HHAB audits the local content ratio prepared by the entity's management, in its capacity as an independent auditor approved by the Local Content and Government Procurement Authority (LCGPA), and issues the required agreed-upon procedures report.
The Regulation on Preference for Local Content and Small and Medium Enterprises defines "local content" as the total spending in the Kingdom through the participation of Saudi elements in the workforce, goods, services, assets, technology, and the like. Within this framework, the Regulation grants national products a price preference in government tenders, and requires many government contracts, and contracts with major national companies such as Saudi Aramco, SABIC, and Ma'aden, to achieve a target local content ratio or a minimum level of it.
Among the requirements for obtaining the baseline certificate, or for the approval of periodic and final reports, is an audit of the local content ratio by an independent auditor approved by the Authority. HHAB undertakes this task as an independent auditor: it audits the ratio prepared by the entity's management and issues the required agreed-upon procedures report, without extending to calculating the ratio or issuing the certificate itself. Through an entirely separate advisory track, and for entities that do not engage HHAB for the audit service itself, HHAB also provides support in calculating and improving the ratio, preserving audit independence.
Independent audit work is the core of this service. Advisory support in calculating and improving the ratio is provided through an entirely separate track, and to non-audit clients only, to preserve the independence of the professional opinion, as set out in the following section.
An independent audit of the local content ratio prepared by the entity's management, under the methodology of the Local Content and Government Procurement Authority, and issuance of the agreed-upon procedures report required as one of the requirements for obtaining the baseline certificate.
Audit of the periodic and final reports that the Regulation permits the Authority to have audited, verifying compliance with the target local content ratio and the phased plan approved in the contract.
Audit of the local content declarations of suppliers and subcontractors within the supply chain, in support of consolidated, reliable reporting on major projects, including the requirements of the local value-added programmes of major companies, such as Saudi Aramco's IKTVA programme.
Periodic alerts on certificate and report renewal dates and on relevant updates to the Authority's instructions, available to audit and advisory clients alike.
Advisory support for calculating the local content ratio and preparing the supporting documents, reserved for entities that do not engage HHAB to audit their local content, preserving audit independence.
Identification of practical, realistic opportunities to raise the local content ratio before bidding in tenders, provided exclusively to entities that have not engaged HHAB for the audit of the same ratio.
To preserve the independence and objectivity of the audit work, and in accordance with professional standards, HHAB does not combine auditing the local content ratio with providing advice on calculating or improving the same ratio for the same entity.
For entities seeking the agreed-upon procedures report on the local content ratio, as one of the requirements of the Local Content and Government Procurement Authority for issuing the certificate.
For entities seeking support in calculating or improving their ratio, and that do not engage HHAB to audit their local content in the same period.
Auditing standards and professional independence requirements provide that an auditor must not review work the auditor itself prepared, or on which it advised the same client (the "self-review threat"). Nor does the auditor issue the local content certificate; that certificate is exclusively within the powers of the Local Content and Government Procurement Authority, once its requirements are met, including the agreed-upon procedures report issued by an independent auditor.
Any entity required to document its contribution to the national economy, whether for a single tender or as an ongoing supplier, can benefit from a structured path for measuring local content.
Entities seeking to take part in tenders that require achieving a target local content ratio or a minimum level of it.
Suppliers and subcontractors to entities such as Saudi Aramco, SABIC, and Ma'aden, including their local value-added programmes.
Foreign companies establishing or expanding operations in the Saudi market that need to document their local content position.
Entities that want a clear, documented position before bidding in new tenders or renewing their current certificates.
Under Article 10 of the Regulation, national products are granted a price preference by assuming that the price of the competing foreign product is 10% higher, and this percentage may be increased with the approval of the Authority and the competent authority.
Under Article 11 of the Regulation.
A structured five-stage audit approach, built on the auditor's independence and on the ratio prepared by the entity's management as its basis.
Confirming that no conflict of interest exists, and that the entity does not receive advisory services from HHAB for calculating or improving the ratio under audit.
Reviewing the bases and documents adopted by the entity's management in calculating the local content ratio.
Testing the consistency of the calculated ratio with the records and supporting documents, under the Authority's methodology and the procedures agreed for the engagement.
Recording the factual findings of the procedures performed as they are, without expressing an audit opinion or conclusion on them, in keeping with the nature of the agreed-upon procedures report.
Delivering the report to the entity to complete its procedures with the Authority.
The deliverables of the audit track are limited to the agreed-upon procedures report, without calculating the ratio or issuing the certificate, preserving the independence of the audit work.
The agreed-upon procedures report on the local content ratio (baseline, periodic, or final report, according to the type of engagement)
Findings of the agreed-upon procedures on the consistency of the ratio prepared by management with the Authority's methodology and the supporting documents
Audit observations, if any, on points requiring action by management before submission to the Authority
A report ready for completing the entity's procedures with the Local Content and Government Procurement Authority
Reminders of renewal deadlines and periodic requirements
HHAB is registered as an independent auditor approved by the Local Content and Government Procurement Authority, which qualifies it to issue the agreed-upon procedures report that the Authority requires among the certificate requirements.
A clear separation between the audit track and the advisory track for each entity, preserving the objectivity and independence of the audit work and complying with the professional standards issued by the Saudi Organization for Chartered and Professional Accountants (SOCPA).
Deep, current knowledge of the Local Content Preference Regulation, alongside the requirements of the Zakat, Tax and Customs Authority and the Saudi Organization for Chartered and Professional Accountants, and the International Standards on Auditing.
The Local Content and Government Procurement Authority alone issues the local content certificate. The role of the independent auditor, such as HHAB, is limited to auditing the local content ratio prepared by the entity's management and issuing the agreed-upon procedures report required as one of the requirements for obtaining the certificate.
It is the "agreed-upon procedures report", which contains the factual findings of the procedures performed on the local content ratio, without including an audit opinion or conclusion. The systems of the Local Content and Government Procurement Authority use the word "audit" to refer to this engagement, and HHAB follows the same usage in describing its service, for consistency with the Authority's terminology.
No. To preserve the independence of the audit work, and in accordance with professional standards, auditing the local content ratio of a given entity may not be combined with advising the same entity on calculating or improving the same ratio at the same time. HHAB therefore separates the independent audit track clearly from the advisory track, and advisory services are provided only to entities that do not engage HHAB to audit their local content.
The Regulation defines the "baseline" as the local content ratio of the bidder's entity at the time the bid is submitted. The Authority issues an official certificate documenting this ratio once its requirements are met, including the agreed-upon procedures report prepared by an independent auditor approved by the Authority, so that it serves as a reference for measuring progress in subsequent contracts and tenders.
It is a percentage indicating the amount of spending on Saudi elements (in the workforce, goods and services, assets, and technology) relative to total spending, whether at the level of the entity or of a specific contract. The entity's management calculates this ratio, while the independent auditor audits and verifies it.
The target ratio is a commitment made by the bidder to achieve by the end of the contract, while the minimum is a ratio that the procuring government entity requires as a precondition of contracting. The degree of compliance in reaching these two ratios is monitored through the approved phased plan across the stages of contract performance.
Under Article 10 of the Local Content Preference Regulation, national products are granted a price preference by assuming that the price of the competing foreign product is 10% higher, and this percentage may be increased with the approval of the Authority and the competent authority, under the formula set out in Article 11 of the Regulation.
Yes. The Regulation provides for a penalty not exceeding 10% of the contract value where the gap between the target ratio and the achieved ratio exceeds 5% (Article 31), and a similar penalty not exceeding 10% of the supply contract value for failing to comply with the share of national products under the mandatory list (Article 29), provided that the total penalties imposed do not exceed 20% of the contract value (Article 34).
Article 21 of the Regulation empowers the Authority to require the audit of the entity's annual periodic report. This is the core of HHAB's service as an independent auditor approved by the Authority, through performing the agreed-upon procedures and issuing the resulting report.
Yes, through the separate advisory track, and for entities that do not engage HHAB as an independent auditor of their local content in the same period, preserving the independence of the audit work. For audit clients, the service is limited to performing the agreed-upon procedures on the ratio prepared by their management, without providing improvement recommendations on the ratio under audit.
Note: The Regulation on Preference for Local Content and Small and Medium Enterprises and the instructions of the Local Content and Government Procurement Authority are subject to periodic update. The information above is provided for general guidance, and the provisions and percentages in force are reviewed specifically at the start of the engagement.