The Bank Reporting System in Saudi Arabia: A Case Study
This paper examines the bank reporting system in Saudi Arabia and its compliance with the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). The paper also assesses the problems that Saudi banks face in their financial reporting.
The global banking sector has undergone significant changes over the past few years. In the aftermath of the global financial crisis, banks have been subject to heightened regulation and scrutiny. In addition, the increased competition from non-bank financial institutions has put pressure on banks’ traditional business models. As a result, banks have had to adapt their strategies and operations to meet the changing needs of their customers and shareholders.
One area that has been affected by these changes is financial reporting. Banks are required to provide accurate and timely information about their financial position, performance, and risk profile to regulators, investors, and other stakeholders. However, banks’ financial reports are often complex and difficult to understand. This can make it difficult for stakeholders to assess a bank’s financial health and make informed investment decisions.
To address this problem, several countries have introduced new reporting requirements for banks. For example, the European Union (EU) introduced the Directive on Bank Recovery and Resolution (BRRD) in 2014, which requires banks to prepare resolution plans that include information on their vital functions and assets. In the United States, the Dodd-Frank Act imposes new disclosure requirements on banks, including the requirement to provide “living wills” that outline how they would be resolved in the event of failure.
The Kingdom of Saudi Arabia (KSA) is one of the countries that have introduced new reporting requirements for banks. In 2017, the Saudi Arabian Monetary Authority (SAMA) issued SAMA Regulation No. (38/M/2017), which requires all banks operating in the KSA to prepare and submit resolution plans within six months of the date of entry into force of the regulation. The resolution plans must include information on the bank’s legal structure, business model, critical operations, and key contracts.
In addition to introducing new reporting requirements, SAMA has also made changes to the existing banking regulations in order to improve transparency and disclosure in banks’ financial reports. For example, SAMA Regulation No 71/M/2015 requires banks to disclose certain information about their loans and advances in their quarterly financial statements. SAMA Regulation No 72/M/2015 requires banks to disclose certain information about their deposits in their quarterly financial statements.
The introduction of these new reporting requirements is a positive development as it will help improve transparency and disclosure in banks’ financial reports. However, there are still some challenges that need to be addressed in order for Saudi banks to fully comply with these requirements. First, not all Saudi banks are familiar with GAAP or IFRS. As a result, they may not be able to prepare accurate and timely financial statements that comply with these standards. Second, many Saudi banks do not have adequate resources or personnel to prepare comprehensive resolution plans that meet SAMA’s requirements. This could lead to delays in the submission of these plans or incomplete information being submitted. Third, some Saudi banks may not be able to meet SAMA’s new disclosure requirements due to lack of experience or understanding of these requirements. This could result in inaccurate or misleading information being disclosed in their financial statements.
In light of these challenges, it is important for SAMA to provide guidance and support to Saudi banks to help them comply with the new reporting requirements. SAMA should also consider extending the deadline for the submission of resolution plans and providing additional resources to banks to help them prepare these plans. In addition, SAMA should continue to monitor banks’ compliance with the new disclosure requirements and take action against banks that do not comply.
2. Theoretical Background and Review of the Literature
This section provides a theoretical background on financial reporting and reviews the literature on bank reporting system.
2. 1 Financial Reporting
Financial reporting is the process of preparing financial statements that provide information about a company’s financial position, performance, and cash flow. Financial statements are typically prepared on a quarterly or annual basis. They are used by managers to make decisions about how to allocate resources and by investors to make decisions about whether to buy, sell, or hold a company’s shares.
Financial statements consist of three main types of financial reports: (1) the balance sheet, which reports a company’s assets, liabilities, and equity at a point in time; (2) the income statement, which reports a company’s revenue, expenses, and profit or loss over a period of time; and (3) the cash flow statement, which reports a company’s cash inflows and outflows over a period of time. In addition to these three main types of financial statements, companies may also prepare other financial reports such as a Statement of Comprehensive Income, Statement of Changes in Equity, or Statement of Cash Flows.
2. 1. Generally Accepted Accounting Principles
Generally accepted accounting principles (GAAP) are a set of rules and guidelines that companies must follow when preparing financial statements. GAAP is issued by accounting standard-setters such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). GAAP is used in many countries around the world, including the United States, Canada, and Australia.
2. 1.2 International Financial Reporting Standards
International Financial Reporting Standards (IFRS) are a set of rules and guidelines that companies must follow when preparing financial statements. IFRS is issued by accounting standard-setters such as the IASB and the European Financial Reporting Advisory Group (EFRAG). IFRS is used in more than 100 countries around the world, including the United Kingdom, France, Germany, Japan, and South Africa.
2. 1.3 Saudi Banks and Financial Reporting
Saudi banks are required to prepare financial statements in accordance with GAAP or IFRS. The Saudi Arabian Monetary Authority (SAMA) has issued several regulations that govern the preparation of financial statements by banks operating in the Kingdom of Saudi Arabia (KSA). These regulations include SAMA Regulation No 40/M/2016 on Capital Adequacy Requirements, SAMA Regulation No 41/M/2016 on Liquidity Requirements, and SAMA Regulation No 42/M/2016 on Disclosure Requirements for Banks operating in the KSA.
All Saudi banks are required to prepare quarterly financial statements within 45 days from the end of each quarter. These financial statements must include information about the bank’s assets, liabilities, capital, income, expenses, and cash flows. In addition, banks are required to disclose certain information about their loans and advances, deposits, and off-balance sheet items in their quarterly financial statements.
2. 2 Bank Reporting System
A bank reporting system is a process or set of procedures that banks use to prepare and submit financial reports. The main purpose of a bank reporting system is to provide accurate and timely information about a bank’s financial position, performance, and risk profile.
A typical bank reporting system includes the following components:
• Financial statements: Banks prepare financial statements on a quarterly or annual basis. These statements provide information about the bank’s assets, liabilities, capital, income, expenses, and cash flows.
• Reports to regulators: Banks are required to submit various reports to regulators such as the central bank, ministry of finance, or banking association. These reports typically include information on the bank’s capital adequacy, liquidity, asset quality, and earnings.
• Reports to shareholders: Banks are required to prepare reports for their shareholders on a quarterly or annual basis. These reports typically include information on the bank’s financial position, performance, and dividend payments.
2. 3 Objectives of the Study
The objective of this study is to examine the bank reporting system in Saudi Arabia and its compliance with GAAP and IFRS. The study will also assess the problems that Saudi banks face in their financial reporting.
This section discusses the research design and data collection methods used in this study.
3. 1 Research Design
This study uses a qualitative research design. Qualitative research is a type of research that uses data that cannot be measured numerically. Qualitative data includes data that is descriptive or interpretive in nature.
This study uses a case study methodology. Case study research involves investigating a phenomenon within its real-world context. Case studies are often used to examine phenomena that are difficult to observe directly (such as organizational culture or strategy) or that occur rarely (such as mergers or acquisitions).
The study will use a multiple case study design. A multiple case study design is an approach to case study research that involves studying multiple cases simultaneously. This approach is useful when the researcher wants to compare and contrast different cases or when the cases are too complex to be studied individually.
3. 2 Data Collection Methods
This study will use multiple data collection methods to collect data from Saudi banks. The data collection methods that will be used in this study include document analysis and interviews.
Document analysis is a type of data collection that involves analyzing documents such as financial statements, regulations, and policies. This approach will be used to collect data on Saudi banks’ compliance with GAAP and IFRS.
Interviews are a type of data collection that involves conducting face-to-face or telephone conversations with individuals who have knowledge about the phenomenon being studied. This approach will be used to collect data on the problems that Saudi banks face in their financial reporting. A total of 20 interviews will be conducted with managers from Saudi banks.