Full IFRS or IFRS for SMEs in Saudi Arabia: Which Entities Apply Which, and the Election That Is Hard to Undo

A Saudi company can report ten billion riyals of revenue and still be an SME. A company with twelve employees is not one if it takes deposits from the public. The IFRS for SMEs Accounting Standard contains no revenue test, no asset test and no headcount test, and the Kingdom adopted that definition as it stands, so the first question about any set of Saudi financial statements is not how big the entity is. It is whether the entity is publicly accountable.

The second question catches finance teams. An entity that is not publicly accountable may apply full IFRS instead, but in the Kingdom that election carries two conditions: all of the standards rather than a selection, and, once taken, kept. The ways back out are narrow and structural, and a change of mind is not one of them.

What follows comes from the IFRS Foundation's jurisdictional profile for Saudi Arabia, last updated 28 July 2022, and from the Standards themselves. SOCPA's own site could not be reached while this was written, so read every dated statement below as the position at that date and confirm the current endorsement with SOCPA before relying on it.

Two frameworks, and the line between them

The framework has a full name worth learning as a phrase: IFRS Accounting Standards that are endorsed in Saudi Arabia, and other standards and pronouncements that are endorsed by SOCPA. The first half is IFRS as the IASB issues it, plus disclosure requirements SOCPA has added to some standards. The second half is what SOCPA issues where IFRS is silent, Zakat above all. How that machinery works is set out in How SOCPA Endorses IFRS: What Differs in Saudi Statements. What it does not answer is which entity applies which.

Entity	What it applies
Publicly accountable entity	Full IFRS Accounting Standards as endorsed. Required, with no election.
Any other entity publishing general purpose financial statements	The IFRS for SMEs Standard as endorsed. Required, unless it elects full IFRS on the two conditions below.
Any company in the process of liquidation on or after April 2021	The Liquidation Basis Financial Reporting Standard endorsed in the Kingdom. Mandatory, whichever framework it used before.
All of the above	Plus SOCPA's own pronouncements on matters IFRS does not cover, Zakat above all.

IFAC records SOCPA as having adopted the IFRS for SMEs Standard for non-publicly accountable entities with effect from January 2018. Nothing in that table is a size rule. Every line turns on what the entity is and what it does, which is why the phrase in the first row carries the whole question.

Publicly accountable is the phrase that decides it

Section 1 of the Standard gives the test two limbs. An entity has public accountability if its debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in one; or if it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses, which is how most banks, credit unions, insurance companies, securities brokers and dealers, mutual funds and investment banks are caught.

A public market is wider than Tadawul. The Standard defines it as a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets. Being in the process of issuing counts, so an entity becomes publicly accountable while an offering is in flight, not on the day the shares start trading.

Holding other people's money incidentally does not count. The Standard names travel and real estate agents, schools, charitable organisations, co-operatives taking a nominal membership deposit and sellers paid in advance of delivery, such as utility companies. They hold client funds, but not as a primary business.

Each entity is tested on its own status. A subsidiary with no public accountability of its own is not prohibited from using the Standard in its own financial statements even where its parent and the consolidated group are on full IFRS, and a parent without public accountability may present its separate financial statements under the Standard while consolidating under full IFRS. For a Saudi family group with one listed or regulated member, that is the difference between one reporting burden and a dozen.

What the SME Standard actually changes

The IFRS for SMEs Standard is not full IFRS with the notes deleted. It is a self-contained standard with its own recognition and measurement, and the differences reach the numbers.

Topic	Full IFRS	The IFRS for SMEs Standard
Leases, lessee side	IFRS 16: one model, a right-of-use asset and a lease liability beyond the short-term and low-value exemptions	The classification model survives. Operating lease payments are an expense over the term, normally straight line
Borrowing costs	IAS 23 capitalises those directly attributable to a qualifying asset	All borrowing costs are an expense of the period in which they are incurred
Research and development	IAS 38 expenses research and capitalises development once the criteria are met	All internal expenditure on an intangible item, research and development alike, is expensed
Goodwill	Not amortised. Tested for impairment	Amortised
Investment property	A policy choice between the cost model and the fair value model	Not a policy choice: fair value through profit or loss where fair value is measurable reliably without undue cost or effort, cost model for the rest

Read the table backwards and the cost of electing full IFRS becomes visible: every operating lease on the balance sheet, interest and development costs capitalised that used to be expensed, goodwill amortisation stopped, and the disclosure volume of the full set on top. Entities elect it for a reason, usually a lender, a foreign shareholder or a plan to list, and rarely because it is cheaper.

The Standard is also moving. The IASB issued a third edition in February 2025, effective for annual reporting periods beginning on or after 1 January 2027 with early application permitted. It aligns consolidation with the IFRS 10 control model, adds a section on fair value measurement and rewrites revenue on the five-step model of IFRS 15, while goodwill stays amortised and leases were deliberately left alone, alignment with IFRS 16 deferred to the next review. Whether SOCPA has endorsed that edition, and from when, only SOCPA answers: the jurisdictional profile predates it.

Electing full IFRS: all of it, and then keeping it

An SME in the Kingdom is permitted to use full IFRS Accounting Standards as endorsed, on two conditions, and both should be read literally.

First, it must apply all IFRS Accounting Standards in full, not selectively. There is no borrowing a single standard: an entity cannot keep the SME Standard and reach into IFRS 16 because a lender asked to see lease liabilities.

Second, once it has elected full IFRS it must continue applying those Standards as long as no new circumstances have arisen that make the cost and effort of continuing unnecessarily high. The profile gives two qualifying examples: ownership is transferred to a company that applies the IFRS for SMEs Standard, provided the loss of control is not temporary; and the SME undergoes a major restructuring that reduces the size of its operations and makes the cost and effort of full IFRS high.

Both are structural events rather than preferences. A thin year, a new finance director, a fee negotiation with the auditor: none of them is on the list. The condition is a stickiness rule, written to stop the reporting framework from becoming an annual accounting policy choice, so the decision belongs to whoever is planning the entity's next five years rather than to the team closing this year's books.

Movement the other way is not an election at all. An entity that becomes publicly accountable applies full IFRS because it no longer meets the definition of an SME.

What endorsement adds, and the choice it takes away

Both frameworks arrive endorsed, and endorsement is a process rather than a stamp: translation first, then technical, Sharia and legal review for compatibility with the Saudi environment, with input sought from regulators, preparers, auditors, investors, academics and the public. What comes out has disclosure requirements added to several standards, mainly to reflect Sharia or local law, in the SME Standard as well as in full IFRS. Those additions, in the Foundation's words, do not affect a company's ability to assert compliance with IFRS Standards, and recognition and measurement are untouched.

The Capital Market Authority conditions on revaluation

One real restriction does not come from SOCPA at all, and it reaches only listed companies, which are on full IFRS by definition. The Capital Market Authority required listed companies to keep the cost model for property and investment property for financial periods within fiscal years starting before 2022, and 2023 for investment fund managers. From then the fair value or revaluation model is permitted, but only with the board approving the policy on the audit committee's recommendation, each property valued by at least two valuers holding a fellowship designation with the Saudi Authority for Accredited Valuers, the lower of the two valuations taken, and a note reconciling total assets, net assets, net income and comprehensive income back to the cost model. Plant, equipment and intangible assets were kept on the cost model for five years from 1 January 2020, and 1 January 2021 for fund managers, with the Authority to decide at the end of that period whether to continue it. The period has run and the profile does not record the outcome, so confirm the current position with the Authority.

Under full IFRS in the Kingdom, then, revaluation is a governance event. Under the SME Standard the choice never arises in that form, because the measurement of investment property there follows whether fair value is available without undue cost or effort, not what the board would prefer.

When going concern fails: the Liquidation Basis standard

Under the Standards as the IASB writes them, an entity that does not prepare financial statements on a going concern basis discloses that fact, the basis it used instead and the reason it is not regarded as a going concern. Which basis to use is left to management, because neither framework supplies a liquidation measurement model.

SOCPA closed that gap by removing the question. It amended IAS 1 so that IFRS Accounting Standards cease to apply to entities preparing financial statements on a non going concern basis, and made the matching amendment to the IFRS for SMEs Standard. Both roads lead to the Liquidation Basis Financial Reporting Standard endorsed in the Kingdom, which covers recognition, measurement, presentation and disclosure on that basis, and which companies in the process of liquidation on or after April 2021 are required to apply.

So the framework question has a third answer, and it is the only one no entity chooses. IAS 1 is itself being replaced: IFRS 18, issued in April 2024, supersedes it for annual reporting periods beginning on or after 1 January 2027, early application permitted. How the going concern amendment carries into the endorsed IFRS 18 text, and where Zakat sits in the new categories, are SOCPA questions; the second is taken up in SOCPA Financial Accounting: Syllabus, Topics and a Study Plan.

What the audit report says

The compliance statement is the shortest test of whether someone has understood any of this. The auditor's report and the basis of preparation note state that the financial statements are in conformity with IFRS Accounting Standards that are endorsed in Saudi Arabia and other standards and pronouncements that are endorsed by SOCPA. Not "in accordance with IFRS", which is incomplete, and not a claim to two frameworks at once.

Dual reporting, asserting conformity with both IFRS Accounting Standards and a local GAAP, is not permitted, and the reason is structural rather than stylistic: there is no separate Saudi GAAP left to comply with. The mirror rule runs the other way. A publicly accountable entity that applies the SME Standard anyway may not describe its statements as conforming to the IFRS for SMEs, even where law or regulation permits or requires it to use the Standard. Both rules protect the same thing, which is that a statement of compliance points at one identifiable set of requirements.

Whether an entity's statements are audited at all is a separate question with thresholds of its own, in Which Saudi Companies Must Appoint an Auditor, and How Long One May Serve.

Where to practise this

This material is examined the way definitions are examined: a short scenario with one decisive fact in it, usually whether the entity is publicly accountable, and then the consequences. Prepito's SOCPA Financial Accounting course covers the endorsed standards with practice questions, simulations and full explanations in Arabic and English.

For the goodwill and asset testing that separates the two frameworks, Impairment Under US GAAP vs IFRS works through recoverable amount and the no-reversal rule. For the qualification as a whole, see the SOCPA Fellowship programme.

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This is a study guide, not accounting advice or a substitute for the standards it describes. Sources: IFRS Foundation jurisdictional profile for Saudi Arabia, last updated 28 July 2022, IFRS Foundation supporting material on Section 1 of the IFRS for SMEs Standard, the Project Summary for the third edition, the IFRS Foundation page for the Standard, the IFRS 18 standard page, and IFAC's profile of Saudi Arabia. Endorsement decisions belong to SOCPA and change as the IASB issues standards; the third edition of the Standard and IFRS 18 both take effect internationally in 2027, and the Capital Market Authority's cost model period for plant, equipment and intangible assets has now run its course. Confirm the current position for any specific standard before relying on it.