When Is an Entity Required to Appoint an External Auditor in Saudi Arabia?

This question arises repeatedly among company owners and finance departments, and a precise answer has become more necessary since the new Companies Law rearranged the provisions, followed by ministerial criteria that defined who is exempt from the requirement and who remains bound by it. This article sets out the rule, then the exemption, then the practical cases in which the external auditor remains a necessity even where the statutory obligation is lifted.

The Rule in the Companies Law

The Companies Law was issued by Royal Decree No. (M/132) dated 1/12/1443H and came into force on 19 January 2023, together with its Implementing Regulation. Its general rule is that a company has one or more auditors: joint stock companies are bound by this in all cases, and limited liability companies are bound by it unless the exemption for micro and small companies applies to them, an exemption whose criteria the Law referred to rules issued by the Ministry of Commerce.

The Exemption Criteria for Micro and Small Companies

Under the criteria issued by the Ministry of Commerce, a company is exempt from the requirement to appoint an auditor when it meets at least two of three criteria:

• Total annual revenues not exceeding ten million Saudi riyals.
• Total assets not exceeding ten million Saudi riyals.
• A number of employees not exceeding forty nine.

The exemption does not operate automatically: at the filing of the financial statements it is coupled with a declaration by the company's management that the requirement does not apply to it, and that no partners holding the percentages prescribed by law have demanded the appointment of an auditor. Whenever partners holding those percentages make that demand, the requirement stands again even where the exemption criteria are met.

Cases in Which the Auditor Remains a Standing Obligation

Every joint stock company falls outside the scope of the exemption from the outset, and the requirements tighten wherever the entity is connected to a regulator or a capital market: listed companies and entities subject to a supervisory license must have their financial statements audited in accordance with the requirements of their competent authorities. Exceeding the size criteria in any financial year likewise restores the requirement for a limited liability company, so it is prudent to monitor revenues, assets, and the number of employees as the prescribed limits approach.

Cases in Which the Auditor Is a Practical Need Even When Not an Obligation

Many entities that are exempt by law appoint an auditor by choice, because audited financial statements are a recurring practical condition in serious dealings: banks and financing providers request them when assessing facilities, project owners and tendering entities make them a condition of qualification, investors and prospective partners rely on them in valuations and entry decisions, and they are also a firmer foundation for the entity's position before the Zakat, Tax and Customs Authority in an examination or an objection. In family companies, an independent audit gives the partners recurring comfort on which governance rests and by which the relationship between ownership and management is kept stable.

Who May Practice Auditing

The practice of auditing is a regulated profession under the Accounting and Auditing Profession Law issued by Royal Decree No. (M/59) dated 27/7/1442H, and it may be practiced only by a person licensed by the Saudi Organization for Chartered and Professional Accountants. Before contracting, it is therefore necessary to verify that the license of the auditor or the professional firm is in force.

Conclusion

The rule is that a company has an auditor; the exemption is a measured exception for two categories of companies under clear numerical criteria and a documented declaration, and in many cases the external auditor remains a sound economic decision before being an obligation. For an assessment of an entity's position against the requirement, or to arrange the audit of its financial statements, the Financial Statements Audit and Review services page sets out the scope of work, the methodology, and the deliverables.

This article was prepared for general knowledge purposes as at its date of publication. It does not substitute for consulting the statutory texts in force, nor for specialized professional advice in individual cases.