Penalty for a Certified Accountant Signing Financial Reports They Did Not Audit

Signing is Not a Formal Procedure: When Does Approving Financial Reports Become a Crime?

Some entities may view a certified accountant's signature on a financial report as a mere formality to fulfill government requirements, secure funding, or submit an official document. However, this signature carries significant professional and regulatory responsibility and must not be placed on a financial report that has not been audited by the certified accountant personally or by a team operating effectively under their supervision.

What Does the Accounting and Auditing Profession Law State?

Paragraph (Zain) of Article 10 of the Accounting and Auditing Profession Law considers the following an offense: "A certified accountant certifying by signature financial reports that have not been audited by them or by persons working under their supervision."

Any person proven guilty of committing this offense is punishable by imprisonment for a term not exceeding five years, a fine not exceeding two million Riyals, or both, without prejudice to any other penalty stipulated by any other law. The court may also order the publication of a summary of the final judgment at the expense of the convicted person, depending on the nature, gravity, and impact of the offense. The full text can be viewed in the Accounting and Auditing Profession Law published in the Umm Al-Qura newspaper.

Why is a Quick Review of the Report Insufficient?

A certified accountant's signature does not merely indicate that they looked at the figures; rather, it signifies that they performed the required professional work, or that a team working under their supervision executed it in accordance with relevant professional standards.

Therefore, it is generally insufficient to:

• Directly receive and sign a ready-made financial report.
• Review numbers quickly without executing documented professional procedures.
• Rely on work prepared by an external party not working under the supervision of the certified accountant.
• Affix a stamp and signature solely to meet the requirements of a bank or government entity.
• Sign a report prepared by an employee without actual and appropriate professional supervision.
• Issue the report without retaining working papers that substantiate the executed procedures.

Thus, significance lies not in the mere presence of the certified accountant's name on the report, but in the existence of genuine professional work that can be proven through working papers, documents, and executed procedures.

What is Meant by Persons Working Under the Supervision of the Certified Accountant?

The audit team may execute a large portion of the examination procedures, and the certified accountant is not required to perform all procedures personally. However, the team must operate under actual professional supervision that includes, depending on the nature of the engagement:

1. Determining the scope of work and required procedures.
2. Distributing tasks to individuals possessing appropriate competence.
3. Monitoring the execution of procedures and addressing observations.
4. Reviewing working papers and supporting evidence.
5. Evaluating results and professional conclusions.
6. Approving the report after verifying the sufficiency of the executed work.

Furthermore, Article 7 of the Law obligates the certified accountant to sign and certify reports issued by them, and stipulates that in a professional company, the signature and certification shall be by the partner who participated in preparing the report or supervised its preparation.

Does Merely Sending Financial Statements to the Accountant Authorize Approval?

No. Receiving financial statements, trial balances, or a report prepared by management does not in itself constitute a review or audit. The nature of the required service must first be determined, which may be:

• A review of financial statements.
• A limited review.
• Agreed-upon procedures.
• A special assurance report engagement.
• An accounting or consulting service that does not result in expressing an audit opinion.

Each service has a different scope, standards, procedures, and report format. Therefore, using the phrase "certifying financial statements" without specifying the type of engagement may lead to incorrect expectations by the entity or the beneficiary.

Working Papers are the Evidence of Task Execution

The Law obligates the certified accountant to retain work documents, copies of reports, and financial statements for a period of no less than ten years from the date of issuing the report for each audited fiscal year.

Working papers typically demonstrate:

• How the engagement was accepted and its scope defined.
• Understanding of the entity's business and its control environment.
• Assessment of risks and materiality.
• Procedures and tests executed.
• Documents and evidence obtained.
• Observations that arose and how they were addressed.
• Levels of preparation, review, and supervision.
• The professional basis upon which the final report was built.

The absence of adequate documentation can make proving the execution and supervision of work extremely difficult, even if those tasked with the assignment assert that they performed the required procedures.

What Risks Does the Entity Face?

Requesting a certified accountant's signature on an unaudited report does not expose the certified accountant alone to risks; it may also result in negative consequences for the entity, including:

• Rejection of the report by the beneficiary entity.
• Delay in the related transaction or financing.
• Loss of trust in the submitted financial information.
• Re-examination of related reports and documents.
• Emergence of compensation claims upon the occurrence of harm.
• Potential application of provisions from other laws depending on the facts and participating parties.

This does not mean that every employee who participated in preparing the report is automatically considered to have committed the same offense; determining the criminal liability of each party depends on their status, role, the facts of the case, and the extent of their contribution, which is decided by the competent authorities.

How Does the Entity Ensure Procedural Integrity?

Before contracting for any financial report, it is advised to verify the following:

• That the certified accountant is licensed to practice the profession.
• The existence of an engagement letter defining the nature and scope of the service.
• Knowledge of the documents and clarifications required from the entity.
• Provision of sufficient time to execute examination procedures.
• Enabling the work team to access necessary records and evidence.
• Refraining from requesting report issuance before professional procedures are completed.
• Ensuring that the title and format of the report align with the required purpose.

Are Low Pricing and Rapid Issuance Positive Indicators?

Not always. The promise of issuing a certified report immediately, without requesting sufficient documents, or for fees disproportionate to the volume of work, are indicators that require verification before contracting.

A reliable professional report is not based on signature and stamp alone, but on appropriate procedures, sufficient evidence, and documented supervision. The cost of correcting a flawed report can be much higher than the cost of executing it correctly from the start.

Conclusion

A certified accountant's signature on a financial report represents the assumption of professional and regulatory responsibility, rather than merely fulfilling formal requirements. Therefore, the Accounting and Auditing Profession Law criminalizes a certified accountant certifying financial reports that were not audited by them personally or by persons working under their supervision.

Protecting the entity, the certified accountant, and beneficiary parties begins with clearly defining the scope of the engagement, executing appropriate professional procedures, and documenting the work and supervision prior to issuing the report.

This article is for general awareness and does not constitute legal advice regarding a specific incident. The determination of liability and penalty is subject to the discretion of investigative authorities and the competent court according to the facts of each case.