Accounting professionalization and the state: The case of Saudi Arabia

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Critical Perspectives on Accounting xxx (2016) xxx–xxx

Contents lists available at ScienceDirect

Critical Perspectives on Accounting journal homepage: www.elsevier.com/locate/cpa

Accounting professionalization and the state: The case of Saudi Arabia Dessalegn Getie Mihreta,* , Mohammed Naif Alshareefb , Ayman Bazhairc a

Deakin University, Melbourne, Australia Umm Al-Qura University, Makkah City, Saudi Arabia c Alfaisal University, Jeddah City, Saudi Arabia b

A R T I C L E I N F O

Article history: Received 19 September 2014 Received in revised form 1 March 2017 Accepted 1 March 2017 Available online xxx Keywords: Accounting professionalization Actor-network theory Hybridity State corporatism

A B S T R A C T

This study examines the professional project of the Saudi Organization of Certified Public Accountants (SOCPA). It seeks to explain how SOCPA secured legislated authority to control standard setting and entry to professional practice before the organization developed technical and financial capacity as a professional body. The state corporatist system of Saudi Arabia provided fertile ground for SOCPA’s promoters to invoke the need for an accounting body to advance Saudi Arabia’s socio-cultural values. The promoters advocated the role of such a body in setting suitable accounting standards for the Sharia law context of Saudi Arabia, and developing an indigenous system of professional accountancy training. The project made a detour from its initial plan for an autonomous professional association, and instead organized SOCPA as a hybrid entity that blends some characteristics of a state agency and a professional body. Further, the project exhibited hybridity in accommodating incumbent practitioners into SOCPA membership, and in setting accounting standards using a mix of American accounting standards and Saudi Arabia’s Sharia law. Through these strategies, SOCPA succeeded in securing the authority to restrict the entry of foreign nationals and candidates affiliated with overseas accountancy bodies into the Saudi market. © 2017 Elsevier Ltd. All rights reserved.

1. Introduction Although accounting professionalization has received considerable research attention in a range of research streams over the past four decades (Napier, 2006), there is a continuing need to examine the social role of accounting and the ensuing link to professionalization (Walker, 2016). The literature on professionalization has widely adopted the neo-Weberian approach, analyzing occupational group competition aimed at exclusionary closure (Abbott, 2014; Larson, 1977; Waring, 2014; Willmott, 1986). This approach explains how occupational groups operationalize closure by institutionalizing exclusion

Abbreviations: AICPA, American Institute of Certified Public Accountants; ANT, Actor-network theory; CPA, Certified Public Accountant; GAAP, Generally Accepted Accounting Principles; ICAEW, Institute of Chartered Accountants in England and Wales; KFU, King Fahad University; KSA, Kingdom of Saudi Arabia; KSU, King Saud University; SAA, Saudi Accounting Association; SAR, Saudi Arabian Riyal; SOCPA, Saudi Organization of Certified Public Accountants; US, United States; UK, United Kingdom. * Corresponding author at: Deakin University Department of Accounting 221 Burwood Highway, VIC 3125, Australia. E-mail addresses: [email protected], [email protected] (D.G. Mihret), [email protected] (M.N. Alshareef), [email protected] (A. Bazhair). http://dx.doi.org/10.1016/j.cpa.2017.03.001 1045-2354/© 2017 Elsevier Ltd. All rights reserved.

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criteria based on credentials (Coronella, Sargiacomo, & Walker, 2015; Abbott, 2014; Larson, 1977; Willmott, 1986) and sometimes other subtle criteria, such as race and citizenship (Annisette, 2003; Hammond, Clayton, & Arnold, 2009; Sian, 2011). Convincing the state to provide legislative support is crucial in occupational groups’ efforts to operationalize closure (Macdonald, 1995). From the neo-Weberian perspective, the state is often viewed as a neutral adjudicator of occupational group competition. This emphasis on the neutrality of the state has generated interest in alternative frameworks that could capture ways in which the state shapes professionalization more directly. In this regard, prior studies have highlighted the need for a dynamic analytical framework (Burrage, Jarausch, & Siegrist, 1990; Chua & Poullaos, 1993) to enable understanding of accounting professionalization in a broader social and historical context. Nevertheless, the literature on the accounting–state dynamic has remained sparse (Ezzamel & Xiao, 2015), and further studies are needed to understand accounting professionalization, particularly in relation to the advancement of broad societal goals (Walker, 2016). Some studies have drawn upon the concept of state corporatism to investigate the direct role of the state in shaping accounting, including aspects of accounting professionalization (Cooper & Robson, 2006; Panitch, 1980; Puxty, Willmott, Cooper, & Lowe, 1987; Richardson, 1989). In this approach, professional associations are conceptualized as corporate bodies involved in national policy-making in societies characterized by a concentration of power in the state (Hertog, 2004, 2006a; Puxty et al., 1987; Schmitter, 1974). Corporatist bodies are assumed to operate under state control, serving as an intermediary between their members and the state. Such bodies monitor and regulate their members, thus serving as a mechanism of hierarchical societal control, which is broadly consistent with the notion of social controls (Walker, 2016) that solidify social structures (Brigham & Hayes, 2013). Nevertheless, the corporatist view presumes structural determination (Puxty et al., 1987), and therefore neglects the dynamic interaction of multiple actors in the professionalization process. Actor-based approaches—which are increasingly being adopted in the study of the profession–state dynamic (Burrage et al., 1990; Macdonald, 1995)—can supplement state corporatism to enable an understanding of professionalization in its social and historical context. Concepts of actor-network theory (ANT) that have been employed to investigate some aspects of accounting professionalization (e.g., Gendron & Barrett, 2004) and regulation (Ezzamel & Xiao, 2015; Gendron & Barrett, 2004) hold promise in this respect. Using an analytical framework that combines state corporatism and ANT, this study examines the professional project of the Saudi Organization of Certified Public Accountants (SOCPA) (1979–1992) to explain how an occupational group can secure legislated authority to control standard setting and entry to professional practice before developing the technical and financial capacity as a professional body. The study demonstrates how hybridization enabled the reconciliation of contradicting goals of actors (see Couldry, 2008; Miller, Kurunmäki, & O’Leary, 2008) in the process of translation, which transformed the SOCPA proposal into a reality in the state corporatist setting of Saudi Arabia. First, SOCPA emerged as a hybrid body blending some characteristics of a state organ and a professional body. The organization is subsumed within the state structures while it controls entry to the professional accountancy market. This successful alliance between SOCPA and the state is traced to SOCPA’s promoters’ articulation of a mission in line with the national policy priorities of the 1970s to 1990s, which focused on safeguarding Islamic values and indigenizing the Saudi labor force. Despite detracting from the professional project’s initial ambition to establish an autonomous body, hybridization with the state enabled the diffusion of the underlying tension between the project’s underpinning closure goals and the Saudi state’s governance model, which attempts to restrict groups’ self-serving behaviors. Saudi Arabia’s political culture is interpreted as a state corporatist system (Hertog, 2006b) guided by Islamic principles.1 The Saudi governance system advocates the role of the state in maintaining a harmonious society in which conflict and advancement of parochial interests are minimized. Second, SOCPA employed hybridization in the development of accounting standards as a mix of United States (US) standards and the Zakat concept of Sharia law.2 This strategy was crucial because although the project promoters advocated the need for a vanguard professional body to set accounting standards suitable for the practice of Zakat, the project lacked the capacity to accomplish this task. Third, SOCPA accommodated incumbent practitioners into membership. This approach helped address the challenge arising from SOCPA’s promoters’ emphasis on the need to redress expatriate labor dominance and the potential lack of qualified professionals to service the market if expatriate accounting practitioners were excluded from the Kingdom of Saudi Arabia’s (KSA) market. Hybridization with incumbent expatriate practitioners implies that the project’s exclusionary move was only a future-oriented strategy, consistent with the state’s policy priority of Saudization of the labor force (Madhi & Barrientos, 2003; Rice, 2004; Wynbrandt, 2010), aimed at restricting expatriate entrants into the Saudi accountancy market. This study contributes to understanding of accounting professionalization processes and outcomes by demonstrating how hybridity enabled SOCPA to gain legislative authority before the organization developed the capacity as a professional body. Akin to environments in which race has been employed as an exclusion criterion (Annisette, 2003; Hammond et al., 2009; Sian, 2011), the SOCPA project introduced citizenship as a primary means of exclusion. This outcome contrasts with experiences in which occupational groups engaged in activities such as establishing certification mechanisms for potential

1 The predominant adoption of Islamic values in the Saudi system of government puts Saudi Arabia on the theocratic end of the theocratic–secular continuum of state models, which Al-Atawneh (2009, p. 721) labelled a ‘theo-monarchy.’ 2 Zakat is a religious tax imposed on KSA nationals and citizens of other Arab countries. Paying Zakat is one of the key pillars of Islam. Saudi citizens are subject to Zakat, and companies operating in the KSA are also required to pay Zakat proportionate to their Saudi ownership ([120_TD$IF]Al-Moghaiwli, 1999). For a detailed explanation of Zakat computations, see Awang and Mokhtar (2011).

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entrants to the profession, and developing membership bases before aspiring for market control (see Carnegie & Edwards, 2001). As professionalization issues have continued to evolve along with globalization (Carter, Spence, & Muzio, 2015), which has inter alia induced the movement of professionals around the world (Annisette & Trivedi, 2013), understanding professional issues associated with citizenship is of interest. The study also responds to Walker’s (2016) call to examine accounting professionalization in the context of advancing societal goals. That is, the study shows that the SOCPA project succeeded because its goals were defined in close conformity with the national policy of safeguarding Islamic values and indigenization of professional training, which broadly fall within the concept of social control. The remainder of this paper is structured as follows. Section 2 develops the study’s conceptual framework. Section 3 outlines the research methods. Section 4 analyzes SOCPA’s historical account, followed by a discussion in Section 5 and conclusion in Section 6. 2. Analytical framework 2.1. State corporatism Our analytical framework combines state corporatism and ANT. Previous studies have employed the state corporatist framework to analyze relationships between interest groups and the state, including the accounting–state dynamic (Cooper & Robson, 2006; Panitch, 1980; Puxty et al., 1987; Richardson, 1989; Yee, 2012). State corporatism explains how associations, representing their members’ interests, participate in policy-making and/or implementation (Martin, 1983). Schmitter (1974) broadly defines corporatism as: a system of interest representation in which the constituent units are organized into a limited number of singular, compulsory, noncompetitive, hierarchically ordered and functionally differentiated categories, recognized or licensed (if not created) by the state and granted a deliberate representational monopoly within their respective categories in exchange for observing certain controls on their selection of leaders and articulation of demands and supports. (pp. 93–94) This generic definition is employed in the present study to understand a state corporatist political culture in which society is hierarchically ordered and power is concentrated in the state (Krasner, 1984). In such a state-centered society, the interests of various segments of society are represented via incorporated associations, unlike in liberal (pluralist) societies, where governance principles focus on the individual (Jang, 2009). Whereas interest representations proliferate spontaneously and engage in horizontal competition in a pluralist society, a limited number of vertically differentiated associations exhibit complementary interdependence in state corporatist societies. Unlike pluralist societies in which market mechanisms serve a central role in coordinating the interests of segments of a society, the state is key to maintaining social order in state corporatist systems. In corporatist societies, corporate bodies—such as professional associations (see Streeck & Schmitter, 1985)—serve as a link between their constituencies and the “decisional structures of the state” (Schmitter, 1974, p. 86), and the state shares some decisional authority with these bodies (Schmitter, 1974, p. 97). State corporatism involves top-down control of a society whereby corporate bodies are organized under the state, and in turn, these bodies control their members. State corporatist societies exhibit an “institutional arrangement [that links] the associationally organized interests of civil society” with state structures (Schmitter, 1974, p. 86), unlike pluralist societies, in which interest groups are conceived as freely competing and the state is portrayed as a neutral adjudicator (see Willmott, 1986). State licensing and control mechanisms enable the representative associations to secure a representational monopoly. Member conformity to the body’s unifying values is presumed in this context because members want to reduce the risk of being excluded from membership and benefits accruing from active membership (Streeck & Schmitter, 1985). In state corporatist systems, professional bodies’ monopoly privileges are achieved through the state’s active role in developing those bodies (Hertog, 2006a). Corporatist political practice is more of a generic concept than one confined to a particular ideology (Schmitter, 1974; Unger & Chan, 1995). Corporatism has indeed been observed in various forms at different times in North America, Europe, and Latin America (Cawson, 1978; Panitch, 1980; Schmitter, 1974; Walker & Shackleton, 1995). Likewise, Islamic societies generally tend to exhibit corporatist political cultures (Ayubi, 1992; Kinnvall, 2004), and Saudi Arabia’s political culture in particular is characterized as state corporatist (Hertog, 2006b; Jang, 2009). Associative culture and interest-group activism were uncommon (Cawson, 1978) in Saudi Arabia until the oil revenue boom induced both forms of activism and the rise of the state as a patron of macroeconomic management (Hertog, 2006a). Hertog (2004) explains that Saudi Arabia has a hierarchically ordered society in which the clergy, the business community, and the working class are represented by corporate bodies. The Majlis Al-Shura, a consultative council of experts, advises the Council of Ministers on policy matters. The king approves assignment of the Shura’s members, who serve fouryear terms (Library of Congress, 2006). The Shura was formally established in 1924 (Al-Shura, 2016) and its members are drawn from various segments of a society allegedly based on merit. Various age groups, the business community, geographical regions, and more than nineteen occupational categories are represented in the Shura, including a council of religious scholars, Majlis Kibar Al-Ulama (Dekmejian, 1998).3 The Majlis Kibar Al-Ulama provides input to ensure that the KSA is governed according to the Islamic principles enshrined in the Quran (Al-Sehali & Spear, 2004). The state’s paternal

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The Shura had eight members when it was established, but has had 90 members since its last re-organization in 1997 (Dekmejian, 1998, p. 209).

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influence on the Shura (Al-Sehali & Spear, 2004; Hertog, 2006b) and its aim “to achieve a degree of balanced representation from key segments of Saudi society” (Dekmejian, 1998, p. 208) illustrate the role of the Majlis as a corporate body. A corporatist state influences professional associations (Jang, 2009) in numerous ways, including in the election of association leaders (Hertog, 2006b), so that the association operates as an agent of the state (Ayubi, 1992). In turn, the state helps associations secure representational monopolies, and in some cases provides financing. Hertog (2006b, pp. 242–243) interprets the link between Saudi Arabia and its professional associations of journalists and lawyers in this manner. The association of journalists operates under the Ministry of Culture and Information (Hertog, 2006b); the lawyers’ association operates under the Ministry of Justice; and SOCPA operates under the Ministry of Commerce. Despite highlighting these important issues in the accounting–state link, the state corporatist framework has limitations with respect to explaining the dynamic interactions of occupational groups and the state, which transform the interrelations between these two segments of society. The corporatist perspective neglects the socio-historical processes that transform the relationships between the state and the groups being studied, which in turn suggests that state corporatist analysis neglects the role of actors other than the state in transforming phenomena. Further, this framework ignores cleavages within interest groups engaged in the process of establishing corporate bodies, because it assumes the presence of singular, noncompetitive bodies that represent particular groups (see Puxty et al., 1987). To address these limitations, it is necessary to adopt an approach that traces the historical and social processes that transform the accounting–state link. 2.2. Actor-Network theory The conceptualization of professionalization as a construction of actor-networks (e.g., Gendron & Barrett, 2004) suggests that the use of ANT in combination with state corporatism can enrich our understanding of state-led professionalization. This is because key concepts of ANT—such as actor, actor-network, translation, inscription, and hybridity—can provide conceptual tools to analyze the interactional aspects of professionalization that cannot be adequately explained from a state corporatist perspective alone. ANT enables an explanation of how new ideas are adopted through complex social processes in which actors forge alliances with other actors, to advance goals (Cooper, Ezzamel, & Qu, 2012) by, for instance, forming hybrids of ideas, goals, and strategies (Couldry, 2008; Saks, 2016). An actor is defined as “something that acts or to which activity is granted by others . . . [It] can literally be anything provided it is granted to be the source of an action” (Latour, 1996, p. 373). Actors involved in accounting professionalization include aspiring or practicing professionals, academics, the state, and the professionals’ clients (Burrage et al., 1990). Actors advance their goals through alliances; that is, by building networks of support to advance shared interests. These connections (i.e., actor-networks) enable actors to secure either resources or the support of other actors for the agenda being advanced (Callon, 1986; Latour, 2005). Unlike state corporatism, which implies a one-way flow of ideas (see Puxty et al., 1987), ANT is premised on the notion that actors transform the ideas in a process of translation (Latour & Porter, 1996; Latour, 1984). Callon (1986) conceptualizes translation as “the mechanism by which the social and natural worlds progressively take form . . . [in a process, which produces power relationships whereby] certain entities control others” (p. 19). This concept bears particular relevance to professionalization, because professionalization not only produces exclusionary power to some occupational groups but also defines the regulatory relationships between the profession and the state. More broadly, translation involves “modification, deflections, betrayals, additions and appropriations that displace subjects and objects into someone or something otherwise.” Latour (1987, p 267) The translation process transforms ideas or claims (Gendron, Cooper, & Townley, 2007) and can produce alignment of actors’ interests, thereby facilitating alliance formation ([12_TD$IF]Law, 1992). In the translation process, actors interact with other actors through various strategies, to promote their respective goals (Latour & Porter, 1996). One strategy that yields outcomes that attend to multiple actors’ goals is hybridization, which produces hybrids in the translation process (Couldry, 2008; Saks, 2016). Hybrids are formed through a mix of inputs drawn from multiple actors (Hazgui & Gendron, 2015; Currie, Tuck, & Morrell, 2015; Dolwick, 2009; Miller et al., 2008). Miller and O’Leary (1994) illustrate that “new realities are created out of the dreams and schemes of diverse agents and experts” (p. 470). Actors conceived as experts include “knowledge elites,” who develop intellectual bases of good practice through independent research or consulting (Waring, 2014, p. 690). The role of universities in strengthening professional associations (Annisette & Kirkham, 2007) can be interpreted from this perspective. Inscriptions—such as scripts including written reports, professional standards of conduct, and legislation—are produced as outcomes of the translation process, and they formalize actors’ roles. Such texts and artifacts not only represent reality, but also serve a constitutive role in enabling future actions (Nimmo, 2011) by facilitating subsequent translation tasks (Ezzamel & Xiao, 2015; Qu & Cooper, 2011; Robson, 1992). Typically, focal actors produce inscriptions aligned with their interests, to make themselves indispensable in the actornetworks (Brigham & Hayes, 2013, p. 115). To guide ANT-based analysis, Callon (1986) outlines four moments of translation—problematization, interessement, enrollment, and mobilization —that occur during the construction of actor-networks. The moments often overlap in practice. In the moment of problematization, focal actors (i.e., promoters of the idea for the change) define a problem, translate it into a proposed solution, and canvas the focal actors’ role as an indispensable part of the solution (Bloomfield & Best, 1992). Because actors have various responses to other actors’ proposals, actor-network building necessitates forming alliances among actors. The alliances could necessitate making compromises that could engender redefining the problematization and/or modifying the proposed solution (Grint & Woolgar, 1997), such as through hybridization. This makes detours often prevalent in the translation process. The moment of interessement is closely connected to problematization, and it relates to

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focal actors’ attempts to entice other actors (Brigham & Hayes, 2013, p. 115) and lock them into the proposed change (Callon, 1986). Some actors agree to the interessement by quietly watching the process, while others interact with focal actors (Callon, 1986). The moment of enrollment occurs when actors’ roles in the network are established, and when actors enlisted in the interessement join the alliance (Callon, 1986). Strategies such as persuasion, negotiations, and/or coercion (Singleton & Michael, 1993) can be pursued to secure enrollment of actors, although enrollment of any particular actor is not guaranteed (Gendron & Baker, 2005). The final moment involves mobilization of allies, in which a greater number of actors accept the new idea, and the newly established network affirms its efficacy and gains stability (Callon, 1986; Grint & Woolgar, 1997). A greater number of actor groups are mobilized when representatives of the groups join the network, whether or not the representatives are formally assigned as such (Callon, 1986). Overall, a combined theoretical framework of ANT and state corporatism can illuminate professionalization issues, such as: how do professional groups advance closure goals in a state-centered society? How could an occupational group secure privileges of a professional body before it fully develops the relevant capacity? This study draws on concepts from the two theories to address these research questions with reference to the SOCPA project. 3. Research methods The historical research method is employed in this study, tracing the development of the Saudi professional project (1979–1992) that established SOCPA as an authoritative accounting professional body. This study period was chosen because focal actors commenced articulating the problematization in 1979, and 1992 marked the formation of SOCPA. We analyzed interview and documentary evidence using conceptual tools drawn from state corporatism and ANT. Semi-structured interviews were conducted to obtain oral history evidence from people who promoted the SOCPA project, accounting academics who participated in the project, accountants in public practice who were directly affected by the project, and government officials who had direct links to the project (and subsequently, SOCPA). The participants’ profiles are summarized in Table 1. The relative recency of the events covered in the study permits the use of the oral history method (Sian, 2006), and therefore incorporation into the analysis of “first-hand recollection of participants” (Parker, 1997, p. 141) involved in the historical phenomenon under investigation (Carnegie & Napier, 1996; Parker, 1994, 1997). This approach also enables the capturing of information about, and interpretation of, historical phenomena that do not lend themselves to documentation in secondary sources (Caramanis, 2002). The interviews were conducted over two years in two phases: February–August 2012 and January–June 2014. One of the authors conducted all of the interviews. Interview times were scheduled based on the participants’ preferences. To clarify the responses of some of the participants interviewed during the first phase, follow-up telephone interviews were conducted in 2013. Participant 10 was interviewed in both phases because the extent of the follow-up questions was judged by the researchers to warrant a second full-length interview. Further, we used publicly available sources to obtain transcripts of interviews given by government officials and SOCPA leaders about the role and/or history of SOCPA. The views of Table 1 Interview participants’ profiles. Participant (or interviewee) reference

Background

Mode of data collection

Interview Phase

Participant 1 Participant 2

Face-to-face interview Face-to-face interview

I I

Face-to-face Face-to-face Face-to-face Face-to-face

I I I I

Participant 10

Practitioner over 14 years and a retired accounting academic An accounting academic and a member of SOCPA; served in several committees of the association A partner at KPMG; served as a member of the Board of Directors of SOCPA An accounting academic; served as a member of SOCPA’s quality review committee A partner in a Saudi auditing firm; served in SOCPA’s examination committee A partner in a Saudi accounting firm; has been in accounting practice since the 1960s in auditing firms including Deloitte A director in an audit firm who was also an accounting academic. Practitioner; one of the promoters of SOCPA project Government (and SOCPA) official. He was a practitioner who was also in public practice before SOCPA and became a SOCPA member Accounting academic

Interviewee Interviewee Interviewee Interviewee

Government official, Director general of Department of Zakat and Income Tax Government official, undersecretary of the Ministry of Trade and Industry Accounting Academic and SAA president Accounting Academic

Participant Participant Participant Participant

3 4 5 6

Participant 7 Participant 8 Participant 9

1 2 3 4

interview interview interview interview

Phone interview Phone interview Phone interview

II II II

Face-to-Face in Phase 1 and I and II phone in phase 2 Secondary sourcea N/A Secondary sourceb N/A Secondary sourcec N/A d Secondary source N/A

Sources: a SOCPA Magazine, No 61, 5, Oct 2009. b SOCPA Magazine, No 64, 4, Oct 2010. c Saudi Organization for Certified Public Accountants (2012), “The gap between education and professional institutions”, The Accountants Magazine, Vol. 71, No. 18 p. 8. d Saudi Accounting Association (2012), “Saudization of the accounting profession in the Kingdom is urgent national issue”, Journal of Accounting, Vol. 55, No. 17, pp. 7–8.

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Interviewees 1–4 were obtained using this approach, which enabled us to obtain a balanced perspective from the actors involved in the project, thereby enhancing data trustworthiness. More specifically, this approach helped us incorporate the views of pertinent government officials during the period under investigation, who are difficult to find for face-to-face interviews due to turnover of the officials since 1979. Relevant documentary sources were reviewed to support the interview evidence. Documents reviewed include reports produced as a direct result of the professionalization project (summarized in Table 2), legislation, government reports, and professional and academic publications pertinent to the SOCPA project. Some of the published materials were authored by people involved in the SOCPA project. To enrich interpretation of the professionalization process from the state corporatist perspective, we analyzed government reports and relevant published sources on the KSA’s national policies pertinent to the period of the professional project. To facilitate data analysis, the interviews were transcribed from audio recordings in the Arabic language (in which all of the interviews were conducted). For participants who did not grant permission to record, hand-written interview notes were included in the transcripts. The researcher who conducted the interviews conducted the transcribing, and another researcher translated the transcripts into English. Then, the researcher who conducted the interviews (who is bilingual) checked the accuracy of the translation to ensure data quality. The two researchers also translated relevant sections of the Arabic interview transcripts obtained from secondary sources, and of documentary sources. The qualitative data analysis approaches of Miles, Huberman, and Saldaña (2013) and Braun and Clarke (2006) were used as a general guide for the data analysis. To gain familiarity with the entire content of the interview responses, the researcher who was not involved in the data collection, read through the transcripts. Then, he started the data analysis using the four moments of the translation model as initial codes, thereby applying the theory-driven coding approach (Braun & Clarke, 2006). Later, overlaps were observed among some of the codes, and thus the codes were combined into: problematization and interessement, and enrollment and mobilization. The relevant quotes, identified with respondents’ references, were collated within the codes, and further interpreted to develop themes within the codes. The themes were then further interpreted to develop overarching themes that underpin the current paper’s story. Documentary sources were employed to enrich data analysis and strengthen the interpretations of interview evidence. The other two researchers conducted critical reviews of the coding as well as development of the themes and overall conclusions of the study. 4. SOCPA’s professionalization project (1979–1992) 4.1. Political-economic antecedents of the SOCPA project Saudi Arabia established a modern state system in 1902 (Cappelen & Choudhury, 2000; Library of Congress, 2006) and formed its current governance system of Islamic monarchy in 1932 (Al-Twaijry, Brierley, & Gwilliam, 2003; Library of Congress, 2006). This system operates according to Islamic principles of governance (Al-Rehaily, 1992) under Sharia law, using the Quran as its constitution (Al-Eissa, 2009). These principles require the state to maintain social order and ensure equitable treatment of the Kingdom’s subjects. Despite the observance of religious doctrine and values in its governance (Nevo, 1998), the Saudi state is not a fully theocratic government because the ruling monarchy and religious institutions are distinct, although they are interdependent (Al-Atawneh, 2009). The Council of Ministers, whose membership is drawn from the royal family, drafts legislation and the king makes a final decision to pass legislation. The roles of the two Majlis bodies are consistent with both the Islamic principle of consultative governance (Al-Rehaily, 1992) and state corporatism, because these bodies’ constituencies are linked with the state’s decisional unit, thereby participating in policy-making by representing their constituencies (Hertog, 2006b). The center of Saudi society is the state, which exhibits a profound interest in preserving both local traditions and the values of the KSA. In addition to these major corporate bodies that have direct access to the

Table 2 Major documents reviewed. Year

Nature of document

Language Total pages in the document

URL

1981

Report to the Minister of Commerce

Arabic

335

1984

Saudi Accounting Standards

Arabic

346

1984

Saudi Auditing Standards

English

269

1984

Proposed internal organization for a Saudi accounting Arabic body Audit manual (developed by Al-Rashed Consultants & Arabic Accountants) Accounting standards published by the Ministry of Arabic Commerce

151

http://www.al-rashed.com.sa/lib/docs/ 0400_G08010488.pdf http://www.al-rashed.com.sa/lib/docs/0601-1. pdf http://www.al-rashed.com.sa/lib/docs/06023_G08110363.pdf http://www.al-rashed.com.sa/lib/docs/0603.pdf

731

http://www.al-rashed.com.sa/lib/docs/0902.pdf

281

http://www.al-rashed.com.sa/lib/docs/06012_G08110403.pdf

1985 1986

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highest structures of government, other bodies—such as professional associations—operate under the auspices of relevant government ministries (Hertog, 2006b). The growth in the KSA’s oil-based economy and the associated national policy priorities served as a precursor to the SOCPA professionalization project. This project was initiated in the late 1970s and concluded in 1992, with the establishment of SOCPA. Table 3 summarizes the KSA’s economic growth trend, major policies introduced, and key milestones in SOCPA’s professionalization process. Before the discovery of oil, Saudi Arabia’s economy was characterized by a predominance of small businesses and traditional household agriculture. Consequently, there was little demand for double-entry accounting until the commercial production and export of petroleum (Abdeen & Yavas, 1985) was launched in 1938 by Aramco, a consortium of four American companies. Saudi Arabia bolstered its oil-production capacity in the 1970s and 1980s. Between 1970 and 1974 alone the KSA’s oil production more than doubled (Cappelen & Choudhury, 2000), enabling the Saudi economy to benefit from the world oil price rise of the 1970s. The state’s involvement in the oil sector also increased in the 1970s. In the early 1970s, the Saudi government began to acquire shares in Aramco, progressively increasing its ownership until it achieved whole ownership of the company in 1980. Subsequently, in 1988, the company was renamed Saudi Aramco by royal decree (Cappelen & Choudhury, 2000; Library of Congress, 2006). The growth in the national economy during these two decades contributed to the KSA’s ability to attract foreign investment and the resulting increase in the number of corporations operating in the country. Further, both foreign and domestic private investments in Saudi Arabian businesses increased considerably during the 1970s and 1980s (Abdeen & Yavas, 1985; Shinawi & Crum, 1971). Royal Decree No. M/4 1979 was issued to govern foreign capital inflows, suggesting the significance of foreign direct investment in the public policy arena. This development fostered the demand for accountants Table 3 Economic growth trend, key national policy decisions and milestones in SOCPA’s project. Year

KSA’s GDP* (‘000, 000s) *

Oil revenue as percentage of GDP (%)*

Key Milestones in KSA policy

1968

$4,187.7

1969 1970 1971 1972 1973 1974

$4,485.7 $5,014.4 $6797 $9,230.6 $14,441.8 $44,990.9

31.24 41.14 40.96 51.62

1975 1976 1977 1978 1979

$46,528.8 $63,838.2 $74,028.8 $80,087.6 $111,720

74.14 56.56 55.94 55.67 47.62

Saudization policy launched

1980

$164,308

78.97

Nationalisation of Aramco

1981 1982 1983 1984

$183,939 $152,907 $128,860 $119,293

66.29 47.60 39.77 37.94

1985

$103,898

29.59

1986

$86,961.9

24.88

1987 1988 1989

$85,695.8 $88,256 $95,344.4

29.34 26.71 30.56

1990

$116,778

41.84

1991 1992 1993 1994

$131,336 $136,304 $132,151 $134,327

39.09 37.73

Key Milestones associated with development of accounting regulation in the KSA Ministry of Commerce issued criteria for who could be an auditor Business curriculum established in KSU

Certified Accountants Law issued Business curriculum introduced at KFU

Saudi Arabian Monetary Agency established

Al-Rashed Consultants & Accountants established Professional project idea initiated Royal decree issued on foreign capital inflows Report to minister of commerce on professional project initiative Al-Rashed reported to the Minister of Commerce SAA established and KSU accounting seminars started

SOCPA project produced Saudi Accounting framework; standards SOCPA project issued Saudi Auditing Standards Al-Rashed Consultants & Accountants published audit manual Accounting standards published by the Ministry of Commerce

Entry of foreign companies encouraged Saudi Stock exchange established Certified Accountants Law issued SOCPA established Accounting and Auditing standards published bearing SOCPA’s name SOCPA issued ethical code of conduct

KSU = King Saud University. KFU = King Fahad University.Source: http://www.indexmundi.com/facts/saudi-arabia/gdp (Retrieved 03/04/2015)

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and provided part of the impetus for initiating the accounting professionalization project. Because of the investment boom during the 1970s and 1980s, the number of corporations in the KSA increased from 959 in 1973 to 5638 in 1983, and the total capital invested rose from Saudi Arabian Riyals (SAR) 1.34 billion to SAR59 billion between 1973 and 1983 (Abdeen & Yavas, 1985, p. 157). Starting in 1984, companies’ stocks were traded in departments of commercial banks dedicated to this activity, under the regulation of the Saudi Arabian Monetary Agency (Naser & Nuseibeh, 2003, p. 45).4 By the end of 1987, the stocks of 40 Saudi Arabian companies were traded in these markets, with SAR38 billion invested in the companies’ shares (Abdelsalam, 1990, p. 28).5 In 1990 the Saudi Stock Exchange was established; it later became the largest in the Arab world (Al-Jarf, 2004; Library of Congress, 2006). Ministry of Commerce regulations of the 1970s and 1980s (Abdelsalam, 1990)—and later Corporate Governance Ministerial Resolve 903 (1994)—focused on protecting investors’ interests, which presumes good financial reporting (Al-Twaijry et al., 2002). In turn, this imperative served to consolidate the justification for the need to establish a well-regulated accounting profession. The KSA devised and implemented six successive economic development plans from the 1970s to the late 1990s (Cappelen & Choudhury, 2000; Kayed & Hassan, 2011), which paved the way for the alliance of the SOCPA project with the state. The first and second national development plans largely focused on infrastructure building, whereas from 1985 to the 1990s, the country focused on education and training. Fostering the role of the private sector in the economy, enhancing public-sector efficiency, and Saudizing the KSA’s human resources were key economic policy priorities from 1980 to 1995 (Ministry of Planning, 1980, 1985, 1990). Safeguarding Islamic values, strengthening government administrative systems, and developing the KSA’s human resources ran through all development plans of the period (Ministry of Planning, 1990, p. 17). The recognition of a serious shortage of trained local personnel in the KSA in the 1970s and 1980s (Kayed & Hassan, 2011) engendered prioritization of Saudization of the labor force as a policy (Al Dosary, 2004; Madhi & Barrientos, 2003; Rice, 2004; Wynbrandt, 2010). 4.2. The KSA’s accounting regulatory landscape before the SOCPA project The institutional debut of accounting regulatory guidelines in Saudi Arabia is traced to the Tax and Zakat Decree of 1950 (Royal Decree 17/2/28/3321). This followed the business development of that time. The decree required businesses both to maintain books of accounting records for tax purposes and to have those books audited. The preamble to the decree states that the tax law was introduced with a view to “increasing the income of the government to enable it to carry the burden of general reforms, and promote the general welfare of the country.” This decree governed both Saudi and foreign corporations operating in Saudi Arabia (Chapter 11, Article X). Although the code provided no detailed accounting standards, it required corporations to keep books of accounts showing revenues and associated deductions considered in determining taxable profit (Chapter 11, Article XVI). Despite legitimizing the accounting occupation, the decree did not serve as a clear regulatory guideline because it did not specify the required qualifications of auditors, who were merely referred to as “recognized auditors” without defining the term. In this scanty institutional context, the Ministry of Finance and National Economy licensed three auditing firms between 1955 and 1957 (Participant 9). The first audit firm in Saudi Arabia (Saba, Nawar & Co.) was established by non-Saudi citizens in 1955. The licensing authority was transferred in 1959 to the Supreme Committee of Chartered Accountants, established under the Ministry of Commerce as an agency to grant certification to accountants. Participant 9 considers the formation of this committee to be an improvement in the accounting regulatory landscape of Saudi Arabia. He stated that “a Bachelor’s degree in Accounting, Business Administration or Economics” was required to obtain certification and “it was pretty open to foreign nationals.” Daghastani and Abdul Wahab, the first audit firm owned by Saudi nationals, was established in 1959, which increased the total number of auditing firms in Saudi Arabia to seven (Naser & Nuseibeh, 2003, p. 44). During the subsequent decade, the Companies Act 1965 was promulgated. The Act served as a major regulatory mechanism in accounting to more clearly specify the financial reporting requirements for companies operating in the KSA. Article 89 required companies to prepare “a balance sheet, a profit and loss statement, and a report on the company’s operations and financial position . . . [and methods proposed] for the distribution of net profits.” It also required companies to publish the reports in a local newspaper. Further, the Act required companies to appoint auditors at a general meeting of shareholders, and to ensure auditor independence. However, the Act’s regulatory significance was limited because it made reference neither to any authoritative set of accounting and auditing standards, nor to any professional accountancy bodies authorized to grant certifications to auditors. Similarly, although the Department of Zakat and Tax stated that it would accept reports prepared using “internationally recognized” standards, it did not specify recognized sources of such standards (AlRehaily, 1992, p. 77). In view of this limitation, in 1968 the Ministry of Commerce issued Decree 422, which established the requirements to practice as an auditor in Saudi Arabia. A survey conducted in 1968 shows that 20 licensed auditing firms operated in the KSA, and 70% of licensed auditors were non-Saudi nationals, primarily from the United Kingdom (UK), Egypt, Lebanon, Sudan, and the US (Shinawi & Crum, 1971, p. 109). Practitioners were affiliated with the American Institute of Certified Public Accountants (AICPA), the Institute of Chartered Accountants in England and Wales (ICAEW), the Association of Certified and Corporate Accountants, or Chartered Accountants of Egypt (Shinawi & Crum, 1971, p. 106). Some of the big

4 5

SAMA regulates banks and insurance companies in the KSA. SAR is KSA’s national currency. SAR1.00 equaled US$0.267 from 1986 to the mid-1990s (Kayed & Hassan, 2011, pp. 60–61).

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international auditing firms, such as KPMG and Deloitte (Participant 3), also operated in the KSA. Participant 6 noted that he was the only Saudi national at a big international audit firm during this period, as all other auditors were expatriates from Egypt, Lebanon, and Sudan, as well as a few from developed countries such as the US and UK.6 The predominance of expatriate accountancy labor is understandable because business education at Saudi universities has had a recent history. Tertiary education in accounting was introduced by King Saud University (KSU) in 1959, followed by King Abdul Aziz University in 1967 and King Fahad University for Petroleum and Minerals in 1974 (Al-Rehaily, 1992, p. 121). The 1974 CPA regulation (Royal Decree No. 34) replaced the 1968 decree as a key milestone in accounting regulation in Saudi Arabia. Participant 2 stated that only “modest licensing requirements were used” under the 1974 regulation. The Ministry of Commerce only asked for a Bachelor’s degree in Accounting, Business Administration or Economics and experience of three years in accounting or a related discipline.” Although audit work experience and university degree requirements were retained from the 1968 rules, the audit-experience criterion was softened by defining audit-equivalent experience for candidates with accounting (but not auditing) backgrounds. The CPA regulation also introduced Saudi nationality as a requirement for licensing as a public accountant in the KSA, to redress the predominance of foreign accounting practitioners (Participant 7). 4.3. The SOCPA professional project (1979–1992): Actor-network building through alliances This section analyzes how the SOCPA professional project succeeded in establishing alliances with the state and other actors by resolving underlying tensions arising from the contradictory goals of actors. Two areas of tension relate to the state’s governance approach, which attempts to restrict advancement of self-serving actions of interest groups and the underpinning goal of exclusionary closure that often drives professional projects; and the SOCPA project’s goal to introduce indigenous professional accountancy certifications as entry criteria to public practice, and the ensuing concern of incumbent practitioners, who were either non-Saudi nationals or licensed Saudis having no professional qualification. 4.3.1. Problematization and interessement: critiquing KSA’s accountancy and locking in the state as a key ally to the project By the late 1970s and early 1980s, both the increase in the number of private and public-sector corporations and new economic policy initiatives created the opportunity for elite, UK-US trained accounting practitioners and academics to initiate the professional accounting project. According to our data, the main actor who initiated and later coordinated the professional project was Abdulaziz Al-Rashed, who was a government official until 1977, through his audit firm Al-Rashed Consultants & Accountants, established in 1979 (Al-Rashed [12_TD$IF]Consultants & Accountants, 2008a, 2008b). Problematization for SOCPA’s professional project was centered on the KSA’s allegedly weak accounting regulatory landscape at the time, and the predominance of expatriate accounting practitioners in Saudi Arabia. SOCPA’s promoters underscored the indispensable role of the proposed professional body by capitalizing on the need to redress the lack of unified accounting and auditing standards, a system of professional training, and practice monitoring mechanisms. This move was an attempt to justify the quest for “a professional body responsible for regulating public accounting practice” (Participant 5). The agenda to transform the accounting regulatory environment was primarily driven by the rationale to strengthen accounting to support the Saudi national policy during those decades. Interview participants highlighted that one consequence of the absence of a regulatory accounting body was the lack of authoritative financial reporting standards. The standard of disclosure provided in financial statements was perceived to be inadequate (Naser & Nuseibeh, 2003). Specifically, accounting policies on revenue recognition, research and development expenditures, foreign currency transactions, and accounting for inflation either lacked clarity or were not disclosed. Reporting entities’ accounting policies related to these matters also varied (Al-Rehaily, 1992, pp. 136–8). As Participant 1 commented: There was no adequate disclosure in the financial statements. Only numbers were reported, without even footnotes. There was a consensus among stakeholders about the need to provide high-quality information to the users of financial statements. The promoters of SOCPA presented the lack of an authoritative accounting professional body to regulate accounting practice in the KSA during the 1960s and 1970s as the cause of the problem. Accounting and auditing standards followed by accounting practitioners varied according to the backgrounds of the practitioners: “those who were from the US were inclined to follow US standards; likewise those from the UK and other countries followed standards applicable to their home countries” (Participant 10). As Participant 6 commented, auditors stated in their reports that “the accounts were prepared in accordance with recognized accounting standards without providing references to any authoritative set of standards,” and some audit firms made reference to standards relevant to their certifying accounting bodies. The general undercurrent of the time was dissatisfaction with the use of foreign accounting standards in the KSA, on the grounds that foreign standards might not be relevant to the country’s unique context (Al-Rehaily, 1992). Users of financial statements included shareholders, the Department of Zakat and Tax, banks, the Ministry of Commerce, and employees of reporting organizations (Al-Rehaily, 1992,

6 A 1989 survey conducted by Al-Rehaily (1992, pp. 190–192) shows that 44% of reporting entities used international accounting standards, 30% used US standards, 19% used UK standards, and 7% used other standards; 93% of survey respondents stated that the foreign standards in use were not suited to the socio-economic environment of the KSA.

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p. 231). Auditing firms provided auditing, income tax and Zakat, insolvency and liquidation, system design and installation, bookkeeping, and management services (Al-Rehaily, 1992, p. 195). In addition to the lack of a unifying basis for providing members with professional training, practice monitoring was lacking because of the diversity of the practitioners’ professional affiliations. Participant 7 commented that because of the lack of a regulatory mechanism, some companies produced multiple sets of financial statements, depending on what the companies wanted to portray. In an attempt to convince the state to support the SOCPA project—which matches the moment of interessement from a translation viewpoint—SOCPA promoters invoked the need for an indigenous accounting body as a standard setter, certifying agency, and regulator. The interaction of SOCPA promoters with key government actors began in 1979, when Al-Rashed held a meeting with government officials to discuss the accounting “professional environment in Saudi Arabia and aspects of its development . . . and its impact [on] the economic and financial activities in the country” (Al-Rashed, 1983, p. 101). Yousef Al-Hamdan, the Deputy Minister of Commerce, attended the meeting in which Al-Rashed attempted to persuade state officials to support the professionalization project. The process was not straightforward because officials of the KSA were initially apprehensive about the SOCPA project. State officials’ initial reactions were to defensively highlight the strength of the KSA’s institutional framework. Further, an underlying tension existed between the idea of an autonomous professional body that is underpinned by closure ambitions, and the Saudi governance model whereby the state, as a guardian of cultural values, discourages advancement of self-interest. Nevertheless, the unique Zakat and tax environment of Saudi Arabia, the lack of relevant accounting standards, the deficiencies in financial reporting, and the predominance of expatriates in the field of professional accountancy provided a persuasive ground to forge an alliance with the state. Given that Zakat originates from Islamic jurisprudence and is the “third pillar” of Islam (Abu-Tapanjeh, 2009), the significance of this claim in attempting to garner interest of the state in the professional project cannot be underestimated. Further, SOCPA promoters strengthened their interessement of the state by highlighting the association’s potential role in advancing indigenous professional accountancy training, thereby highlighting the role of SOCPA in advancing one of the national policy priorities—Saudization of professional labor. The increased demand for accounting created by the inflow of foreign investment into the KSA, and the resulting increase in the number of corporations operating in the KSA, further facilitated interessement of the state and consolidated the centrality of strengthening accounting as part of public policy. The SOCPA project emphasized the potential role of well-regulated accountancy in the Kingdom’s ability to continue to attract foreign investment, highlighted as a policy priority in the late 1980s and early 1990s. The discussion with the government officials was: concluded with [a common understanding about] the necessity of taking practical measures to remedy [the] deficiencies and to develop the auditing profession in a manner that would enable auditors to cope with the radical changes that took place in this field. ([123_TD$IF]Al-Rashed, 1983, p. 101) Subsequently, “the Minister of Commerce Dr. Sulaiman Al Saleem [agreed that . . . ] the public accounting profession in Saudi Arabia [was] not keeping [pace] with the changes that the country’s economy was undergoing.” (Al-Rashid, 1983, p. 101). As a strategy to gain, and then maintain, the interest of the state in the professional project throughout the 1980s, SOCPA promoters invoked the potential vital role of an accounting body in the implementation of the series of five-year development plans of Saudi Arabia. This strategy succeeded because stakeholders recognized the shortage of accounting experts available to serve the increasing needs of the economy. The “total number of licensed accountants was 71 in 1980, of which only 27 (38 percent) were Saudis. By 1985, the number of Saudis and non-Saudis increased to 109 and 49 respectively. The Saudi and non-Saudi figures increased to 190 and 61, respectively, by 1989” (Al-Rehaily, 1992, pp. 176–177). The stagnation in the non-Saudi number is attributed to the fact that the 1974 regulation regarding certification was favorably slanted to Saudi citizenship. The increased demand for trained accountants in the 1970s and 1980s already engendered the imperative to train Saudi accountants—both in country and abroad—to mitigate the KSA’s dependence on expatriates. Another focal actor, the Saudi Accounting Association (SAA), an academic accounting association affiliated with the Department of Accounting at KSU was established in 1981 (SOCPA, 2012). The SAA created forums for articulating professional issues and ideas for the professionalization project. The association was instrumental in advancing deliberations on the development of accounting in Saudi Arabia through a seminar series at KSU on the theme of developing the accounting profession in Saudi Arabia (Interviewee 3; Participant 2). In the governance context of Saudi Arabia—in which interest-group activism aimed at advancing parochial interests was uncommon (Al-Rehaily, 1992, p. 63)—the seminars played an important role by framing the intellectual foundations and policy rationale for an accounting professional association. KSA accounting academics and promoters of SOCPA attended the seminars. The seminars canvassed accounting as a crucial macroeconomic management tool, and articulated a professional association as an indispensable actor to address the regulatory deficits of KSA accountancy. As Participant 1 commented: “Recognition of the importance of the accounting profession and its contribution to economic management, attracting foreign capital and trading companies’ shares fostered the importance of the [accounting professional project] agenda.” Another group of relevant actors in the professional project were the incumbent practitioners, who were already licensed to practice accountancy in Saudi Arabia. Consistent with Callon’s (1986) conceptualization of interessement through silence, this group’s interessement is observed through the absence of overt resistance. In situations in which important actors fail to actively engage in the translation process, Callon (1986) argued that focal actors speak on behalf of the former. SOCPA promoters’ views governed the incumbent practitioners’ fate in the emerging regulatory framework of Saudi Arabia. Incumbent practitioners have an interest in maintaining their privilege, to continue providing professional accounting

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services, while the SOCPA project could pose a risk of removing this group or imposing upon it new, onerous certification requirements. Conversely, the improvement of the regulatory environment could make audit and financial reports valuable to users and thus provide benefit to the incumbent practitioners, provided that any new arrangement allows them to continue practicing. Manifest jurisdictional competition against the SOCPA project did not arise from incumbent practitioners because this group lacked a unifying ideology: the practitioners were affiliated to various foreign qualifying accountancy bodies, and were not organized as an interest group in the KSA. This situation arguably made the group too weak to challenge the government-supported professionalization project. 4.3.2. Enrollment and mobilization: securing actual commitment of the state and establishing wider acceptance of SOCPA Following meetings in 1979 with government officials, Al-Rashed submitted a report to the minister in 1980. Subsequently, the Ministry of Commerce agreed to provide full financial support to the professionalization initiative and commissioned the SOCPA project. Once the project secured the formal enrollment of the state, roles were further assigned for the transformation of the Saudi Arabian accounting regulatory infrastructure. Two tasks were defined in this respect: developing accounting (and auditing) standards, and organizing the profession (i.e., establishing SOCPA). Al-Rashed was assigned to coordinate the project and Yousif Al-Mobarak from Al-Rashed’s auditing firm, was assigned to assist Al-Rashed (Participant 3). Three teams were organized, to look after: (a) developing financial reporting standards; (b) developing auditing standards; and (c) organizing the professional association. Three experts were assigned to each team. (See Table 4, which summarizes the teams’ roles, composition, and members’ profiles). Two international experts and one Saudi accounting professor were assigned to each team. The international experts included academics from US and UK universities and/or members of professional accountancy bodies in the West. Out of the six international experts, three were members of the AICPA, two were members of ICAEW, and one was an accounting professor at a US university at which AlRashed studied for his master’s degree. Both international experts assigned to the development of accounting standards team were of Saudi backgrounds, consistent with the interest in developing accounting standards contextualized to Saudi Arabia. The foreign experts served as independent consultants in personal capacities as “knowledge elites” rather than as actors with continuing interest in SOCPA. The experts helped “develop the materials for education/training that served as a basis for administering certification examinations with high standards by drawing on the experiences of other countries” (Participant 2). Saudi accounting professors participated in the project in advisory capacities, while government officials oversaw the project. The financial sponsorship and the state supervision of the process were consistent with the state corporatist interpretation of the Saudi political culture. The interviewees stated that Al-Rashed and Al-Mobarak played a crucial role, both in developing the standards and organizing SOCPA. Participant 1 commented: “Al-Rashed constantly attended the SAA seminars. His audit firm also assisted the project by providing case studies on practical auditing issues faced” in the KSA. The approach adopted to accomplish the first component of setting up the institutional framework began by articulating the objective of financial reporting by companies operating in the KSA as providing information for “present and potential investors, creditors, suppliers, and

Table 4 Professional project team members. Project teams and team members

Professional affiliation of team member

Role played in the Country of residence at the time of the project project

a. Financial accounting framework and standards Sabry Heakel, PhD AICPA International technical expert Mohamed E. Mustafa, – International PhD technical expert Abdul-Rahman I. Al- – Advisor Humaid, PhD b. Auditing standards David Hatherly

ICAEW

Peter Skuze

ICAEW

Abdiullah Al-Faisal, PhD

–

c. Internal organization of the profession Ivan O. Bull AICPA Wallace E. Olson

Vice-chair of AICPA

Abdullah Al-Moneef, PhD

–

USA, Professor of accounting at University of Minnesota USA, Professor of accounting at California State University Saudi Arabia, Professor of accounting at King Saud University

International technical expert International technical expert Advisor

Scotland, Head of the technical division of Accounting and Auditing research at the Institute of Charted Accountants in Scotland. England, Partner in Charge at a medium sized accounting firm Saudi Arabia, Professor of accounting at King Saud University

International technical expert Foreign technical expert Advisor

USA, held high positions in AICPA including Chairman of AICPA Board of Directors (1976) USA, held high positions in AICPA including Deputy Chairman of AICPA Board of Directors (1973–1973) Saudi Arabia, Professor of accounting at King Saud University

Source: (compiled from Al-Rashid (1983 pp, 103-5)) http://www.socpa.org.sa/engl/autohtml.php?op=modload&name=certified.htm&file=index)

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customers” (Al-Rehaily, 1992, pp. 344–5) as a basis for developing the standards. The approach followed when developing the standards was either to adapt other countries’ standards when suitable ones existed, or to develop a Saudi standard from scratch (Al-Rashed, 1983). During this process, the organizing committee drew upon lessons from three clusters of countries representing varied operationalizations of the accounting–state link. Cluster 1 included the US, the UK, and Canada; Cluster 2 France, West Germany, and Sweden; and Cluster 3 Tunisia, Venezuela, and Brazil. West Germany, Tunisia, and the US were then selected for closer consideration (Al-Rashid, 1983, p. 101). The German system was chosen because it could be instructive regarding the SOCPA project’s interest in emphasizing Zakat and tax. It was considered reasonable to draw on the Tunisian experience because of Tunisia’s introduction of public oversight of the profession to prevent professionals’ potential pursuit of self-interest.7 This issue was of particular relevance to Saudi Arabia, as promoting self-interest contradicts Islamic governance principles and the state’s corporatist ideal of reducing competition among societal groups. As Participant 10 stated: “Zakat and compliance with Islamic values were of prime concern both during the development of the standards and afterwards.” The US system was eventually selected as a suitable candidate because of its reputation for having a well-developed set of standards and shareholder orientation as the objectives of financial reporting. Consequently, the standards that were developed as an outcome of the first component of the project closely followed US standards (i.e., the pronouncements of the Financial Accounting Standards Board) (Naser & Nuseibeh, 2003; Participant 1).8 In 1984, the project teams produced accounting and auditing standards, based on which the Ministry of Commerce published Saudi financial reporting framework and standards in 1986 (Ministry of Commerce, 1986). The issuance of this key inscription facilitated broader acceptance of the emerging actor-network. The standards were published again without any substantive change in 1994 bearing SOCPA’s name (SOCPA, 1994a), after the third component of the professional project was completed with the establishment of SOCPA. SOCPA also developed a standard on Zakat (AS-0013 Accounting Standard) in consideration of Sharia law in 1997 (SOCPA, 1997). The newly developed Saudi standards were not exhaustive and thus, a guideline was given to refer to the US GAAP with respect to any issues not covered by the Saudi standards (Participants 8 and 9). Further to the technical explanations provided, the US orientation of the KSA standards can be attributed to the fact that the international expert advisory team members (Table 4) were US-based, and both their KSA counterparts and Al-Rashed were US-educated (AlRehaily, 1992). Further, Al-Rashed’s suggestions maintained some sway in the choice of standards because of the respect he commanded due to his perceived expertise in the area. Participant 7 noted that in this context: one who speaks louder with confidence can influence the direction of standardization process making the overall situation rather political. I would say that Mr. Abdulaziz Al-Rashed was persistent in his preference for American standards, which he believed were more objective. One issue arising from the development of the Saudi standards was that auditing firms had to abandon their established work practices and consider the Saudi standards in conducting audits (Participants 8 and 9). Participant 8 commented that the: Minister of Commerce reported on the [KSA’s process of setting standards] to a meeting of the Ministers of Commerce of the Gulf Cooperation where about two hundred people were in attendance. A chartered accountant, whom I am not going to identify, stood up and said ‘You are coming to develop the profession but you are making it difficult for us.’ ... Some accounting firms utilized American standards as they had background in working with Ernst & Young, KPMG, etc. Mandating Saudi standards represents a hurdle to them. In 1991, the Certified Accountants Law (designated Royal Decree Number M/12) was issued (Council of Ministrers of Suadi Arabia, 1991).9 This decree served as a legislative resource to further mobilize allies and solidify the actor-network for the SOCPA project. The legislation institutionalized passing SOCPA’s certification examinations as a requirement to obtain a license to practice public accounting in the KSA. Consistent with the Saudization policy and SOCPA promoters’ effort to introduce restrictions on entry of expatriates into the KSA accountancy profession, Article 2 (1) of the decree put Saudi citizenship as a criterion to register as a public accountant in Saudi Arabia. This outcome is consistent with SOCPA’s promoters’ desired outcome, in the pursuit of which the project’s effort was directed at institutionalizing restrictions against expatriates. Consistent with state corporatist arguments, Article 29 of the 1991 decree provides for the establishment of the Saudi Organization for Certified Public Accountants to operate under the supervision of the Ministry of Commerce ([124_TD$IF]Council of Ministrers of Suadi Arabia, 1991).10 In accordance with the provisions of Royal Decree Number M/12, SOCPA was established in 1992 with the legal personality as a professional body operating under the Ministry of Commerce. Subsequently, SOCPA issued an ethical code of conduct in

7 Tunisia introduced the public oversight system in the 1980s, while this was a more recent phenomenon in the West (ROSC) (International Monetary Fund, 2006). 8 For Arabic version of draft standards issued in 1984, see Accounting Standards Development Team’s (1984) report. The Auditing Standards Development Team’s (1984) report shows that Saudi auditing standards were also developed based on US standards. Arguably because the auditing standards are less context-specific than accounting standards, interesting controversies did not emerge from the interviews and document reviews regarding the development of Saudi auditing standards. 9 The 1984 report of the team assigned to develop internal organization of a Saudi accounting professional organization is available at http://www.alrashed.com.sa/lib/docs/0603.pdf. Retrieved on 2 February 2017. 10 As of 2015, SOCPA had over 4700 active members (http://www.socpa.org.sa/Socpa/About-Socpa/Annual-Reports.aspx).

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Table 5 Board Composition of SOCPA. Affiliation of SOCPA Board of directors’ position

Number

Role in the board

Ministry of Commerce delegate Deputy Minister of Commerce Minister of Finance and National economy representatives General Controller's Bureau representative Accounting academic representatives Chambers of Commerce representative Practicing accountants representatives Total

1 1 1 1 2 1 6 13

Chairperson Member Member Member Member Member Member

Source: (compiled from information available at: http://www.socpa.org.sa/engl/autohtml.php?op=modload&name=certified.htm&file=index)

1994. The code contains more generic standards than standards tailored to Saudi Arabia. SOCPA indicated that: These principles and moral values contained in the Code of Conduct and Ethics are not an innovation, they also represent Islamic values [ . . . ] advocated by the principles of Islam’s sincere testimony, avoidance of perjury and failure of trust, integrity and honesty, adherence to truth, justice . . . (SOCPA, 1994b, p. 2013). The emerging authority of SOCPA to control entry to practice raised the issue of how the incumbent practitioners were to be treated. This was a significant issue because the legislation provides legal ground to exclude expatriates, and incumbent practitioners without certifications, from public practice. Because not all incumbent practitioners “obtained their practicing licenses through certification exams” (Participant 9), and expatriates dominated public practice, incumbent practitioners at large faced the risk of losing their practicing licenses. Nevertheless, the SOCPA project embraced incumbent practitioners, who were already licensed prior to the formation of SOCPA. The project gave incumbent practitioners the opportunity to gain membership in the soon-to-be formed professional body, subject to required attendance at a week-long professional development workshop, on the premise that “those accountants possessed sufficient experience and thus further assessment would not be necessary” (Participant 7). This decision helped strengthen SOCPA’s position through hybridization of membership because the organization did not have members of uniform qualification upon formation to justify any exclusionary move. Alliance with the state enabled SOCPA to overcome the project’s resource constraints, given that SOCPA could not finance itself in the absence of a large membership base. The alliance gave the state the opportunity to organize SOCPA as a state corporatist body subsumed within the state system, whereby the state preserves four positions on SOCPA’s board of directors, including that of the board chairperson (see Table 5). Participant 1 regards the organization of SOCPA under the ministry as a “great advantage to ensure that the profession does not promote self-interest.” This shows that forging an alliance with the state resulted in a move away from SOCPA promoters’ underlying ambition to establish an autonomous professional body to advance members’ interests. Challenges also arose from this arrangement of hybridization, which blurred the distinction between the state and the professional body. That is, the ultimate authority for important decisions rests with the minister. Interview participants stated that this could be a shortcoming because it has the potential to inhibit SOCPA’s professional autonomy; however, this feature is consistent with corporatism. As a further act of mobilization, six technical committees were established—with members drawn from accounting professionals, academia, government, and the business community—to look after SOCPA’s technical matters relating to standards, ethics, quality review, examinations, and education and training on a continuing basis. Each committee comprises 8 to 13 members (Table 6). Our analysis indicates that organizing SOCPA as a hybrid entity is partly dictated by SOCPA’s promoters’ strategy to manage resource shortages by tapping into other actors’ resources through alliances. As Participant 7 stated: “Standard development takes years and comprises a series of processes [that demand] a lot of resources and effort...SOCPA usually approaches volunteering practicing accountants to complete such duties.” SOCPA’s organizational setup exhibits a distinctive architecture that reflects Saudi Arabia’s political culture and the state’s tendency to involve various segments of society in matters of policy interest. The structuring of SOCPA under the state, and the involvement of agents from academia, government, and the business community illustrate the influences of key segments of society on accountancy pursuant to the state corporatist political culture. Such an involvement of actors from a broad range of stakeholders (i.e., mobilization) consolidated SOCPA. Participant 10 stated: There were many obstacles, including financial and technical problems. Such committees enable consideration of views of relevant stakeholders. Representation of various stakeholders in the committees contributed to the success of the project because it facilitated wide acceptance for the project. The scope of the knowledge base required for certification exams that SOCPA was to launch was defined to cover accounting, Zakat and tax, auditing, business law and Islamic jurisprudence (SOCPA, 2013).11 This transformed the licensing

11

SOCPA launched certification examinations in 1994.

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Table 6 Technical Committee Composition of SOCPA. Name of Committee

Accounting Professionals

Academic

Government

Companies

Total

Accounting Standards Auditing Standards Professional Ethics Examinations Quality Review Education and Training

4 4 3 3 4 3

4 4 3 4 3 3

2 2 1 – – 1

3 1 2 1 2 1

13 11 9 8 9 8

Source: (compiled from information available at: http://www.socpa.org.sa/engl/autohtml.php?op=modload&name=intro.htm&file=index)

rules to restrict entry of foreign-qualified professionals. Further, SOCPA imposed an additional requirement on incumbent practitioners who were non-Saudis. That is: Pursuant to the 1991 legislation that puts Saudi nationality as a requirement to obtaining licenses to practice accounting, expatriates who were licensed previously were required to practice accountancy only in partnerships with Saudi nationals. (Participant 9) Since its establishment, SOCPA also requires that members of foreign professional accountancy associations interested in SOCPA membership complete at least some of the SOCPA examinations to be eligible for SOCPA membership (Participant 9). This requirement affirms SOCPA’s interest to restrict the entry of new foreign qualified accountants to Saudi accounting practice as compared to the organization’s accommodation of individuals who were already in public practice prior to SOCPA’s formation. This restriction was justified on the grounds that three out of five of SOCPA’s key areas of training and examination (Zakat and tax, auditing, business law and Islamic jurisprudence) related to Saudi Arabia’s socio-economic context, and closely aligned to the rationale for the professional project advocated in the problematization. 5. Discussion of findings This study has examined how SOCPA’s professionalization project (1979–1992) produced legislative backing for SOCPA’s control of professional certification and standard setting before it developed the capacity to produce qualified professionals and set accounting standards. Framing a mission consistent with the state’s policy priorities enabled the professional project’s promoters to convince the state to support the project. Lack of accounting regulation in the KSA’s national policy sphere, and the portrayal of a professional accounting association as indispensable in supporting national policy goals facilitated development of the state’s interest to form alliance with the project. Emphasizing the need for accounting standards suitable for the Sharia law environment of the KSA, and presenting an indigenous professional association as a key agent to accomplish this task, were instrumental in persuading the state to support the professional project. Because legally mandated standards serve as a mechanism of formal social control (Walker, 2016), the SOCPA proposal presented a promising approach to institutionalize “relevant” accounting standards, especially in the area of Zakat and tax. Another dimension of the problematization that enabled SOCPA to attract the interest of the state was the emphasis on the need to develop indigenous accounting personnel to reduce dependence on expatriates, which was consistent with broader national policy priorities of the KSA. State sponsorship of the project in turn facilitated legislative support for the project that affirmed mobilization through wider acceptance of SOCPA as an authoritative body. Consistent with the KSA’s governance model that is underpinned by Islamic principles and the accompanying state corporatist political culture, the Saudi state played a role above and beyond legislative formalization of the profession. State sponsoring of the project, and subsequently structuring SOCPA as a state corporatist body, established SOCPA as a hybrid entity with features of a state agency, at the same time possessing some privileges of a professional body. Hybridity in the organization of SOCPA signifies a departure from the professional project’s initial aspiration of establishing an autonomous professional association, because SOCPA is instead organized as an extension of state structures. This helped resolve a key tension between SOCPA’s promoters’ initial idea of forming an independent professional body with an exclusionary closure objective and the governance model of the KSA, in which the state discourages advancement of sectional interest. This finding supports Waring’s (2014) observation that hybrids help establish relationships of interdependence among actors, and reconcile contradicting goals. This aspect of hybridity was a significant move in the SOCPA project because it not only helped mediate the goals of the state and the professional project, but also facilitated state financing of the project. Supporting the notion that hybridity does not imply absence of power asymmetries (Brigham & Hayes, 2013), the state exercises administrative power over SOCPA. Yet, the state bestows some authority on SOCPA to regulate the accounting professional arena, in the state corporatist sense. SOCPA’s role in inculcating Sharia-compliant accounting practices by institutionalizing relevant accounting standards suggests that the association advances the national policy goal of safeguarding Islamic values. The KSA experience closely parallels the Brazilian case in the way that the state attempted to use a professional association as a state corporatist agency (Agrizzi & Sian, 2015). Unlike the Brazilian case—in which the state initiated the organization of the profession when the occupational groups did not aspire for organizing—the KSA case exhibits the fact that individuals from the accounting occupation initiated the process. This active role of the occupational group yielded greater autonomy (i.e., control of entry to public practice) than in the Brazilian case, which was relatively open

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as the state-led professionalization did not encourage a closure agenda. Similarly, whereas state supervision of the SOCPA project is akin to the Chinese experience (Yee, 2012), SOCPA was largely an initiative of elite accountants, who succeeded in forging an alliance with the state. In contrast, the Chinese case was a state initiative that organized accountants through ideological means (Yee, 2009). The ideological bases of the state corporatist arrangements between the two countries also differ, as the Saudi case drew on Islamic governance ideals, whereas the Chinese case drew on Marxist political ideology and Chinese culture. Besides the organizational form of SOCPA, hybridity operated in two other ways in the professionalization project. First, hybridization is observed in the setting of the KSA accounting standards as a mix of US standards and the Zakat concept from Sharia law. This hybridization served an important purpose to advance the professionalization process, because SOCPA promoters barely had the capacity to develop the standards at the time. Hybridization enabled the definition of uniform standards for use in Saudi Arabia by adopting them from the US framework, while at the same time placating the Saudi state by reflecting Sharia concepts in an area that has policy significance. A logical question arising from this outcome is the extent to which this mix of standards cohabit harmoniously in practice. The scope of the present study does not include this issue, which is nonetheless worthy of future research. Another issue that merits further investigation is potential imperial influence on Saudi Arabia and its ramifications on accounting, similar to experiences in other countries (see Hopper, Lassou, & Soobaroyen, In-press; Annisette, 2000; Boussebaa, 2015; Mihret & Bobe, 2014; Yapa, 2010). The Saudi professional project suggests that actors introduced an exclusionary move based on citizenship as a way to counter the dominance of foreigntrained accountants. Nevertheless, the analysis also shows that imperialism found ways to influence professionalization, for instance through the composition of expert teams and the decisions they made (i.e., favoring US accounting standards). This issue merits future research. Second, hybridity was reflected in how SOCPA promoters followed an inclusive approach to accommodate incumbent practitioners—who were largely expatriates—as members with a token attendance of a professional development workshop. This inclusion strategy enabled the project to secure legislative support for market control prior to developing a membership base. The approach played an important role in connecting the professional project to incumbent practitioners, who had an underlying concern that their access to the Saudi market could be blocked. An underlying tension was also evident between the project’s ambition to promote indigenization of professional accountancy, and incumbent expatriate practitioners’ interest in continuing in public practice. Consistent with Callon’s (1986) interpretation, the incumbents showed interessement through silence rather than active engagement, although this group later joined the SOCPA project’s scheme of workshop attendance signifying enrollment and mobilization. Hybridizing with incumbent practitioners was a pragmatic move to address the tension between the ambition to reverse expatriate labor dominance, and the lack of qualified Saudi professionals in sufficient numbers to service the market in any event of excluding expatriate accounting practitioners from the Saudi accountancy market. That is, blocking incumbent practitioners could have been counterproductive in relation to SOCPA’s closure goal, as SOCPA lacked a qualified membership base to justify this form of exclusion. This suggests that hybridity also addressed the state’s potential concern of ensuring that the market continued smoothly during a transition period. Further, accommodating incumbent practitioners is consistent with the KSA’s governance ideal of minimizing group conflict arising from pursuit of self-interest. In line with Kurunmäki’s (2004) observation, the use of this strategy illustrates the role of hybridization in reducing jurisdictional battles, and instead facilitating collaboration. SOCPA’s inclusion strategy parallels the Kenyan (Sian, 2006) experience, in which groups that were initially targeted for marginalization were eventually embraced (Sian, 2006). Nevertheless, the Saudi case contrasts with the Kenyan experience in that overt jurisdictional competition was absent in the former. Unlike the overt occupational group competition between existing occupational groups documented in prior studies (Richardson, 1987; Walker, 2004), the resulting market control of SOCPA took the form of introducing market protection against future entrants instead of excluding incumbent practitioners. However, while the SOCPA project embraced incumbent expatriate practitioners, it also attempted to reduce expatriate dominance through the requirement to form partnerships with Saudi nationals. SOCPA promoters’ alliance with accounting academics is noteworthy. This group played an important role in the project from the outset, as knowledge elites. Knowledge elites create knowledge through research, and disseminate knowledge through education (Freidson, 1985) to inform national policy (Harrison, 2002). Although the notion of community engagement is generally understood to drive the involvement of academics in such activities as independent experts, the role of academics in promoting the SOCPA project was not completely devoid of interests, because the project facilitated membership of academics and their students to SOCPA. The alliance between academics and practitioners in the SOCPA project contrasts with the more general suspicion that practitioners in various countries tend to have about academics (e.g., Gendron & Bédard, 2001; Sikka, Willmott, & Puxty, 1995). This alliance can be attributed to the fact that focal actors of the SOCPA project needed the alliance with knowledge elites as part of the effort to ensure continuing state support as the occupational group sought legislative backing before it developed the requisite capacity as a professional body. Further, international experts participated as knowledge elites in the capacity of independent consultants, akin to the broader conceptualization of knowledge elites as independent experts. The SOCPA project enriches our understanding of professionalization in which exclusion based on criteria such as race and citizenship (Annisette, 2003; Hammond et al., 2009; Sian, 2011) developed, instead of relying on the commonly documented exclusionary criterion, i.e., qualification (Abbott, 2014; Larson, 1977; Willmott, 1986). Compared to experiences in which producing qualified members in sufficient numbers served as a key precondition for initiating closure moves, which

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employed qualification as exclusionary criterion (Carnegie & Edwards, 2001), the SOCPA project mainly focused on introducing restrictions on the entry of foreign nationals and candidates affiliated with overseas accountancy bodies. These criteria and the underlying exclusionary move parallel events in Trinidad and Tobago (Annisette, 2000, 2003), Kenya (Sian, 2006; Sian, 2011), and South Africa (Hammond et al., 2009, 2012), whereby race was used as a primary criterion of exclusion. However, the Saudi case introduced citizenship rather than race as an exclusionary criterion. This choice of exclusionary criterion is grounded in the socio-historical context of Saudi Arabia, in that SOCPA’s promoters aimed for alliance with the state through a problematization closely aligned with the KSA’s labor force indigenization policy. Similar to the experience of Trinidad and Tobago (Annisette, 2000, 2003), the KSA showed interest in supporting indigenization of certification. However, the KSA case exhibited more direct state support of indigenization of certification than Trinidad and Tobago, whereby the state attempted to encourage indigenization by offering employment opportunities to qualified accountants with a background from the disadvantaged group (Annisette, 2000, 2003). In Trinidad and Tobago, the state supported indigenization of professional training and certification of disadvantaged races within the accounting profession (Annisette, 2000). Nevertheless, qualifications from the UK continued to dominant—much like in other developing countries such as Ethiopia (Mihret, James & Mula, 2012)—because elites who preferred to maintain their international qualification subverted the indigenization move. The state’s role was thus limited to providing employment opportunities to the disadvantaged group (Annisette, 2003). 6. Conclusion Professional closure in accounting takes multiple forms, and is contingent upon the socio-historical context in which it occurs. This study has illustrated that hybridization enables an occupational group to form alliances with the state, and other potentially competing groups to secure entry controls, despite lacking demonstrated capacity as a professional body. Hybridity facilitates the making of compromises to reconcile the potentially competing or contradictory goals of actors in the professionalization process. Framing a professional projects’ goals in alignment to broad socio-cultural policy goals facilitates the professional project’s alliance formation with the state. Although professional projects tend to commence with a default position of advancing exclusionary closure, the extent and mode of realization of this goal is conditioned by historical and social dynamics of the projects. 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