Enforcement and Power Dynamics in Saudi Arabia’s Transition to International Financial Reporting Standards

Abstract

Over the past two decades, Saudi Arabia has transitioned from a closed, oil-based economy to a more open, international, and modernized private economy. This shift has influenced institutions across the country, particularly in transitioning from Saudi GAAP to IFRS. The adoption of IFRS changed the basis for auditing and disclosure practices among listed firms. While previous studies have explored resistance, challenges, and mixed outcomes of this transition, they have overlooked how power dynamics within regulatory bodies and the Public Auditing and Accounting Field (PAAF) have evolved to enforce and sustain these changes. This research explores how and why the power balance among actors in the auditing and accounting field shifted following the 2017 reforms. Using Strategic Action Field (SAF) theory, the study examines how various stakeholders including regulatory body members, local auditors, Big 4 firms, mid-tier international firms, and CFOs strategically acted within two key fields: the regulatory field and the PAAF. Based on 37 interviews, the study develops four models and one integrative framework that illustrate the restructuring of governance, resource allocation, and power relations. The findings show that the strategic objectives of the state disrupted existing power structures in regulatory bodies, allowing IFRS supporters to gain dominance. These actors aligned with Big 4 firms and international players, leveraged state backing, and strategically managed resistance to enforce IFRS. In the PAAF, local firms, previously dominant, were unprepared for the technical demands of IFRS. Big 4 firms seized this opportunity, expanding market control and raising prices. In response, local auditors formed partnerships with mid-tier firms. Today, the PAAF includes 15 regulated auditors: 3 local firms (20%), 4 Big 4 (26.67%), 1 regional Arabic firm, 4 partnerships with mid-tier firms (26.67%), and 3 independent mid-tier firms (20%). Before IFRS, any SOCPA-authorized auditor could audit listed firms. Post-IFRS, the Capital Market Authority (CMA) restricted this through a regulated list, reshaping access and oversight in the audit market. The study highlights the central role of the “Big 10” (Big 4 and international mid-tier firms) in enabling IFRS adoption and implementation. Their expertise and resources made the current 100% IFRS compliance among listed firms possible. However, their dominance threatens local firms, which must quickly adapt or risk marginalization. To counter this, state actors could support local capacity through IFRS training, encourage accessible partnerships with international firms, and embed IFRS education in university curricula to ensure sustainable market participation.