Disclosure, Transparency, and the Annual Board Report

Chapter Seven: Disclosure Requirements, Annual Report, and Immediate Disclosures

First: Introduction

Disclosure and transparency are fundamental pillars of good governance. Chapter Seven of the Regulations (Articles 84-93) precisely organizes disclosure requirements in listed companies, including periodic, immediate, and specialized disclosures. The goal: ensuring all investors obtain necessary information for informed investment decisions, in a timely manner, at the same quality.

Disclosure is not just a regulatory requirement, but a tool for building trust in the market. A market characterized by weak disclosure loses investment, share prices fluctuate for irrational reasons, and rumors abound. Conversely, a market with strong disclosure attracts investors, stabilizes, and enjoys fair valuation. This article reviews all disclosure requirements: types, timing, and content.

💡  Key Insight Good disclosure is not just what you disclose, but how you disclose. Complete and accurate disclosure but in complex language may be worse than less disclosure but understandable. Leading companies invest in disclosure quality: language clarity, information organization, graphics, explanatory context. Disclosure is an art, not just a regulatory duty.

Second: Disclosure Principles

1. Basic Principles

1.1 Accuracy

• Correct information.
• Without misleading.
• Matching reality.
• With documented sources.

1.2 Comprehensiveness

• All material information.
• Without selection.
• Without hiding negatives.
• Complete picture.

1.3 Timing

• At appropriate time.
• Without delay.
• For immediate disclosures: as soon as company knows.
• For periodic: before deadline.

1.4 Equality

• To all investors.
• At the same time.
• At the same quality.
• Without discrimination.

1.5 Clarity

• Easy language.
• Logical organization.
• Sufficient context.
• Without misleading.

2. “Material Information” Principle

2.1 Definition

Material information:

• If a reasonable investor knew.
• It would affect his decision.
• To buy, sell, or hold.
• Or affect the share price.

2.2 Materiality Criteria

• Effect on financial statements.
• Effect on strategy.
• Effect on competitive position.
• Effect on market value.

Third: Periodic Disclosures

1. Quarterly Financial Statements

1.1 Requirements

• For the first three quarters of the year.
• Within 30 days of quarter end.
• Limited auditor review.
• Approved by the Board.

1.2 Content

• Statement of financial position.
• Income statement.
• Cash flow statement.
• Statement of changes in shareholders’ equity.
• Notes.

2. Annual Financial Statements

2.1 Requirements

• For the entire fiscal year.
• Within 90 days of year end.
• Full audit by the auditor.
• Approved by the Board and Assembly.

2.2 Content

• The four basic statements.
• Auditor’s report.
• Complete notes.
• Comparative information (with previous year).

3. Annual Board of Directors Report

3.1 The Requirement

Article (90):

• Comprehensive annual report.
• Approved by the Board.
• Submitted to the Assembly.
• Published to the public.

3.2 Report Content

The Regulations precisely specify the contents (Article 90):

3.3 Company Information

• Main activities.
• Subsidiary branches.
• Revenue by sectors.
• Geographic distribution.

3.4 Financial Performance

• Summary of financial results.
• Analysis and comparison.
• Reasons.
• Forecasts.

3.5 Risks

• Material risks.
• Mitigation procedures.
• Developments.

3.6 Social Responsibility

• Programs and initiatives.
• Donations.
• Activities.

3.7 Board Information

• Board composition.
• Member classification (executive, non-executive, independent).
• Board meetings and attendance of each member.
• Committees.

3.8 Remuneration

• Remuneration policy.
• Details of board member remuneration.
• Senior executives.
• Justifications.

3.9 Internal Control

• Internal control system.
• Effectiveness evaluation.
• Audit findings.

3.10 Related Party Transactions

• Transaction details.
• Parties.
• Values.
• Procedures taken.

3.11 Regulation Compliance

• Compliance report with each article.
• Non-applied articles (if any).
• Reasons.
• Plans.

3.12 Governance Information

• Governance policies.
• Developments.
• Improvements.

Fourth: Immediate Disclosures

1. The Requirement

Article (92):

• Immediate disclosure of any material development.
• As soon as the company knows of it.
• Through official channels.

2. What Requires Immediate Disclosure

2.1 Financial Events

• Material changes in earnings.
• Major transactions.
• Large investments.
• Selling material assets.
• Financial disputes.

2.2 Management Events

• CEO change.
• Senior management change.
• Board member resignation.
• External auditor change.

2.3 Strategic Events

• Merger or acquisition.
• Strategy change.
• Entering new markets.
• Exiting activities.

2.4 Legal Events

• Major lawsuits.
• Material rulings.
• Investigations.
• Fines.

2.5 Regulatory Events

• License changes.
• Penalties.
• Regulatory investigations.

2.6 Operational Events

• Major incidents.
• Production stoppage.
• Disruptions.
• Discoveries.

3. Timing

3.1 “As Soon as Company Knows”

• Without unjustified delay.
• Usually within hours.
• Before market opening.
• Before trading.

3.2 Confidentiality Before Disclosure

• Protecting the information.
• Preventing insider trading.
• Simultaneous disclosures.

Fifth: Disclosure Channels

1. “Tadawul” System

1.1 Official Disclosures

• Through Tadawul website.
• Advanced disclosure system.
• Available to public immediately.

1.2 Requirements

• Disclosure account for the company.
• Authorized disclosure officer.
• Electronic signature.
• According to templates.

2. Company Electronic Website

2.1 Investor Relations Page

• All disclosures.
• Reports.
• Announcements.
• Available always.

2.2 Updating

• Simultaneously with Tadawul.
• Without delay.
• With full content.

3. Newspapers

3.1 Requirements

• Some disclosures need publishing in newspapers.
• Two daily newspapers.
• In major financial aspects.
• For General Assemblies.

4. English Language Disclosures

4.1 The Trend

• To attract foreign investors.
• Large companies publish in Arabic and English.
• Mandatory increasing in large companies.
• International standards.

Sixth: Specialized Disclosures

1. Major Shareholder Disclosures

1.1 The Requirement

• Who owns 5% or more.
• Disclosure of ownership.
• Of changes.
• To Tadawul.

1.2 Changes

• Disclosure of any 1% change.
• Within 5 business days.
• For transparency.
• To prevent insider trading.

2. Insider Disclosures

2.1 The Requirement

• Board members.
• Senior executive management.
• Their transactions in company shares.
• Or shares of subsidiary companies.

2.2 Timing

• Within 5 business days of transaction.
• To Tadawul.
• To the public.

3. Merger and Acquisition Disclosures

3.1 The Requirement

• Disclosures stipulated in the Merger and Acquisition Regulations.
• With specified content.
• In stages.
• With full transparency.

3.2 Stages

• Initial intent.
• Official offer.
• Developments.
• Closing.

4. Issuance Disclosures

• Offering new shares.
• Issuing bonds.
• Prospectus.
• Detailed information.

Seventh: Non-Financial Reports

1. Governance Report

1.1 Content

Part of the annual report:

• Governance structure.
• Compliance with Regulations.
• Governance policies.
• Developments.

1.2 Quality

• Comprehensive and detailed.
• Transparent.
• With examples.
• With indicators.

2. Sustainability Report (ESG)

2.1 Content

• Environment.
• Social.
• Governance.
• International standards.

2.2 Standards

• GRI Standards.
• SASB.
• TCFD.
• ISSB.

3. Islamic Governance Reports

For Islamic financial institutions:

• Sharia Committee report.
• Compliance with Sharia provisions.
• Profits from Sharia sources.
• Sharia purification.

Eighth: Disclosure Responsibility

1. Board Responsibility

1.1 Overall Oversight

• Approving disclosure policy.
• Overseeing application.
• Periodic review.

1.2 Legal Responsibility

• Board members are responsible.
• Jointly.
• For accuracy of disclosures.
• For errors or omissions.

2. Management Responsibility

2.1 CEO

• Acknowledging accuracy of information.
• Acknowledging control effectiveness.
• Signing disclosures.

2.2 CFO

• Responsibility for financial statements.
• Financial acknowledgments.
• Communicating with the auditor.

3. Disclosure Officer

3.1 The Role

• Coordination.
• Verification.
• Sending.
• Follow-up.

3.2 Competency

• Appropriate qualifications.
• Knowledge of rules.
• Professional competency.

Ninth: False or Misleading Disclosures

1. Definition

1.1 Error

• Inaccurate information.
• Unintentional oversight.
• Translation error.
• Calculation error.

1.2 Misleading

• Intentionally wrong information.
• Concealing material information.
• Distorting the truth.
• Promoting lies.

2. Correction

2.1 Upon Discovery

• Immediate corrective disclosure.
• Explaining the error.
• Correct information.
• Reasons.

2.2 To Regulatory Authorities

• Reporting to the Authority.
• Cooperating with investigation.

3. Penalties

• Financial fines.
• Referral to Public Prosecution.
• Imprisonment for serious cases.
• Compensation to investors.

⚠️  Caution False or misleading disclosures are among the most serious violations in the capital market. Not a “technical violation” but may be a criminal offense. Famous global cases (Enron, WorldCom) showed there are no limits to penalties in this area. Saudi companies must treat every disclosure with utmost seriousness: legal review, pre-publication review, accuracy confirmation.

Tenth: Common Challenges

1. “Timing” Challenge

Difficulty determining when to disclose:

• Solution: clear policy.
• Alert procedures.
• Legal review.

2. “Materiality” Challenge

What is material?

• Solution: specific criteria.
• Consultations.
• Tendency to disclose in cases of doubt.

3. “Language” Challenge

Disclosure in two languages:

• Solution: professional translation.
• Simultaneity.
• Equal quality.

4. “Confidentiality Before Disclosure” Challenge

Preventing leakage:

• Solution: limited lists.
• Confidentiality agreements.
• Security system.

Eleventh: Best Practices

1. At the Policy Level

• Disclosure policy: comprehensive and updated.
• Materiality criteria: clear.
• Procedures: precise.
• Training: for everyone.

2. At the Structure Level

• Disclosure officer: dedicated.
• Disclosure committee: in large companies.
• Investor relations: professional.
• Legal support: specialized.

3. At the Quality Level

• Double verification: before publishing.
• Clear language: without complexity.
• Professional design: for reports.
• Accurate translation: for English.

4. At the Communication Level

• Investor meetings: after disclosures.
• Earnings calls: professional.
• Financial day: annually.
• Responses: to inquiries.

Conclusion

Disclosure and transparency are the language of good governance. Chapter Seven of the Regulations sets an advanced framework for disclosure requirements, ensuring all investors obtain necessary information at the right time. Compliance with these requirements is not a regulatory burden but a tool for building trust in the Saudi capital market, attracting investors, achieving fair valuation, and supporting market sustainability.

Leading Saudi companies exceed the minimum disclosure requirements, invest in report quality, adopt international standards, and communicate effectively with investors. This trend distinguishes companies in the eyes of investors, reduces capital costs, and builds long-term relationships. With continued developments in ESG requirements and specialized disclosures, the future promises higher standards. Companies prepared from now, committed to the highest disclosure standards, will be in a distinguished position for growth and prosperity in the evolving capital market.

🎯  Essential Points to Remember (1) Disclosure principles: accuracy, comprehensiveness, timing, equality, clarity. (2) Material information: what affects a reasonable investor’s decision. (3) Periodic disclosures: quarterly (30 days), annual (90 days), Board report. (4) Board report content precisely specified in Article 90. (5) Immediate disclosures: financial, management, strategic, legal, regulatory, operational. (6) Timing: as soon as company knows, usually within hours. (7) Channels: Tadawul, company website, newspapers, English for international investors. (8) Specialized disclosures: major shareholders (5%+), insiders, M&A. (9) Joint responsibility: Board, management, disclosure officer. (10) False disclosures are criminal offense, immediate correction is essential.

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FAQS

What are the five basic principles of disclosure under the Regulations?

Accuracy (correct information without misleading), comprehensiveness (all material information without selective hiding), timing (without unjustified delay), equality (the same information to all investors at the same time), and clarity (easy language and logical organization).

Material information is any information that, if known by a reasonable investor, would affect their decision to buy, sell, or hold the security, or would affect the share price, and is measured by its effect on financial statements, strategy, competitive position, or market value.

References and Sources

• Corporate Governance Regulations — Chapter Seven (Articles 84-93).
• Offer of Securities and Continuing Obligations Rules.
• Market Conduct Regulations.
• Capital Market Law (M/30).
• International Financial Reporting Standards (IFRS).
• OECD Disclosure and Transparency Principles.
• Global Reporting Initiative (GRI).
• SEC Disclosure Best Practices.
• PwC, KPMG, EY, Deloitte — Disclosure Guides.
• Saudi Organization for Chartered and Professional Accountants (SOCPA).