Many business owners hear “financial statements under IFRS” and assume there is one version of those standards for their business. In fact the Kingdom has two adopted frameworks: full IFRS and the IFRS for SMEs Accounting Standard. Choosing between them is not a matter of accounting taste: it determines the volume of disclosures, the cost of preparation and audit, and whether your statements will be accepted when your needs change — on listing, on joining a group, or on raising significant financing.
This guide answers four questions from the decisions of the Saudi Organization for Chartered and Professional Accountants (SOCPA): who applies which framework and since when, the practical differences a small business actually feels, and what changed in the third edition of the standard adopted in the Kingdom at the end of 2025.
First: who applies which framework?
SOCPA decided that IFRS applies to financial statements for periods beginning on 1 January 2017 for entities listed on the capital market, and for periods beginning on 1 January 2018 for all other entities. The entities required to use the full version are, in SOCPA’s words, those supervised by the Capital Market Authority — listed companies, companies on their way to listing or with debt instruments traded on the market — and financial entities such as investment funds; all other entities may apply the IFRS for SMEs Standard instead of full IFRS.
The criterion that sets the scope: for the purpose of the standard, SMEs are entities that publish general-purpose financial statements for external users and do not have public accountability. An entity has public accountability in two cases: its equity or debt instruments are traded in a public market or it is in the process of issuing them, or it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses — banks, insurers, brokers and investment funds.
This has nothing to do with the SME definitions used by other bodies. Answering a formal enquiry, SOCPA explained that the standard applies to all entities that are not publicly accountable regardless of their size or legal form. A company with revenue in the hundreds of millions that is neither listed nor financial may apply the IFRS for SMEs Standard, and a small establishment may choose full IFRS if it wishes. In both cases the standards apply with the modifications and additional requirements set out in the document endorsing IFRS in the Kingdom.
Second: the differences a small business actually feels
The standard is designed to be simpler, not less rigorous. The differences that matter most in practice:
| Topic | IFRS for SMEs | Full IFRS |
|---|---|---|
| Size of the standard and disclosures | One standard with simplified sections and far fewer disclosures | Dozens of standards and interpretations with extensive disclosures |
| Borrowing costs | Expensed as incurred | Capitalised on qualifying assets |
| Research and development costs | Expensed | Development costs capitalised when the criteria are met |
| Goodwill | Amortised over its useful life | Not amortised; tested for impairment annually |
| Leases (lessee) | Still classified as operating or finance leases — IFRS 16 was not brought into the third edition | Most leases recognised on the balance sheet (IFRS 16) |
| Impairment of financial assets | Incurred loss model (retained in the third edition) | Expected credit loss model (IFRS 9) |
| Earnings per share, operating segments, interim reporting | Not required | Required for publicly accountable entities |
The practical effect is clear: a business that rents its showroom and warehouse under long contracts keeps far lighter statements under the IFRS for SMEs Standard than it would under IFRS 16, and a business that builds assets with bank financing expenses the finance cost rather than capitalising it — which affects both profit and the zakat base.
Third: what changed in the third edition?
The International Accounting Standards Board issued the third edition of the standard on 27 February 2025; it is effective for annual periods beginning on or after 1 January 2027, with early application permitted. In the Kingdom, SOCPA’s Accounting Standards Board decided on 4/7/1447H (24 December 2025) to adopt the updated edition, with early application permitted. The main changes:
- Revenue (Section 23): a new recognition model aligned with IFRS 15 — the five steps: identify the contract, the performance obligations and the transaction price, allocate it, and recognise revenue as obligations are satisfied — and the section was renamed “Revenue from Contracts with Customers”. This has the biggest effect on contracting, services and subscription businesses.
- Financial instruments (Sections 11 and 12): merged into one section using the IFRS 9 classification approach, while retaining the incurred loss impairment model.
- Fair value measurement: the requirements were brought together in a single new section.
- Business combinations (Section 19) and consolidation (Section 9): aligned with IFRS 3 and IFRS 10.
- Concepts (Section 2): aligned with the 2018 Conceptual Framework.
- Leases: unchanged; the IASB deferred aligning Section 20 with IFRS 16 to the next comprehensive review.
Financial year 2026 is the year to prepare: reviewing customer contracts against the five steps, identifying multiple performance obligations within a single contract, revisiting the classification of investments and financial instruments, and preparing comparative figures.
Fourth: when must — or should — a business move to full IFRS?
- Mandatorily: when the entity becomes publicly accountable — a decision to list on the main or parallel market, an issue of sukuk or traded debt instruments, or a financial activity that holds assets for others.
- Practically: when the business is acquired by a group applying full IFRS or merges with one, so that its figures must be consolidated on the same framework.
- By choice: when a financier or strategic partner asks for full IFRS statements, or when the business expects to list within two years and prefers an early move to build a run of comparatives.
The move is not a relabelling. It is a first-time adoption of full IFRS that requires an adjusted opening statement of financial position, remeasurement of items such as leases, borrowing costs and goodwill, and restated comparatives — which is why it is planned at least a year before the year in which it is required.
Fifth: what you should find in your statements
Whatever the framework, the first note discloses the basis of preparation: “These financial statements have been prepared in accordance with the IFRS for SMEs Accounting Standard as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements endorsed by SOCPA”, or the equivalent for full IFRS. If that sentence is missing, or the statements mix the two frameworks, the problem lies in the preparation, not the audit. The Companies Law requires statements to be prepared “in accordance with the accounting standards adopted in the Kingdom” (Article 17), and those standards are the ones above.
Frequently asked questions
Is the IFRS for SMEs Standard mandatory for every small business?
No. It is an option available to every entity without public accountability regardless of its size or legal form, and such an entity may apply full IFRS instead. Publicly accountable entities — listed, on their way to listing, with traded debt instruments, or financial entities — must apply full IFRS.
Is the standard tied to the revenue thresholds of the SME authority (Monsha’at)?
No. SOCPA has explained that the standard applies to all entities that are not publicly accountable regardless of size, so it has no connection with the size definitions of other bodies.
When does the third edition take effect in the Kingdom?
SOCPA’s Accounting Standards Board adopted it on 4/7/1447H (24 December 2025) with early application permitted, and under the IASB’s issuance it applies to annual periods beginning on or after 1 January 2027.
What is the most important change in the third edition for an ordinary business?
The new revenue model aligned with IFRS 15 and its five steps, which changes the timing of revenue recognition in contracting, services, subscriptions and contracts with multiple obligations.
Are leases recognised on the balance sheet under the IFRS for SMEs Standard?
The classification between operating and finance leases remains; the third edition did not bring in the requirements of IFRS 16, and the IASB deferred that to the next comprehensive review.
Can a business go back from full IFRS to the IFRS for SMEs Standard?
An entity without public accountability may apply the standard, but switching between the frameworks is treated as a first-time adoption requiring an opening statement of financial position, restated comparatives and disclosure of the effect of the transition, so it is done only for a lasting reason, not for a single year.
How we help
At Al-Mousa & Al-Tamimi Certified Public Accountants we identify the right framework for your business from who reads its statements and what its plans are, prepare or audit the financial statements on the chosen framework with the required disclosures, and build the transition plan to the third edition of the standard or to full IFRS — with an opening statement and comparatives — before it is demanded.
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Sources: Overview of the standards — transition decisions and the scope of the IFRS for SMEs Standard — SOCPA (Arabic); SOCPA’s reply to enquiry No. 41 on the definition of SMEs (Arabic); Approval of the updated IFRS for SMEs Accounting Standard, 25 January 2026 — SOCPA (Arabic); IASB issues a major update to the IFRS for SMEs Accounting Standard — IFRS Foundation; Companies Law — Saudi Laws Portal (Article 17; Arabic). This article is general guidance and is not a substitute for advice on a specific case.
Sources
- Decisions of the Saudi Organization for Chartered and Professional Accountants on the endorsement of IFRS and their effective dates for listed and non-listed entities
- The IFRS for SMEs Standard — the version endorsed in the Kingdom and its third edition
- Companies Law (Royal Decree M/132) — Article 17 (preparation of financial statements under the accounting standards approved in the Kingdom and filing within six months), and Articles 18 and 19 (appointment of the auditor and the exemption thresholds)
For the scope of application and effective dates, refer to the current version of SOCPA’s decisions on its website rather than to published summaries.
