Saudi CMA Tightens Auditor Rules With New Quality, Inspection & Staffing Requirements

Key Takeaways

• Auditor Rules Tightened: Saudi Arabia’s Capital Market Authority approved amendments aimed at improving audit quality for entities under its supervision.
• Qualified Staffing Required: Registered accounting firms must maintain enough audit managers with SOCPA fellowships or other CMA-accepted professional qualifications to match the nature, scale and complexity of their work.
• Quality Systems Strengthened: Firms must maintain appropriate quality management systems and comply with professional standards when reviewing interim and auditing annual financial statements.
• Inspection Findings Carry Consequences: Firms may be required to prepare CMA-approved corrective action plans and must share final inspection results concerning a listed company’s audit file with that company’s audit committee.
• Transparency Requirements Expand: Firms must disclose more about their governance, leadership and quality management systems, including who oversees those systems and the results of their annual evaluations.

Deep Dive

Saudi Arabia’s Capital Market Authority has approved new requirements for the accounting firms that audit entities under its supervision, tightening the rules around who performs the work, how firms control its quality and what they must do when a regulatory inspection finds problems.

The amendments to the Rules for Registering Auditors of Entities Subject to the Authority’s Supervision take effect from the date of their publication. The CMA says the changes are intended to bring the regulatory framework into line with international best practices and relevant laws and regulations, improve the quality of audit engagements and strengthen the information registered accounting firms disclose.

Some of the most consequential changes concern the people entrusted with the work. Registered accounting firms will be required to maintain a sufficient number of audit managers who hold a fellowship from the Saudi Organization for Chartered and Professional Accountants, or an equivalent professional fellowship accepted by the CMA. The requirement is not built around a single prescribed number. The number of qualified managers must instead be commensurate with the nature, scale and complexity of the firm’s business activities.

That puts professional capacity alongside audit quality rather than treating the two as separate questions. A firm taking on larger or more complicated work must have the qualified staff to match it.

The amendments go further into how that work is controlled once it begins. Registered accounting firms must maintain an appropriate quality management system for engagements involving the audit and review of financial statements. They must also comply with professional standards when reviewing interim financial statements and auditing annual financial statements of entities under the CMA’s supervision.

The regulator said those requirements are intended to improve audit quality and increase investor confidence in the market.

What Happens After an Inspection

The sharper edge of the amendments appears when the CMA comes through the door. Registered accounting firms must follow detailed requirements governing inspections, including cooperating with the regulator and providing the information, data and documents it requests. If the outcome of an inspection warrants corrective action, the firm must prepare a corrective action plan, submit it to the CMA for approval and then comply with its implementation.

The process does not necessarily end between the regulator and the accounting firm. When the CMA reaches its final inspection results concerning a listed company’s audit file, the accounting firm must share those results with the company’s audit committee. The purpose is straightforward: give the committee responsible for monitoring the auditor’s work access to the regulator’s findings about the audit file it is charged with overseeing.

That requirement closes an important informational distance. An audit committee cannot act on findings it has never seen. The CMA is also demanding more visibility into the accounting firms themselves. Transparency Reports will have to include disclosures concerning a registered firm’s profile, governance and leadership, along with a description of its quality management system.

Firms must identify the people assigned to oversee that system and disclose the outcome of its annual evaluation. The CMA said the additional information is intended to allow interested parties to assess the quality of audit work performed by registered accounting firms.

The final rules follow a consultation that began on April 8, when the CMA published its proposed amendments on its website and on the Unified Electronic Platform for Consulting the Public and Government Entities, affiliated with the Saudi Competitiveness and Business Center. The public consultation ran for 30 calendar days.

What emerged reaches well beyond the audit opinion at the end of the process. The CMA is putting requirements around the machinery that produces it: the qualifications of the people doing the work, the systems meant to catch weaknesses, the information firms must hand over when inspectors arrive and the corrective work that follows when those inspectors find something wrong.

And for listed companies, one part of that machinery is now harder to keep at a distance. When the regulator reaches final inspection findings on their audit files, their audit committees are supposed to see them.

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