Govt to take strict action against errant audit firms

The Saudi government plans to slap tough new sanctions on those auditing firms found incorrectly stating the financial health of companies.
This comes in the wake of the alleged incorrect auditing of the accounts of telecoms firm Mobily and construction company Al-Mojil, which saw investors lose money.
Mobily has had to restate 18 months of earnings because of alleged accounting errors, which has seen its share price plummet, while Al-Mojil has been revealed to be deep in debt. Both are listed on the Saudi stock exchange.
The penalties for fraudulent behavior include five-year prison sentences and permanent bans. The regulation would also speed up litigation, which would be overseen by an ad-hoc committee.
Sources said the amendments would ensure tougher sanctions on those who practice the accounting profession without licenses, or continue to do so when their licenses have expired.
The amendments have been produced after the drafters studied systems in other countries. The aim is to ensure that auditors develop practices that result in a more transparent financial system. The sources said the recent events in the Saudi financial market, which involved world-recognized accountancy firms, was healthy because it is helping to clean up the system. It was similar to the mistakes made in other countries, for example with Enron in the United States.
The sources said the Kingdom needs to overhaul its accounting legislation. The country currently only has prison sentences of six months for fraudulent behavior.
The current regulations of the Saudi Organization for Certified Public Accountants stipulates penalties for malpractices including issuing notices, warnings, suspension for six months, and canceling licenses. The new regulations would see the Court of Grievances take over the role of determining guilt, with the power to implement the tougher penalties.
There has been widespread public anger over the Mobily and Al-Mojil cases because of the number of people negatively affected. The call for changes in the system also comes as the country prepares to open its stock market for the first time to foreign institutional investors next year.