In line with the global trend, the Kingdom of Saudi Arabia (KSA) has taken a major step forward in the development of its public sector financial management through the adoption of accrual accounting standards commonly known as International Public Sector Accounting Standards (IPSAS). Based on Royal Decree Number 13059, these new standards issued in Saudi Arabia on 16 Rabi al-Awwal 1438AH will require all governmental institutions to convert their financial accounting basis from cash to accrual. This IPSAS implementation and journey, being led by the Accrual Accounting Center at the Ministry of Finance, will enable the government to have a vibrant view of its financial position and will enhance decision-making in order to support the wider ecosystem and the Kingdom in its ambition towards Vision 2030.
Q. In light of progress made thus far in the transition towards IPSAS adoption, how important is it for the governmental entities and what are the opportunities it creates for them?
A. This transition is of great importance because it enables the governmental entities to develop and achieve a set of important strategic objectives at the state level including:
As much as it is challenging, the transition towards the accrual-based IPSAS adoption meanwhile creates significant opportunities including:
Q. What challenges were encountered during the IPSAS adoption and how were they addressed?
A. Challenges can be divided into three categories:
Challenges under this category include:
1- Implementation of a number of initiatives as part of the accrual basis accounting transition project, for example, initiatives of opening balances, recordkeeping, assets listing, inventory, and evaluation within the specified timeframe.
Challenge Management: Prior to the launch of initiatives, the governmental entities communicated with the Accrual Accounting Center to obtain the action plans and the implementation periods to work accordingly, regularly track initiative progress, and escalate issues and difficulties to address them in real time.
2- Information from affiliates was inaccurate to build opening balances.
Challenge Management: The governmental entities sought other sources to obtain information to validate data.
3- Lack of records of outstanding claims or overdue expenditures.
Challenge Management: The governmental entities created a Supplier Claim Record by following reliable alternative procedures regardless of disbursement.
Challenges under this category include:
1- Inability to carry out accounting activities using the current IT systems.
Challenge Management: The governmental entities worked on the IT enabler (transformation platform) as a temporary technical solution for accrual accounting registration in parallel with the current system, while working to configure the current system with the functional requirements for accrual-based accounting work.
Challenges under this category include:
1- Lack of specialized and qualified human resources to implement the transition to the accrual-based accounting project.
Challenge Management: The governmental entities attracted qualified talents and conducted training courses for their personnel based on the comprehensive training plan at the Accrual Accounting Center.
Q. What improvements have you observed in your financial reports as a result of IPSAS adoption?
A. Reading the financial statements of governmental entities prepared according to the accrual basis of accounting, and by following IPSAS, the following positive points were noted:
Q. Following completion of the current stage of IPSAS adoption, what will be the next step?
A. Our next step is to transition to the sustainability of the financial reports of governmental entities. Transition in itself does not end with the completion of the project, but rather by following the methods of medium and long-term financial planning to sustain the public finance situation and achieve a balanced budget. Since its launch, the center has contributed to establishing capabilities and tools effective in influencing and positively interacting with the changes and transformations at financial and accounting levels, in order to keep pace with the current requirements of the transition stage and beyond. The center has also contributed to strengthening financial control and developing public finances. This will lead to strengthening and enhancing the Kingdom's financial position and raising the quality of financial reports.
Q. How do you envision the impact of developing financial reporting in the Kingdom of Saudi Arabia after completing the transition process in the near future?
A. In fact, the development of financial reporting after the completion of the transition process will have three-dimensional effects: starting with the government employee, and then the governmental entity, and finally having the greatest impact on the Kingdom of Saudi Arabia.
The first dimension - Impact on the government employee:
The impact of developing financial reporting after the completion of the transition process will be reflected as follows:
The second dimension - Impact on the governmental entity:
The impact of developing financial reporting after the completion of the transition process will be reflected as follows:
The third dimension - Impact at the KSA level:
Many positive impacts of developing financial reporting after the completion of the transformation process will be reflected as follows:
The adoption of IPSAS will not only enhance decision-making abilities, but will also create a comprehensive overview of all financial management matters. This essential step taken by the Ministry of Finance in the KSA reflects yet another relevant global trend that will prove to be promising for all governmental entities involved.