How Companies in Saudi Arabia should Prepare for Upcoming IAS 19 Assumption Changes: Key Drivers, Pitfalls, and Best Practices

Introduction

In Saudi Arabia, companies that provide employee benefits, end-of-service gratuities, or pension obligations are increasingly under pressure to ensure that their actuarial valuations under IAS 19 / IFRS are not only accurate, but also resilient to assumption changes. As global financial markets shift, inflation and discount rates fluctuate, and regulatory expectations evolve, forward-looking assumptions are becoming more critical.

This article will outline the key drivers pushing assumption changes, common pitfalls we see in practice, and best practices companies should adopt now to prepare for upcoming changes – avoiding audit issues, financial surprises, and compliance risks.

What Are “Assumptions” in IAS 19 & Why They Matter

• Discount rate: The present value of future obligations depends heavily on the discount rate. Small changes can cause material swings.

• Salary growth / wage inflation: Affects how your obligations grow over time.

• Mortality and turnover / attrition: Employee turnover or early exits change expected obligations.

• Retirement age / expected service: If people retire earlier or serve for shorter periods, liabilities will shift.

• Other demographic assumptions: Disability, death‐in‐service, etc.

These assumptions directly affect the balance sheet (liabilities), profit & loss (service cost) and disclosures. In some cases, even small errors in assumptions can lead to restatements or audit qualifications.

Key Drivers for Assumption Changes

1. Regulatory / Accounting Standard Updates

   • Global trends in financial markets (e.g. interest rate rises) force revisions in discount rates.

   • New regulatory guidance (for example from supervisory authorities) pushing for tailored assumptions.

   
   

2. Inflation & Economic Volatility

   Inflation, changing currency expectations, or macroeconomic shifts may mean salary inflation assumptions need frequent reassessment.

   
   

3. Demographic Shifts & Workforce Patterns

   A younger workforce, migration, shifts in attrition due to labour shortages or policy changes all affect turnover rates and service durations.

   
   

4. Audit & Stakeholder Scrutiny

   Investors and auditors may increasingly focus on transparency, realism of assumptions, sensitivity analysis, and comparability.

   
   

5. Market & Competitive Pressures

   Companies that manage their assumptions well may have more stable financials, which helps when raising capital, financing, or acquiring clients.

   
   

Common Pitfalls Companies Face

• Using assumptions simply copied from previous years without reassessing them.

• Overlooking local/regional specific risk factors (for example, attrition is different in KSA vs UAE vs other GCC states).

• Failing to document the rationale for chosen assumptions (for audit, disclosures, or oversight).

• Ignoring sensitivity analyses (how much the liability changes if discount rate shifts by 1%, etc.).

• Assuming steady salary growth or inflation without considering external shocks / recent trends.

Best Practices

1. Regular Assumption Review

   Schedule annual or semi-annual reviews of major assumptions (discount rate, salary growth, turnover etc.), not just when audited or at year‐end.

   
   

2. Benchmarking & Market Data

   Use region-specific data (local government bond yields, inflation forecasts, salary surveys) rather than purely global or generic data.

   
   

3. Sensitivity Analysis & Scenario Modeling

   Prepare “what-ifs” – how much would liabilities change under different discount rates, higher or lower inflation, varying turnover. Include this in internal reporting.

   
   

4. Strong Documentation

   Keep records of why you picked specific assumptions, what data sources you used, and how they link to company context (industry, workforce mix, country).

   
   

5. Collaborate with Actuarial Experts and Auditors

   Early conversations with auditors about expectations, and with actuaries who are deeply familiar with local/regional drivers, help avoid surprises.

   
   

6. Stress Testing / Risk Buffering

   Incorporate buffer provisions or conservative assumptions in certain volatile inputs where justified.

   
   

Conclusion

As the financial, regulatory, and economic environment in Saudi Arabia continues to evolve, companies cannot afford to be passive about their IAS 19 assumptions. A proactive approach—regular review, benchmarking, sensitivity analysis and strong documentation—will help ensure accuracy, compliance, and financial stability.

If you need help assessing your assumptions, conducting these reviews, or preparing valuations under IAS 19, Royal Falconian Actuaries is well-placed to support you.