In the first half of the last century the Kingdom had only one or two joint stock companies in the Western Province and one international company in the Eastern Province. Their accounts were audited by international external auditors. The shareholders trusted the auditors to safeguard their interests. As the country moved ahead and prospered, the number of joint stock companies increased. However, the increasing numbers of university graduates had no experience in auditing so the Kingdom had to recruit Arab expatriates. Everyone could open an office and the number of Arab auditors increased substantially. This flock of auditors was confronted with the low general awareness about auditing, combined with the fact that the majority of the local firms were family or individually owned and saw little use for modern accountancy. In addition, the auditing business was hindered by other requirements such as the zakah and income tax laws, confidentiality and distrust of outsiders which made disclosure of personal data controversial. Despite these factors, a number of US and European firms began conducting business as early as the 60’s.
However, these firms obtained the required licenses from the Ministry of Commerce while being sponsored by Saudis who were also their customers. By the early 80’s, joint stock companies reached a number that never existed before, including the twelve banks. While the Saudi Arabian Monetary Agency promoted the start of the Stock Exchange, the Ministry of Trade issued laws and the Court of Grievances dealt with disputes. It was difficult to reach any form of consistent policy between these bodies. To the contrary of auditing practices in the world, there is doubt about the credibility and trustworthiness of auditing in the Kingdom. Violations of auditing standards and legal requirements are commonplace. There are, for example, auditors that were appointed by the general assemblies of joint stock companies for a period of five years but the same auditors continue their tasks for longer periods. Shareholders in joint stock companies have little to say but seem happy just to receive their dividends. The auditors appointed appear to be too loyal to the board of directors. In other words, auditors conduct their investigations based on the agenda that the board of directors recommend rather than the shareholders’ interest in mind. It is true that most of the shareholders are not well-versed in financial matters or are influenced by the board of directors. So many general assembly meetings are meaningless gatherings with regard to the shareholders questioning or debating financial matters. The auditing industry has neglected to explain its functions and benefits properly. In addition, the 21 Chambers of Commerce throughout the Kingdom, headed by the higher council in Riyadh, do not place their priorities on strategic matters that would involve dealing with these issues collectively. Even a half a century from the time the auditing business started in the Kingdom, the professional body representing the certified auditors is not raising enough debate, unlike the organizations for other groups that deal with conflicts between business houses or between hospitals and physicians. But also in the West auditing firms should be monitored more closely as was made clear by the recent Enron case where the true picture of the company’s financial position remained hidden from the shareholders and financiers.
Unfortunately, when there is a case in the Kingdom that reaches the stage where it needs to be discussed by the governing bodies involved, it may get killed by a committee that lacks the necessary background in auditing in the first place.
Therefore, it is imperative that we should emphasize the need for proper accounting and auditing practices, in combination with the application of technical and legal requirements; otherwise the financial position of the parties involved is not going to be as clear as it legally should be. This is crucial for shareholders, financiers and the economy in general. It is important, however, not to waste the experience of 50 years in moving forward on this issue. The needs and experience of the local environment should be included in the laws and regulations in consultation and interaction with all parties involved to obtain credibility and support.