currently, the government of Saudi Arabia controls the economy by limiting foreign investors and regulating business within its borders. Oil accounts for the majority of the country's income, accounting for 90 percent of export revenue and 80 percent overall (“Saudi Arabia,” n.d.). Prices over $105 per barrel is required for the budget to remain balanced. The current drop in oil prices places a strain on the Saudi Arabian economy; expansion into the bond market somewhat eases this strain (“Saudi Arabia,” n.d.). A McKinsey Global Institute report states that Saudi Arabia can double its GDP and create millions of jobs by changing its economy from a government centric style to “a more market-based approach” (Al-Kibsi et al., 2015). "Despite cuts and financial challenges, ongoing internal and external concerns are driving an increase in defense spending” (Hedges, as quoted by Mustafa, 2015). The last half decade has seen the defense budget of Saudi Arabia growing at a rate of 19 percent a year (Mustafa, 2015). This shows that the military, despite the economic downturn, continues to play an important role in the Saudi Arabian
Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South Western College Pub.
OPEC was established in the 1960's and ever since, Saudi Arabia gained a reputation of being the major power of the organization. Saudi Arabia has the biggest oil reserves in the world and production costs lower than any country. (economist.com 2003)This means that it is a natural monopoly and economies of scale arises; when the long run average total cost falls as the quantity of output increases as illustrated in figure 1. (Gans, J. King, S., Mankiw, N., 2003) Saudi Arabia is the undisputed leader of OPEC.
Saudi Arabia, the leader of OPEC (Organization of Petroleum Exporting Companies), maintains a powerful position in negotiations with the U.S. and other countries. Its vast supply of oil directly effects per barrel pricing and is a unique bargaining tool in international politics. But Saudi Arabia is no ordinary country in today's world. Its borders are governed by a royal family of nearly 30,000 individuals, all of which share most of the wealth and almost all of the power. Its people, with foreign exceptions, are wholly Islamic and many practice the faith with a frightening sense of devotion. And despite the immense revenue generated by its oil reserves, part of its population still lives in absolute poverty. Although recently it has seen immense change, it is still a country fair behind the progressive world.
Saudi Arabia’s capital market is considered to be young compared to other financial markets in the region. Saudi financial markets have been developing slowly because most enterprises in the country are either government owned or family-owned, most of which was funded through state budget, and as a result reduced the need for financing. In the recent past, Saudi Arabia has focused on a careful measurement for structural developments and regulatory changes. However, different phases of historical development of the capital market which can be classified into three phases; pre-industrialization phase, post industrialization phase and growth phase that sparked changes and shaped the kingdom 's capital market on
The Kingdom of Saudi Arabia is a petrostate. It is a petrostate in the sense that the oil sector dominates the national economy and international exports. (Colgan 226) This is due to Saudi Arabia’s one crop economy, oil. (Ali 100) Oil accounts for 70-80% of the state revenue as well as roughly 95% of export revenues. Before the discovery of oil in the 1930s, the economy rested on Islamic pilgrims. Containing the Grand Mosque, Al-Masjid al-Haram, Saudi Arabia gets a large influx of believers every year for the Hajj, one of the Five Pillars of Islam. During this time of year, income was made by food and shelter sold to the travelers. This was enough to support the state, but not enough to make it the monetary power it is today. What allowed for Saudi Arabia’s climb in the world economic ladder was oil. Oil has been a valuable industrial resource since the beginning of World War 1. Since then the demand for oil has progressively become higher and higher amongst industrial nations, allowing for oil rich states to receive large amounts of affluence. Among these oil rich states is Saudi Arabia, the region with the highest capacity for oil production out of the entire Middle East. From their remarkably high oil production, Saudi Arabia was able to gain considerable amounts of wealth and political significance. Oil in Saudi Arabia politically affected the Saudi government in both their foreign and domestic policy by providing economic power, the ability to fund wars, the ability to use economic diplomacy.
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
Change is inevitable. Yogi Berra once said “The future ain’t what it used to be.” It is clear that the future of the accounting profession ain’t what it used to be (Gormon and Hargadon 1). The changes occurring are happening fast, they are dynamic and they are completely and undeniably real. Since the world around the accountant is changing, the accountant has no option but to change as well. The field of accounting has always been one to know change and to know adjustment, but within the recent past and certainly within the next few decades, the changes that are occurring and will occur absolutely are the most dramatic and exponential yet. Obvious changes lie in the expanding scope of services performed by accountants, the increased use of
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
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Perfume sales in Saudi Arabia , the Gulf’s largest economy and the UAE reached 827.5million dollar and 205.8million in 2010.