BACKGROUND OF

MOBILY
Mobily (Arabic: )is the trade name launched
in May 25th 2005 by Saudi Arabia's second
authorized Telecommunications company, EtihadEtisalat consortium (Arabic: ) .

Mobily was recognized by GSM World Association

as the fastest growing operator in all of the Middle
East and North Africa region within a year of
services launch.

It is considered as the first operator worldwide to

launch the 4G (TD-LTE) services commercially.

 It

was one of the first few companies in the world to

offer an unlimited data package, based on high-speed
downlink packet access (HSDPA) technology.
Mobily currently serves more than 22 million
subscribers in Saudi Arabia as it is known for its
innovative services and has built a niche by
distinguishing itself within the telecommunication
sector.
The company has a Saudi ownership comprising 40%
of the shares, 26.25% of the shares is owned by
Etisalat of UAE, and 33.75% of the stake is owned by
foreign investors

MOBILY FRAUDULENT
ACCOUNTING

THE KEY PLAYER

Khalid

Omar Al Kaf.

In order to remain competitive, and to retain

our winning position in the Kingdoms fast
developing telecom world, some capital
expenditure is necessary.

MOBILY FRAUDULENT
ACCOUNTING
What Happened?
On

November 3, Mobily said that a mistake relating to

the timing that revenue from a promotional programme
was recognised had affected earnings statements for
2013 and the first half of 2014.
Mobily cut its 2013 profit by 740 million Riyals ($197.28
million) and profit for the first-half of 2014 by 688 million
Riyals due to what it said were accounting errors.
The company also revealed that it had misaccounted
revenues related to the sale of top-up cards with
handsets via third party vendors, restating revenues
down by SAR6.3bn since the beginning of 2013.

MOBILY FRAUDULENT
ACCOUNTING
Although

the final investigation by Etisalat is yet to be

finalized, it seems that the company reported
revenues on contracts that were yet to mature.
These are the contracts in which future installments
are recognized by the company in full value upfront as
revenue.
In accounting this is would be a huge mistake as
revenues are reported once the service has been
delivered not contracted, especially when there are
opt-outs in the contracts.
Operating leases cannot be treated as Capital leases
simply because ownership will shift at the end of a
contract.

MOBILY FRAUDULENT
ACCOUNTING
What motivated the fraud to
happen?
CEO

reportedly earned on average SAR 30 million

every year, and withdrawals by shareholders of
SAR 13.1Bn (USD 3.5Bn) since 2010, the parties
involved were happy to book the deals.
In May 2015, a local financial news website
reported the CMA had recommended nine current
or former officials at Mobily be prosecuted for
violations that included insider trading, a week after
the regulator confirmed more than one person was
suspected of violating regulations on such conduct.

THE AUDITOR
Who?
The

external auditor of Mobily is Deloitte &

Touche Bakr Abulkhair & Co.
It was established more than half a century ago
and is part of Deloitte & Touche (M.E.). Deloitte &
Touche (M.E.) is a member firm of Deloitte Touche
Tohmatsu Limited (DTTL).

THE AUDITOR
How they failed their duties?
Auditors

failed to detect material misstatements.

Hence, it reflects poorly on the firm and the
profession in general.
They failed to test the implementation of
appropriate controls system to manage risks.
Thus, they failed to identify any irregularities that
could stem from incorrect financial reporting.
This

also leads to auditors allowing thereported

revenues on contracts that have not matured
yet to be published.

THE AFTER EFFECTS

The

CEO, Mr. Khalid Omar Al Kaf suspension took

effect from 21st November 2014 and was said to
last until the audit committee submits a report to
the board.
Deputy CEO Serkan Okandan, also the CFO of
Mobily will take over as the committee seeks to
identify responsibility for the mistakes in the
companys accounts, according to the statement.
Serkan Okandan

THE AFTER EFFECTS

Deloittes

firm was banned by Saudi Arabia from

auditing public companies there as of next June 1,
on account of its work for the targeted loss-making
company.
At the same time, the firm revised its 2014
financials, posting a loss instead of the earlier
announced profit and expected to breach
covenants on long-term loans.
The companys shares plummeted 30 percent
since Oct. 30 while third quarter profits dropped
more than 70%.

THE AFTER EFFECTS

Al

Bilad Capital, a Saudi bank claimed the stock

was undervalued. Practically all the other banks
were discouraging investments in the stock. In
addition, now that a few months have passed since
the reporting, it seems that all banks that were
providing the company with credit lines have since
tightened their support in terms of covenants and
lower limits.
With 770 million shares outstanding, this translates
to a price per share price of SAR 8.7, far lower than
the current price of SAR 39.

THE AFTER EFFECTS

After

the accounting error, it may make the investor

lose the faith for the company.
The company has breached covenants on longterm loans with various lenders.

CONCLUSION
CEO

is the first person who is liable for any error or

fraudulent information on the financial report of a
company.
It is important to maintain good ethical values and
integrity while recording financial statements.
An accounting scandal causes potential investors
to have a bad impression of a company and also
worries the existing investors on whether they are
likely to get returns on investments
Accounting scandals are likely to cause a huge
drop in the market share value of the company. For
example Mobilys share value fall by 8% to a 16
month low of 79.95 riyals during the scandal.

REFERENCES
Gulfbase.com.(2016).

Etihad Etisalat Co. - Mobily | EEC | Company

Overview. Retrieved 19 March 2016, from
http://www.gulfbase.com/profile-summary-etihad-etisalat-co-mobilyeec-452?pageid=39

Thegulfonline.com.

(2016). MOBILY Game changer in the kingdom

Features. Retrieved 19 March 2016, from
http://www.thegulfonline.com/Articles.aspx?ArtID=5177

Daily

Mail Online. (2014). Saudi regulator investigates Mobily after

earnings errors. Retrieved 20 March 2016, from
http://www.dailymail.co.uk/wires/reuters/article-2818486/Saudi-telcoMobily-Q3-net-profit-plunges-71-pct.html

Bloomberg.com.

(2014). Saudi Arabias Mobily Suspends CEO After

Accounting Error. Retrieved 20 March 2016, from
http://www.bloomberg.com/news/articles/2014-11-23/saudi-arabia-smobily-suspends-ceo-after-accounting-error

REFERENCES
How

significant were Mobilys accounting errors:

Credit Risk by Ramzi Watfa.Retrieved 19 March
2016:
http
://www.credit-risk-store.com/how-significant-were-mo
bilys-accounting-errors-credit-risk