pipfa journal (jan-jun 2013)

8/22/2019 PIPFA Journal (Jan-Jun 2013)

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Head Office:

M1 -M2, Me z z anine F l oor ,Park Avenue, 24-A, Block 6,PECHS, Shahra-e-Faisal, KarachiTel : 021-34380451-52Fax : 021-34327087E-mail : [email protected]

Website: www.pipfa.org.pk

Lahore Office:

42 Civic Centre, Barkat Market,New Garden Town, Lahore.Tel : 042-35838111, 35866896Fax : 042-35886948E-mail : [email protected]

Faisalabad Office:

Ajmal Centre -1, 289-1,Batala Colony, FaisalabadTel : 041-8500791, 041-8530110

E-mail : [email protected]

Publication Committee:

Mr. Jawed Mansha ChairmanMr. Shahzad Ahmad Awan MemberMr. Zia ur Rehman MemberMr. Adnan Zaman Member

Islamabad Office:

14-K, Firdous Plaza, F-8 Markaz,IslamabadTel : 051-2851572E-mail : [email protected]

PI PFA JOURN AL

MESSAGES:

President, PIPFA................................................................3

Chairman, Publications Committee..................................3

ARTICLES & Reviews:

Economic Tier ....................................................................4

Revised COSO Framework................................................7

Integrated Reporting (IR)..................................................9

Asian Developement Outlook - 2013 ...............................10Budget 2013 - Highlights..................................................15

NEWS UPDATES:

IFAC News ........................................................................17

SBP News..........................................................................19

SECP News .......................................................................19

ICAP News .......................................................................20

ICMAP News....................................................................20

PIPFA News & Seminars..................................................22

Entitlement to use Designatory letters APFA or FPFA and distinction of membership.

Continuing Professional Development through publications, seminars, workshops etc.

Eligibility for Chief Financial Officer or Company Secretary of listed company.

Entitlement for qualification pay etc. to PIPFA Public Sector Qualified.

Opportunities to inter-act at the national level with elite accounting community.

Exemptions in examinat ion of IC AP , IC MAP , C IMA-U K, AC C A etc .

Professional activities like election of representatives etc.

We are asl o pu rsu ing High er Ed ucation Commission of Pakistan to gran t PIPFAqualified / member equal to B.Com Graduate.

Dealing also with Federal Board of Revenue (FBR ), Pakistan to allow PIPFA memb ersfor Tax Practicing.

Why PIPFA?PIPFAs Membership entails many advantages like:

S alient features of P IP F A Q ualification

On qualifying Final Level, one may apply fothe management level jobs like FinanciaAdvisor / Financial Officer.

Elevation in Auditor General of Pakistan foBPS -17 is possible after qualifying PIPFA

Students may join audit fi rms as Audit Traineor internship in Financial InstitutesOrganizations.

VIEWS EXPRESSED HERE DO NOT NECESSARILY REPRESENT THE OFFICIAL POLICY OF THE INSTITUTE


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Mr. Zia ur RehmanMember

(Nominee of AGP)

Pak i st an I n st i t u t e o f Pu bl i c Fi n an c e Ac c o u n t an t s

E X E C U T I V E C O M M I T T E E

Dr. Syed Turab Hyder Chairman

Mr. Shahzad Ahmad Awan Member

Mr. Rafaqatullah Babar Member

Mian Muhammad Shoaib Member

B O A R D O F G O V E R N O R S S T A N D I N G C O M M I T T E E S

B O A R D O F S T U D I E S

Mr. Zia Ur Rehman ChairmanMr. Rashid Rahman Mir Member


Mr. Adnan Zaman Member

Mr. Sajjad Ahmad Member

Mr. Jawed Mansha Member

E X A M I N A T I O N C O M M I T T E E

Mr. Shahzad Ahmad Awan Chairman

Mr. Rashid Rahman Mir Member

Mr. Muhammad Sharif Member



Mr. Jawed Mansha Member

R E G U L A T I O N A N D

D I S C I P L I N A R Y C O M M I T T E E

Mr. Shahzad Ahmad Awan Chairman

Mian Muhammad Shoaib Member


P U B L I C A T I O N A N D S E M I N A R

C O M M I T T E E

Mr. Jawed Mansha Chairman

Mr. Shahzad Ahmad Awan Member

Mr. Zia ur Rehman Member


Mr. Dost Ali ShahMember

(Nominee of AGP)

Mr. Adnan ZamanMember

(Nominee of ICAP)

Mr. Muhammad SharifMember(Elected)

Mr. Sajid HussainMember(Elected)

Mr. Sajjad AhmadMember

(Nominee of ICMAP)

Mr. Rashid Rahman MirMember

(Nominee of ICAP)

Mr. Jawed ManshaMember

(Nominee of ICMAP)

Dr. Syed Turab HyderPresident

(Nominee of AGP)

Mr. Shahzad Ahmad AwanVice President

(Nominee of ICMAP)

Mr. Rafaqatullah BabarSecretary

(Nominee of ICAP)

Mian Muhammad ShoaibTreasurer / Joint Secretary

(Elected)


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PI PFA JOURN ALM essag es

It is of immense pleasure to present 9th edition of PIPFA Journal. PIPFAhas completed 20 years of success with a clear direction for the future. Sincethe founding of PIPFA in 1993, we have been carrying out all of our activitiesfollowing our basic philosophy "Identification, development and impartingknowledge to provide a structure for the training of accounting professionalsin the specialized areas", which commits us to making a contribution throughour services for improving accounting education in the country, and furtherprogress of the profession.

The honor and prestige of a professional depends on his knowledge, skill andunderstanding of the core professional concepts, processes and procedures.

In fact the working and output of a professional is rooted in his comprehension of the basics of the subject.Unless & until a professional truly masters the core professional techniques and practices, he/she cannotdeliver in accordance with expectations of stake holders. In accounting, auditing and financial managementregimes, there have been continuous development and expansion over the last few decades. With theintroduction of computers and information technology, an entirely revolutionary change has engulfed

the accounting, auditing and financial management procedures and techniques. The combination oflatest professional ideas with technology has posed a great challenge to the real professional if he iscommitted to keep him abreast with modern ideas. It also affords opportunies for us to contribute moreeffectively in organizational and national development.

PIPFA has been endeavoring for continuing professional development of supervisory accounting andauditing professionals in public and private sectors. As we celebrate the twenty years milestone, our focusis firmly on the sound professional growth of human capital. We would continue to work for thedevelopment of the profession with commitment to dvelope the human resource which is the most criticalfactor in overall development of the country.

The sharing of ideas and knowledge through this journal is another step in these efforts of PIPFA. I hopethe readers would appreciate this humble effort.

Dr. Syed Turab Haider

I am delighted to present 9th edition of PIPFA Journal. You will find it containsa comprehensive range of information about the field of accountancy. Facingnew challenges in the 21st Century, PIPFA is dedicated to continuing its crucialprofessional & academic role. In an age where boundaries between countries,cultures, and fields of knowledge dramatically shrink, PIPFA aims to cultivatefuture leaders by providing Members & Students with a bigger, broader, andmore expansive perspective on our global community.

We believe that Pakistan has potential to become a global economic player.It's powerful vision which can be realized if there is a focus on economic growth and implementing thevital reforms needed to stimulate and underpin growth.

Pakistan must take steps to harness private sector dynamism in boosting investment and growth.Inefficient public sector enterprises play too large a role in economy. They should be reformed or privatized.Bureaucratic barriers to private business need to be reduced and property rights better protected.Pakistan's economy is interlinked with global economies. If economies at global level perform well, itwould have positive effects here as well. There is need to adopt national economic reforms agenda forbetter future of its economy.

We invite you to join our academic community, and to aid us in our commitment to create a better future.We always welcome our members' feedback so please let us know if you have any comments or suggestions.

Jawed Mansha

Pr esid en t

Ch ai r man Pu bl i c at i o n& Semin ar Co mmi t t ee


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ARTICLES PI PFA JOURN AL

Jaunary - June 2013, 4

IntroductionEconomic tier is the satisfaction of goods supplied and goods consumed. The trading between the two countries are thefactors govern on its proximity; prices; trade relationship; and comparative costs. What are the normal expendituresin social sectors, development sectors, indicate the priority of population of the country in the state of live-being. Food,clothes and shelter are the basic wants of the person, while we study the subject of Economics.

Economy ReachesThe infrastructure in communication, population pressure, and traffic, indicate how it is united in interest of living andsecurity of people among themselves. This factor helps in development in a priority of infrastructures. This also helpsremove or reduce the inflammation among the people. It is always worthwhile to think before you leap or think hundredtimes before you leap, this is the temperament of the people by having good resources of personal and global infrastructures.The international trade of exports and imports teach the type of goods and services and its infrastructure in the meaningof men, machine, moral, discipline, confidence, and integrity, which can be adhered, to economize and develop towards

its own resources. This infrastructure builds closer ties between the two traders.

Transportations and FeasibilityThe automation are the speed of development in the work and environment which also help mechanization of farming.Exploration in the most basic choice is finding food, clothes and shelter. Farming is the most simple exploration at thesurface of earth. The mobility of environment is governed by effective transportations and communications. The companies

ECON OM I C TI ERB y : R a s h i d P e r v e z , F P F A


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may hold its power of achieving theb e n e f i t f r o m a u t o m a t i o n .Transportation facilities can be analysedwith the following reviews:

* What are the natural resources of thecountry in the field of forestry,minerals, and mines.

* How is agricultural growth of thecountry. Do the grows suffice the needof whole population.

* Are the crops grows able to beexported in the international markets,whic h may give choice of overproduction in agriculture for moreconsumption and utilization of time,efforts and money.

* What source of transportation isnormally used in agricultural cropse xports . And what are thepreservatives which are used forsecuring from perishibility ofagricultural crops while transportingfor exports.

* What are the general demands andsupplies of the people and how it islooked after.

Developed StudiesThere should be motivation ofdeveloped studies in the country, whichcan be applied for research anddevelopment activities. The countrywhich lacks in education of researches,

it may mean that the people are notcompetitive worth to compete withother people who are actively engagedin developing their goods and servicesthrough continued researches. Theresearch and development should be

an active part in mobilization andmodernization of goods and services.The outcome of research anddevelopment of goods and services mayhelp the foreign exchange parities.

Power ControlThe companies should be encouragedto have their own power houses to caterpower consumption in the company.This will help competition in the powersectors. The ratio of demand of powerin general will be reduced by havingmore production and supply of powerwhich will help cost effectiveness,against failures, production losses andalso will be a sigh of futuristic

dependency at ones own power house.The excess production in the powerhouses over their own consumptionscan be a selling goods for the companiesto the general power companies whichmay be a help in economy contributionin the basic need of power fordevelopment. If this becomes acommercial goods for the business, thiscan reduce the dependency of failurein power supply management.

InternationalTrading

While negotiatingi m p o r t s t h ecompanies shouldbe encouraged tobring some exportsorder. On the basis,i t c a n b e a n

incentive optionfor internationaltrade to monitorimport and exportwith. The optionsbrought availablefor exports can bep r o m o t e dthrough to theg e n e r a lentrepreneurswho can export to

the same country whom import ordersare being given. This will control foreignexchange stability of cost and benefitbasis. That an analysis can be madehow much foreign currencies areexpensed and how much foreigncurrencies are earned from suchcountries. On transaction to transactionbasis it may be a more centralizedmonetary control which also monitorsthe prices of goods in the economy.

Certain understanding on themonitoring of international trade canbe reviewed :

* How the goods are available forexports and in demand in the local

m a r k e t s a r e a d v e r t i s e dpromotionally. Can anyone take andpick the order for goods for exports,he can purchase or produce to exportfrom certain source.

* Is in the international offices of thecountry accessed to any person fororders of imports.

* Can such promotion be directly asource to be in touch with theinternational market for exports ofgoods. Is there any bulletinperiodically published for the

purpose.* W h a t a r e t h e h a bb i t s of

consumptions. Whether importedgoods are the priority or locallymanufactured goods.

* What are the distribution channelsof goods and services. Are these


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distribution channels cater to thewhole area of the country, and thegoods and services can be traded tothe proximity of whole population.

* Which origin of goods are in demandin the country. Are they oftenlyavailable in the market. What are thesubstitute of those imports in termsof employment of cost and servicesin purchase and production.

* Visits from abroad is a good amountof balance of trade functioningthrough the visiting services. Whatare the percentage in this sector inthe GDP of the country. Are theyneeded to be upgraded with the

facilities for foreigners visiting thecountry, which can be a feasibleinvestment and development in thisprofit centre.

* Are there any alliances in theeconomic trade. What are exportsand imports of the country withalliance economic trading countries.

* Is there barter trades with anycountry. What it is needed for; eitherthe constraints in foreign exchange;or there may be availability of thegoods between the bartering

countries in supply and consumption.* What is the minimum wage rate in

the economy. What is the per capitaincome in the economy. What is thegeneral price index ofc o m m o n p e o p l e sn e c e s s a r i e s . H o w imports are managedwith internat ionalprices.

* Are there demographymaintenance by classand groups in terms of

prices. How generalindex of prices aremaintained to the lowincome group, whenimport based economyare managed for theprices to the commonp e o p l e a smodernization.

Exchange Control-Franchises

W h i l e g i v i n g t h e

importance of foreign exchangereserves, the franchises products whichcan be easily produced and catered andwhich are not as essential as the foreignexchange should be applied the costand benefit analyses. Like what thefranchise chains and supplies consumesthe foreign exchanges, what impact itleaves the prices of foreign currencydue to more requirement in reservesfor the liability, what will be the impacton the general price index due to moreconsumption of foreign exchanges.Moreover it is also true that productswhich are of foreign franchise can beresearched to bring in local productioncapacity for consumption and demand.

What people need, is the governance,and the governance is run by the percapita income of the economy. This canalso be made responsible to the foreignexchange reserves in the cost andbenefit analyses results in foreignexchanges. The goods offered for higherprice affordability and the goodsavailable for lower price affordabilityin its general consumptions of foods,clothes and shelter is the factor whereprice control exercises can bemonitored.

E x c h a n g e C o n t r o l -ConsumptionsIn a struggle of foreign currency reserve

building through the internationaltrade, it may be may encouraging tocontrol expenses in the society whichshould be analysed in the consumptionof goods and supplies and are suchwhich is under the exchange regulatorycontrol i.e., imported supplies. Theaverage prices maintenance can controlexcess expenditure. The savings in thesociety will be encouraged. The CentralBank when controlling the supply ofcash resources does come in the openmarket operation to offer savings andinvestments, to the people. This controlsthe prices to the average earners. Thisalso mobilizes the savings fordevelopment expenditures. The foreign

exchange control is also monitored inself reliance of production andconsumption. In all the way, prices aremaintained.

Budgetary Control CostHow Annual Budget is monitored. Is itcompared at the end of the year withprevious years budget to projectachievements and losses. How thevariances are studied with reasons tolearn to cope those variances whichi n d i c a t e s r e q u i r e m e n t s f o rimprovements. in those accounts. How

the deficit or losses in the Budget iscatered. Is the financing for deficit ispaid back or absorbed by financingcompanies.


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On May 14, 2013, the Committee ofSponsoring Organizations of theTreadway Commission (COSO) issuedthe revised version of its InternalControl-Integrated Framework (theFramework). The revised Frameworkwill help improve implementation ofinternal control but further adjustmentsare warranted to align internal controlacross the globe and to helporganizations better manage their risksand improve their overall performance.

The Professional Accountants inBusiness (PAIB) Committee of theInternational Federation of Accountants(IFAC) has been closely involved in therevision, with two representatives onthe COSO advisory council for the

project. Additionally, the PAIBCommittee submitted two formalcomment letters to both COSO internalcontrol exposure drafts.

Key Features of the RevisedFrameworkThe revised Framework uses the samedefinition of internal control as the

previous version and builds on the samefive components of internal control: thecontrol environment, risk assessment,control activities, information andcommunication, and monitoringactivities. The Framework alsocontinues to emphasize the importanceof management judgment in designing,implementing, and conducting internalcontrol , and in assessing i tseffectiveness.

So what has changed? The revisedFramework now:

articulates the fundamental conceptsunderlying the five components inthe form of 17 guiding principles andmore detailed points of focus;

takes into account environmentalchanges, such as increasedglobalization, complexity, andregulation, the growing importanceof technology, and increasedexpectations for better governanceoversight and fraud prevention;

expands the operations objective

from effective and efficient use oft h e e n t i t y ' s r e s o u r c e s t oeffectiveness and efficiency of theentity's operations, includingo p e r a t i o n a l a n d f i n a n c i a lperformance goals, and safeguardingassets against loss;

broadens the reporting objectivef r o m p u b l i s h e d f i n a n c i a lstatements to internal and externalf inancial and non-f inancialreporting; and

provides additional approaches andexamples relevant to operations,compliance, and non-financialreporting objectives.

COSO also issued two additionalpublications.

Il lustrat iveT o o l s f o r

A s s e s s i n gEffectiveness of aSystem of InternalControl assistsu s e r s w h e na s s e s s i n geffectiveness ofinternal controlba s e d o n t herequirements ofthe Framework.

I n t e r n a lC o n t r o l o v e r

External FinancialR e p o r t i n g : A Compendium ofApproaches and

Examples assists users whenapplying the Framework to externalfinancial reporting objectives.

The revised Framework will supersedethe original Framework at the end of2014, giving organizations time totransition. COSO anticipates a relativelyeasy transition process for those

Rev i sed COSO Fr amew o r kI mpr o v ed bu t Ad d i t i o n al

Ad j u st men t s St i l l N eed edb y V in c e n t T o p h o ff

S e n i o r T e c h n i c a l M a n a g e r , I F A C


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organizations that have properlyapplied the original Framework (1992).In fact, the new principles and pointsof focus should make it easier fororganizations to see what is coveredand where gaps may exist.

IFAC PAIBCommittee's ViewThe IFAC PAIB Committee commendsCOSO for being one of the first andforemost thought leaders in internalcontrol, starting with the publicationof the original Framework and followedby a series of related high-qual itypublications. The committee agrees thatwhile many of the underlying concepts

of the original Framework have proventhemselves over t ime, g lobaldevelopments, including the financialcrises, in recent years required arevision.

However, while the revised Frameworkrepresents a step forward in articulatingprinciples of effective internal controland incorporating a number ofconsiderations relevant to today'scomplex business environment, thereremains work to be done to advanceand harmonize risk management and

internal control guidelines across theg l ob e and to b e t te r s u pportorganizations dealing with the manyeconomic, social, and environmentalchallenges they face.

The PAIB Committee believes that it isin COSO's long-term interest tocontinue evolving its Framework inorder to make it more relevant to thebroader global community and thechallenges faced, and stands ready toassist COSO make progress in this area.The PAIB Committee has formulated a

number of recommendations for furtherdevelopment.

For the Framework to remainrelevant in an environment ofgreater global integration, COSOshould further integrate its InternalControl Framework with itsEnterprise Risk Management (ERM)Framework, released in 2004, aswell as better align it with theconcepts and terminology in otherframeworks, standards, andguidelines on governance, risk

management, and internal controlfrom across the globe. This willenable organizations to makeinternal control a natural andintegrated part of their overall riskmanagement and governancearrangements.

The Framework should embrace awider perspective than its currentlimited application to internalcontrol over reporting, operations,and compliance, for example, bybroadening the definition of internalcontrol so as to permit the inclusionof other areas, such as businessstrategy and finance, in whichinternal control also plays a crucial

role. Before the string of financialcrises, many organizations wereoverly focused on financial reportingcontrols. These crises highlightedthe fact that many, if not most, ofthe risks that affected organizationsd e r i v e d f r o m e x t e r n a lcircumstances. This includes theincreasing social and environmentalrisks that organizations encounter,such as mitigating the threats andt a k i n g a d v a n t a g e o f t h eopportunities related to global

warming. As the achievement of objectives is

at the heart of the COSO definitionof internal control, objective settingshould be included in thecomponents of internal control. Thiswould assure better alignment withthe related COSO ERM Framework,which includes objective setting asa separate component, andemphasize that strengthening anentity's systems of internal controlcan only be done from the

perspective of the organization'sobjectives.

The Framework should further alignt h e v a r i o u s c o n c e p t s a n dterminology in relation to riskmanagement and internal controlwith the other standards, guidance,and frameworks that have beenissued since the conception of theoriginal Framework. This includesthe definitions of risk and internalcontrol, balancing the positive andnegative sides of risk, and rethinking

of difficult to understand conceptssuch as risk appetite and inherentcontrols.

Constructive DialogueIFAC is well-positioned to facilitate aconstructive dialogue with the issuersof standards, guidance, and frameworksin the area of governance, riskmanagement, and internal controlacross the world on how theterminology, various concepts, andguidelines could be better aligned inthe future.

Further international alignment is anambitious and challenging goal, but thepotential benefits are significant. It is

up to all those responsible fordeveloping, implementing, using, andenforcing requirements and guidelineson governance, risk management, andinternal control to work together toproduce globally-aligned terminology,concepts, and guidelines that arerelevant to all. IFAC and the PAIBCommittee look forward to contributingto this collaborative effort.



Additiona l IF AC

GuidanceDespite the existence of soundinternal control guidelines, such asthe revised COSO Framework, it isoften the application of suchguidelines that fails or could bef u rthe r improv e d in manyo r g a n i z a t i o n s . W i t h t h eInternational Good PracticeGuidance, (IFAC, 2012), the PAIBCommittee provides a practical guidefocused on how professional

accountants in business can supporttheir organization in evaluating andimproving internal control as anintegral part of its governancesystem and risk management. Theguidance is complementary toexisting internal control guidelinesand is based on those internalcontrol matters that often causedifficulties in practice. Both the fullguidance as well as an are availablefree of charge on the .


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The International Integrated Reporting Council (IIRC) is aglobal coalition of business, investors, regulators, standardsetters, the accounting profession, and NGOs. This coalitionis driving forward developments in corporate reporting-responding to further shifts in thinking and behaviour inorder to shape a new reporting model for the 21st Century.This initiative will have a profound and beneficial impactfor businesses, investors, capital markets and economies.

The accounting profession will have a large role to play inthis evolution of reporting, ensuring it becomes more relevantand meaningful to providers of financial capital and other

stakeholders. Integrated reporting() is an opportunity foraccountants to enhance theprofession's relevance by helpingorganizations reveal more abouthow they create and sustainvalue over time.

is a market-ledevolution in corporatereporting. It enhances thecommunication betweenorganizations and theirs t a k e h o l d e r s ,

e n s u r i n g t h a ti n v e s t o r s h a v egreater insights intothe business model andfuture outlook andp r o s p e c t s , t h e r e b y encouraging long-termthinking and transparency.As highlighted in the recentIFAC report, Investor Demandfor Environmental, Social, andGovernance (ESG) Disclosures,short-termism in the markets cancreate volatility and contribute to

financial instability that erodes long-term value. To make decisions, providers of financial capitalneed to have an understanding of, and confidence in, thebusiness model, as well as greater visibility over how thebusiness creates value over time. A better relationshipbetween business and its stakeholders, once IntegratedReporting becomes more widespread, will help to promotea more resilient global economy, and greater market-stabilitythrough longer term investments.

The composition of the market value of a business haschanged substantially over the last 40 years, demonstratingthat we live in a more complex business environment today.

Research conducted by Ocean Tomo demonstrates that in1975, 83% of a company's market value could be traced totangible assets in financial statements. Today, only around20% of a company's market value can be accounted for byits tangible assets.

All businesses rely on a variety of capitals for their success,including relationships with customers and the supply chain,the ability to innovate, as well as access to publicinfrastructure. Increasingly, as the businesses in our PilotProgramme are telling us, when businesses manage allrelevant capitals such as intellectual, human, natural, and

social and relationships capitals, there isa concurrent shift in focus towardsfuture outlook and the creation ofvalue.

An organization should be heldfully accountable for its use of

investor funds and thisinformation clearly has a

crucial bearing on anydecisions providers of

financial capital make.Integrated reportingb u i l d s o n , a n d

complements, ratherthan replaces the needfor f inancial and

c o r p o r a t e s o c i a lresponsibility reporting.

The IIRC Pilot Programme,wh ich is made up of a

Business Network with over 90world-renowned businesses

such as Microsoft, Unilever, andthe Big Four accounting firms, and

over 50 investor organizations, hasbeen driving forward this market-led

evolution. The participants' feed backto the IIRC their experiences whilst on

the road to and thereby help shape the International Framework. The Framework establishes thefundamental concepts, guiding principles, and contentelements that will underpin the preparation of an integratedreport (see graphic).

Until the 15 July 2013 deadline, the IIRC will be calling onall stakeholders to sumbit feedback on the ConsultationD r a f t o f t h e F r a m e w o r k . P l e a s e v i s i twww.theiirc.org/consultationdraft2013 and respond to theDraft to ensure the Framework is robust, allowing businessesto speak the language of resilient business.

I n t eg r at ed

Repo r t i n g (I R)


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Repo r t PI PFA JOURN AL


Pakistan growth picked up slightly, butfor the fifth consecutive year low growth,falling investment, excessive fiscaldeficits, high inflation, and adeteriorating external position weighedon the economy. While problematicsecurity and natural disasters areendemic, a difficult political situationstalled effective policy response to

macroeconomic and structuralproblems, especially regarding energy.As official reserves are steadily decliningon low capital inflows and heavy debtrepayments, downside risks color theoutlook.

Economic assessmentEconomic performance during the firsthalf of FY2012 (ended June 2012) wasdriven by a rebound from the devastatingfloods a year earlier that was partly offsetby record power outages from loadshedding in the second half. Growth

strengthened to 3.7% but again remainedwell below the 7% pace needed to absorbnew workforce entrants (Figure 3.20.1).

Agriculture recovered to grow by 3.1%,as better weather favored the productionof major crops, though minor crops inparts of the country were hurt by floods.

Industry expanded by 3.4%, mainly frompost-flood reconstruction. The impactof the higher load shedding was apparentas large-scale manufacturing reversedearly gains, tapering off to 1.2%expansion for the year, even lower thanthe flood-induced slowdown to 1.8% inFY2011. Output of intermediate goodsdeclined for the third year in a row as

Pakistans steel, petroleum refining, andfertilizer industries continue to operatewell below capacity. The large servicesector, growing by 4.0%, continued toaccount for most GDP expansion. Privateconsumption expenditure expanded by11.6% in FY2012 to provide nearly allGDP growth (Figure 3.20.2). As in past

years, it ben efited from risi ngremittances and government salaryincreases. Fixed investment fell for thefourth year in a row, to 10.9% of GDP,the lowest share since 1974 and thelowest among major Asian countries(Figure 3.20.3). This downdraft is beingdriven by prevailing security issues,worsening power shortages, and growingconcern over the general direction andoutlook for the economy. Clearly, thesteady decline in investment, coupledwith reliance on consumption for

growth, is unsustainable andundermines future growth prospects.

Investment subtracted 1.4 percentagepoints from growth in FY2012. Netexports subtracted 3.8 percentage pointspartly because energy outages frustratedproducers efforts to reliably meet exportschedules and partly because demandwas slack from the global slowdown.Food inflation eased in FY2012, allowingconsumer price inflation to slow fromthe 13.7% average pace of FY2011 to11.0% in FY2012.

Thepersistence of inflation in nonfoodcomponents is evident in the observation

that core inflation measures, whichexclude food and energy, acceleratedfrom 9.5% at the beginning of FY2012to 11.4% by June 2012, as more items inthe basket experienced double-digitincreases. The FY2012 budget deficitballooned to 8.5% of GDP from 6.6% inthe previous year, well above the 4%target (Figure 3.20.4). The bulk of theoverrun was from recurrent outlays,mainly higher spending on powersubsidies and funding to partly settlepower sector arrears. Interest payments

Asi an D ev el o pemen t

O u t l o o k - 2013(Pak i st an )


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were also over budget, increasing to 4.0%of GDP and 42.2% of federal tax revenue,as domestic borrowing drove up thegovernments domestic debt by 27%.Patterns from previous years continued,as outlays for wages and other expenses,pensions, subsidies, defense, and interestpayments substantially exceeded federaltax revenues, leaving the governmentscurrent operations to be substantially

financed through debt (Figure3.20.5).

Development expenditure, restricted byflooding in FY2011, bounced back andmet its targeted 3.5% of GDP. Taxrevenues collected by the Federal Boardof Revenue increased to 9.1% of GDPfrom 8.6% in FY2011 but still fell short

of budget targets. The20.8% growth intax revenue reflected in part receiptsfrom flood- related emergency measures,higher sales tax receipts on imports

(particularly oil), and administrativeimprovements. There was also asignificant shortfall on nontax revenuesas Coalition Support Fund receipts andthe auction of 3G mobile phone licenseswere delayed. Collections under thepetroleum development levy fell shortas it was reduced to offset the impact ofhigher oil prices on consumers. Themagnitude of recent deficits workedagainst compliance with the FiscalResponsibility and Debt Limitation Act,2005. The provisions of the act calledfor a revenue surplus over current

expenditure by FY2008 to ensureadequate capacity for public investment,doubling the share of spending allocatedto health and education, and debt limits.While these goals appear distant atpresent, achieving them seemed feasibleat the time, as FY2004FY2007 fiscaldeficits averaged a low 3.6% of GDP,there was near revenue balance, andforeign direct investment inflows toprivatize state-owned enterprises wereon the rise. As external financing covereda scant 10% of the FY2012 deficit, the

bulk of financing came from domesticmarkets, including PRs505.7billion inborrowing from the State Bank ofPakistan, the central bank. A legalrestriction calling for borrowing fromthe central bank to be zero at the end ofeach quarter fell by the wayside. The27% increase in government domesticdebt was mostly in short-term issuesthat eroded the government debtmaturity structure and heightenedrollover risk. Public debt expanded toPRs1.6 trillion in FY2012, raising theratio of government debt to GDP to

62.5% (Figure 3.20.6), which

substantially exceeded the limit set underthe Fiscal Responsibi l i ty andDebtLimitationAct. External publicdebt dropped from 27.6% of GDP to

25.6%, while domestic public debtincluding the debt of state-ownedenterprises increased from 33.3% of GDPto 37.0%. Pakistans debt is higher thanthe recommended 30%40% of GDPfor economies at a similar stage ofdevelopment.

The central bank policy stance in FY2012was generally accommodative. Asinflation eased early in the year, itlowered the policy rate by 200 basispoints to 12% to stimulate investmentand strengthen growth. However,

surging deficits made government debtreadily available and more attractivethan lending to the private sector in arisky business environment, whichinhibited commercial banks financialintermediation. Bank loans to privateb u s i n e s s e s d i d i n c r e a s e b yPRs18.3billion, or 0.8%, but this amountwas dwarfed by banks PRs692billionin lending to the government (Figure3.20.7). Broad money growth of 14.1%

in FY2012 was somewhat slower thanin the year earlier, largely reflecting thedrawdown of foreign exchange reserves,ensuring that money growth cameentirely through an expansion of netdomestic assets. The loss of foreignexchange reserves, combined with thelarge amount of government debtentering the market, caused liquidityshortages at banks that were met byweekly injections by the central bank of


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up to PRs600 billion, far larger than inthe past. The current account returnedto a deficit of 2.0% of GDP in FY2012,after a marginal surplus in FY2011(Figure 3.20.8). The reversal camemainly from an 11.9% increase in

imports, as oil payments increased bynearly 17% and fertilizer imports doubledbecause of shortages of natural gas.Exports contracted by 2.8%, as textileexports stagnated, cotton prices fell, andfood exports declined. Remittancescontinued to grow at a robust 17.7% pace,somewhat slower than a year earlier, butstill providing an important cushion forthe trade account deficit. Inflows in the

capital and financial accounts continuedto decline, while debt amortizationpayments increased, reducing net liquidforeign exchange reserves by about one-quarter in FY2012, to $10.8 billion, or2.6months of import cover. Foreigndirect investment fell to $821 million,and private portfolio investmentrecorded net outflow. Sustained inflationand pressure on the foreign exchangemarket induced a 9.1% depreciation ofthe Pakistan rupee against the US dollar.

ProspectsThe end of the governments 5-year termin mid-March 2013 limited political

scope for major policy or structuralreforms. Economic developments inFY2013 are therefore unfolding alongbroadly similar lines as in FY2012 butwi th de epen ing conc er ns abo utsustainability and the adequacy offoreignreserves.

The economic situation weakenedfurther in the first half of FY2013 asofficial reserves declined markedly, foodand general inflation both reacceleratedin January following their earlier decline,and exports stagnated while imports

contracted. Economic growth is expectedto slow to 3.6% in FY2013, with risks onthe downside from possible shortfalls inagricultural production, which may offsetthe modest improvement in large-scalemanufacturing during the first half ofthe year. Production of petroleumproducts, iron, and steel picked up, butgrowth in textiles and food, whichaccount for almost half of large-scalemanufacturing production and the bulkof exports, remained negligible.Manufacturing performance for the yearwill hinge largely on limiting power

outages during the hot season, whendemand peaks. With little prospect forimproving energy supply or investment,growth is expected to remain weak at3.5% in FY2014.

Consumer price inflation continued adownward trend during most of the first8 months of FY2013 as food priceinflation decelerated. However, year-on-year inflation at 7.4% in February 2013was higher than the year low of 6.9% inNovember 2012 as food prices movedhigher (Figure 3.20.9). Nevertheless,

food inflation in this fiscal year is muchslower than a year earlier, reflectingimproved supply. Core inflation,excluding food and energy, alsoimproved but, at 9.6% in February 2013,remains stubbornly high with many ofits subcomponents staying in doubledigits, reflecting entrenched inflationarypressure in the economy. However, withslower growth in food and energy prices,inflation is expected to average 9.0% inFY2013, or 2 percentage points lowerthan in the previous fiscal year. On the

expectation that there will be nosubstantive improvement in thecountrys fiscal and energy imbalancesin FY2014, inflation is expected to edgeup to 9.5%.

Easing inflation early in FY2013prompted further reductions in thecentral banks main policy rate by a totalof 250 basis points, bringing it to 9.5%in December 2012 (Figure 3.20.10).

While banks weighted average rate onnew loans in this period fell by about200 basis points to 11.3%, overarchingconstraints coming from energyshortages and other uncertainties, suchas law and order issues, will limit the


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impact of interest rate reductions oninvestment and business conditions ingeneral. A modest increase in lending toprivate businesses in the first 7 monthsof FY2013 was mainly for workingcapital, with the bulk of lending goingto textile firms.

A modest surplus in the current accountduring the first 7 months of FY2013,following inflows of $1.8 billion fromthe Coalition Support Fund, reverted toa deficit of $700 million in February2013. As disbursements of the samemagnitude are not expected during thesecond half of the year, it is expectedthat the current account will post a deficiton the order of 0.8% of GDP. Exports

contracted by 0.9% during the first 8months of FY2013, but a 3.5%contraction in imports was four timeslarger (Figure 3.20.11). Low export

growth was largely the result of 2.7%lower textile exports, reflecting theimpact of sustained energy shortages,difficulties in meeting productionschedules, and slack global demand. The

contraction in imports was mostly offood, transportation equipment, andpetroleum.

Despite improvement in the currentaccount, net liquid foreign exchangereserves declined further, dropping from$10.8 billion at the end of June 2012 to$7.9 billion at the end of February(Figure 3.20.12), reflecting higher debtamortization payments, includingpayments to the International MonetaryFund (IMF), and lower financial inflows.

Low reserves adequacy, at less than 2months of imports cover as of February

2013, raises concern over external sectorsustainability. Pressure on reserves isexpected to continue, with an additional$1.7 billion due to the IMF before theend of FY2013 and $3.2 billion duringFY2014. Thefinancial account was indeficit during the first 8 months ofFY2013 (Figure 3.20.13) despite a

modest revival in portfolio inflows asforeign direct investment stagnated. Thenominal exchange rate depreciated by4% in the first 8 months of FY2013.

Continued weak export prospects,combined with limited import demandheld down by slow domestic growth andrelatively stable global prices for oil,support a projection that the currentdeficit will increase marginally to 0.9%

of GDP in FY2014. However, weakcapital inflows and large debtrepayments, including to the IMF, willput pressure on the official reserves andthe exchange rate.

The fiscal outlook is largely unchangedfrom FY2012. Revenue targetsannounced with the FY2013 budget areunlikely to be met, as tax receipts havegrown by only 12.0% in the first 6months, well below the 23.7% increaseneeded to meet budget targets. On theexpenditure side, overruns on interestoutlays and subsidies are again expected,as subsidy allocations of PRs120 billionhave already been exceeded and willreach at least PRs200 billion along with

a further buildup of power sector arrears.The deficit for the first half of FY2013 is2.5% of GDP, including the 0.7% of GDPfrom the Coalition Support Fund that isthe single payment for the year. Givennormal quarterly patterns for fiscalbalances, the deficit for FY2013 isexpected to breach the 4.7% target andis likely to come in at 7.0%7.5% of GDP,excluding any payments to settle powersector arrears.

Government bank borrowing continuedin the first half of FY2013. The

government did acknowledgerequirements under the State Bank ofPakistan Act by retiring PRs399 billionof the PRs505 billion borrowed from thecentral bank during the first quarter ofFY2013, before borrowing back PRs183billion in the second quarter in responseto fiscal pressures, thereby breachingthe act once again. Large governmentborrowing from commercial banksrequires ever-larger injections from thecentral bank on a weekly basis to meetbanks liquidity requirements and keep

money market rates anchored withincentral bank policy rates (Figure3.20.14). Taming inflation would requireshrinking these injections, which wouldrequire in turn lower governmentborrowing or else higher lending ratesto further crowd out credit to the privatesector.

Development challengelifting constraints ongrowthThe economy faces fundamentalchallenges to growth. The existing


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pattern of consumption-led growth withfalling investment is unsustainable. Inthis conte xt , macroe conomicsustainability and increasing investmentgo hand-in-hand with the improvedgrowth prospects necessary to provideadequate employment. Unchangedpolicies marked by the lack of structuralreform, high fiscal deficits, andaccommodative monetary policies willmean continued slow growth, excessiveinflation, and a weakening balance ofpayments that drains official reserves.Some drivers of the current situation,suchas security challenges, are unlikelyto change immediately. However, otherfactors, such as the energy deficit andthe losses run up by public sectorenterprises that drain fiscal resourcesneeded for infrastructure development,are more malleable in the near andmedium term. Deterioration in thepower sector is the main physicalconstraint on growth and a major causeof financial and economic instability.Power outages are estimated to cutgrowth by 2 percentage points annually,

making it unlikely that Pakistan will beable, without significant reform, to movetoward the 7% growth rate needed togenerate adequate employment andmeaningful poverty reduction. Thecurrent environment in the power sector,in which receipts do not cover costs,means that for every unit of power soldthere is a large loss that is either coveredby a government subsidy or becomespart of the continuously accumulatingarrears of the state-owned powercompanies. Growing arrears, which

reached PRs450 billion at the end ofDecember 2012, or about 2% of GDP,constrain the availability of cash neededto operate existing power-generationassets at full capacity. While it will taketime to move to a more efficient systemfor generating, transmitting, anddistributing electricity, improvementsto collection, adjustments to pricingm e c h a n i s m s , a n d i m p r o v e dmanagement could enable higher powergeneration, lift the financial burden onthe budget, and motivate privateinvestment in the sector. Large loss-making public sector enterprises absorbfiscal resources without any apparentimprovement in their operations or

financial viability. Explicit subsidiesincluded in the budget for them arelimited, as most assistance is in the formof sovereign loan guarantees that requirelump sum payouts from the governmentat crisis points. Theend result is theinefficient provision of services at pricesthat are higher than necessary. Theframework for economic growthapproved by the government in FY2011identifies the restructuring of publicsector enterprises as a key focus area.Its recent approval of corporategovernance rules for public sectorenterprises is a step in the right direction,but the rules will need to be rigorouslyapplied in the face of long-standingresistance to change. Finally, achievingthe major challenge of boostingag r icu l tu ra l prod u ct iv i ty andstrengthening food security requiresimproving the management, storage,and pricing of water for irrigation.Anecdotal evidence suggests thatagricultural productivity could bedoubled with appropriate reform.Improved water management is critical

to deliver sufficient water to the 80% offarmland in the country that is irrigated.Pakistan is one of the most water-stressed countries in the world, not farfrom being classified as water scarce,with less than 1,000 cubic meters perperson per year. Water demand exceedssupply, which has caused maximumwithdrawal from reservoirs. At present,Pakistans storage capacity is limited toa 30-day supply, well below therecommended 1,000 days for countrieswith a similar climate. Climate change

is affecting snowmelt and reducing flowsinto the Indus River, the main supplysource. Increases in storage capacity tomanage periods of low snowmelt andlow rainfall are required, as well as therehabilitation of the distribution systemto reduce losses.

Source: ADB-Asian DevelopmentOutlook, 2013

We have weathered the worststorms and the safety of theshore, though distant, is in sight.We can look to the future withrobust confidence provided wedo not relax and fritter away our

energies in internal dissensions.There never was greater needfor discipline and unity in ourranks. It is only with unitedeffort and faith in our destinythat we shall be able to translatethe Pakistan of our dreams intoreality.

Quaid-e-AzamMuhammad Ali JinnahMes sage, 27 August, 194 8

Q u o t e

Invitation

for ArticlesPIPFA Journal is the OfficialJournal of the Pakistan Institute

of Public Finance Accountantsand is being published to keepabreast its members and studentswith the latest developments inAccountancy Industry.

We would welcome articles fromour valued members andstudents for forthcoming issue.Articles are not restricted tospecific topic; students &members may send us thearticles of their field of interest

at following email address:[email protected]


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H i g h l i g h t s PI PFA JOURN AL


Income Tax Dividend received by a company is proposed to be

taxed under the Final Tax Regime.

Losses will no longer be available for setting offagainst salary.

Companies desiring to avail group taxation and/orgroup relief will be required to comply with GroupCompanies Registration Regulations, 2008 issuedby the SECP.

Non-profit organizations, corporate society, finance

society or other society brought within the ambit ofthe term company.

W he re a t ax p ay er f ai ls t o co rr el at e hi s/ he rinvestment or expenditure etc. via properly taxedagricultural income under the relevant Provinciala g r i c u l t u r a l t a x l a w s , s u c h u n e x p l a i n e dincome/expenditure etc. will be liable to be taxedunder the Ordinance.

Rate of minimum tax on turnover enhanced from0.5% to 1%.

Adjustment of tax withheld from employee underother heads and tax admissible credits during thetax year will no longer be available against the taxto be withheld by the employer from salary.

For the purposes of Section 152, the term prescribedperson has been defined.

A minimum tax on builders and developers has beenprescribed.

Trade body members and professionals required tofile return of income irrespective of amount ofincome earned.

Approval of Commissioner Inland Revenue requiredfor revising the return of income.

Every salaried taxpayer required to file return.

Every individual taxpayer, member of an AOP andindividual falling under FTR required to file a wealthstatement along with a wealth reconciliation for theyear.

Power of the Board to introduce Amnesty schemeswithdrawn.

Time limit for finality of provisional assessmentord e r re d u ce d f rom 60 d ays to 45 d ays .

Scope of prescribed persons for withholding tax fromproperty income broadened.

Provisions of section 165 to override all conflicting

Banking provisions contained in any other law inrespect of disclosure of information

Banks no more immune from providing customersinformation to tax authorities.

Refund to be treated due from the date of the refundorder and not from the date of the deemedassessment order.

Business connection for the purpose of section 172explained.

Commissioners authority to conduct tax audit

independent of the Boards power for selecting casesfor tax audit

P en al ti es e nh an ce d bu t ma de m or e cl ea r

Scope of collecting advance tax by NCCPL has beenbroadened.

Rates of withholding tax on motor vehicles enhancedand such tax made adjustable.

Advance tax on functions and gatherings has beenenvisaged to be collected from a person arrangingor holding a function in a marriage hall, marquee,hotel, restaurant, commercial lawn, club, acommunity place or any other place used for suchpurpose.

Advance tax on foreign-produced film, a TV dramaserial or a play, for screening and viewing, shall becollected by a person responsible for censoring orcertifying such foreign film, serial and drama.

Advance tax on cable operators and electronic mediashall be collected by Pakistan Electronic MediaRegulatory Authority, at the time of issuance oflicense for distribution services or renewal of thelicense.

Every manufacturer or commercial importer dealingin specified goods shall collect advance tax at thetime of sale to distributors, dealers or wholesalers.

Every manufacturer, distributor, dealer, wholesaleror commercial importer dealing in specified goodsshall collect advance tax at the time of sale to retailer.

Educational institutions shall collect advance taxeither from the parents or guardian making paymentof the fee to the educational institution. The tax willbe collected in the manner the fee is charged. Thetax shall not be collected from a person where theannual fee does not exceed Rs.200,000/-.

Every market committee will collect advance taxfrom dealers, commission agents or arhatis at thetime of issuance or renewal of license.

Bu d g et 2013


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Bu d g et PI PFA JOURN AL


The maximum tax rate on salaried and non-salariedtax payers raised from the existing 20% to 30% andfrom the existing 25% to 35% respectively.

Effective from tax year 2014, corporate tax ratereduced to 34%. Reduction in rate of tax from 35%to 25% in the case of dividend received by a bankingcompany from Money Market Fund and IncomeFund.

Rate of tax applicable to income from propertiesenhanced.

Advance tax payable at the time of registration ofvehicles enhanced.

Advance tax at the time of sale by auction or auctionby a tender increased to 10% from the existing 5%.

Advance tax at the rate of 10% levied on the totalamount of bil ls in respect of functions andgatherings.

Foreign produced films, TV plays and serials aresubject to advance tax at prescribed rates.

Cable Operators and distribution services are subjectto advance tax at prescribed rates according to theirlicense category and type of channel respectively.

Collection of tax at imports increased from theexisting 5% to 5.5% in the case of imports by alltaxpayers other than companies and industrialundertaking.

General rate of collection of tax from sales of goodsraised to 4% from the existing 3.5% in the case ofall taxpayers other than companies.

Collection of tax from rendering of services raisedto 7% from the existing 6% for all taxpayers otherthan companies.

Exemption available to free/concessional passageprovided by transporters including airlines and otherlike concessions i.e. subsidized food, subsidizededucation, subsidized medical treatment providedto employee by virtue of their employmentwithdrawn.

Exemption to any income of any university or othereducational institutions established solely for

educational purposes and not for profit withdrawn. Tax payable at the time of import of hybrid cars

reduced.

Taxation at reduced rate of 2.5% on flying allowanceand submarine allowance withdrawn.

75 percent reduction in the tax payable by a full timeteacher or a researcher withdrawn.

Reduction in rate of initial tax depreciation allowanceapplicable to plot and housing from 50% to 25%.

Sales Tax Increase in the general rate of sales tax to 17%.

F urthe r tax re introd uce d at the rate of 2%.

Fixed tax reintroduced.

Officers of Inland Revenue authorized to access

records, documents, etc. Monitoring or tracking of production, sales, stocks,

etc. by electronic or other means.

Increase in the Third Schedule Goods.

Amendments to the Sixth Schedule.

Sales tax withholding on purchase of taxable goodsfrom unregistered persons.

Various sales tax SROs amended or rescinded.

Extra tax at the rate of 5% on certain electric andgas consumers.

Customs Submission of pay orders instead of post dated

che q u e s in cas e o f prov is ional as s e s s me nts .

Fixation of power of adjudication in case of exports.

Director of Customs valuation authorized to filereference to High Court.

C er t ai n a m en dm en t s i n F i rs t S c he du le .

New set of in-house facilities for manufacturersav ai l ing b e ne f i t u nd e r S RO 656(I )/ 20 0 6.

Certain conditions of availing benefits under SRO575(I)/2006 have now been changed.

Reduced custom duty granted on import of hybridelectrical vehicles.

Federal Excise Further duty at the rate of 2%.

Rates of duty enhanced on aerated waters, etc.

Rate of duty on cigarettes modified.

FED levied on asset management companies.

Officers of Inland Revenue authorized to accessrecords, documents, etc.

Inclusion of certain goods in Table I of the FirstSchedule.

V ar io us F ED S RO s am en de d or r es ci nd ed .

Income Support L The income support levy shall be charged for every

tax year commencing on and from the tax year 2013in respect of value of net moveable assets held byan individual on the last date of the tax year at therate of 0.5% of the net moveable wealth exceedingRupees one million. An individual who is liable topay the Levy shall pay it alongwith the wealthstatement.

Source: Budget briefing 2013,Ernst & Young FordRhodes Sidat Hyder Chartered Accountants


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N e w s PI PFA JOURN AL


IFAC NEWSIAASB Strengthens

Standard on Using Work

of Internal AuditorsInternational Auditing and AssuranceStandards Board (IAASB) has issuedInternational Standard on Auditing (ISA)610 (Revised), 'Using the Work of InternalAuditors', which addresses the externalauditor's responsibilities if using the workof an internal audit function in obtainingaudit evidence. The IAASB has also issuednew requirements and guidance thataddress the auditor's responsibilities ifusing internal auditors to provide direct

assistance under the direction,supervision, and review of the externalauditor for purposes of the audit.

ISA 610 (Revised 2013) includes guidanceto external auditors when determiningwhether they can use direct assistancefrom internal auditors, and if so, in whichareas and to what extent. The materialaddressing direct assistance does notapply if the external auditor is prohibitedby law or regulation from obtaining directassistance. Related changes have also

been made to ISA 315 (Revised),'Identifying and Assessing the Risks ofMaterial Misstatement throughUnderstanding the Entity and ItsEnvironment', to explain how the internalaudit function and its findings can usefullyinform the external auditor's riskassessments.

In conjunction with ISA 610 (Revised2013), the International Ethics StandardsBoard for Accountants (IESBA) also hasreleased amendments to the definition

of engagement team in its Code of Ethicsfor Professional Accountants (IESBACode). The amendments clarify therelationship between internal auditorsproviding direct assistance and themeaning of an engagement team underthe IESBA Code.

ISA 610 (Revised 2013) is effective foraudits of financial statements for periodsending on or after December 15, 2013,except for material pertaining to the use

of internal auditors to provide directassistance, which is effective for audits offinancial statements for periods endingon or after December 15, 2014.

Revised Set of Proposalsfor the Impairment

of Financial Instruments

The International Accounting StandardsBoard (IASB) has published for publiccomment a revised set of proposals forthe impairment of financial instruments.Financial reporting requirements bothinternationally and in the US currentlyuse an incurred loss model to determinewhen impairment is recognised on

financial instruments. The incurred lossmodel requires that a loss event occursbefore a provision can be made and wasintroduced to avoid the use of so-called'big bath' general provisions that distortedthe accurate reporting of financialperformance to investors.

However, during the financial crisis theincurred loss model was criticised fordelaying the recognition of losses and fornot reflecting accurately credit losses thatwere expected to occur.

The IASB model is designed to recognisecredit losses on a more timely basis.Expected credit losses are recognised onall financial instruments within the scopeof the proposals from when they areoriginated or purchased. Full life timeexpected credit losses are recognisedwhen a financial instrument deterioratessignificantly in credit quality. The draftreview is open for comments until 5 July2013.

Revised IES 5, Initial

Professional Development -Practical Experience

The International Accounting EducationStandards Board (IAESB) has issued therevised International Education Standard(IES) 5, Initial Professional Development- Practical Experience. IES 5 aims to assisteducational organizations, employers,regulators, government authorities, andany other stakeholders who support thepractical experience of professional

accountants.

The revised IES 5, which is effective fromJuly 1, 2015, recognizes that practicalexperience is relevant in developing the

competence of an aspiring professionalaccountant while also promoting greaterflexibility in measuring practicalexperience, permitting practicalexperience supervisors to direct adviseand assist an aspiring professionalaccountant's experience and Requiringpractical experience to be recorded in ave rifi abl e and cons isten t fo rm.

The release of the revised IES 5 representsthe fourth IES released by the IAESB ina project to revise its suite of eight IESs.

Recently, IES 1, Entry Requirements toProfessional Accounting EducationPrograms, IES 6, Initial ProfessionalDevelopment - Assessment of Professional Competence, and IES 7,Continuing Professional Developmentwere published in accordance with theclarity drafting conventions outlined inthe Framework of InternationalEducation Standards for ProfessionalAccountants (2009).

G-20, EC Focus onPublic Sector Accounting

Two influential organizations havestressed the need for stronger publicsector accounting, and the InternationalPublic Sector Accounting StandardsBoard (IPSASB) has pledged its fullcooperation, calling the developmentsencouraging.

At the February G-20 Finance Ministers'and Central Bank Governors' meeting,the group discussed the need for

transparency and comparability of publicsector reporting. The communiqudeclared that strengthening the publicsector balance sheet is needed to betterassess risks to public debt sustainabilityand called on the International MonetaryFund (IMF) and World Bank to furtherexplore the issue and provide appropriateupdates.

On March 6, the European Commission(EC) issued a report finding thatInternational Public Sector Accounting


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Standards (IPSASs) represent anindisputable reference for potential EU-harmonized public sector accounts. The

report also states that harmonizedaccruals-based government accountingimproves transparency, accountability,and the comparability of financialreporting in the public sector.

My hope would be that they areproposing to take many IPSASs as theyare [written] when they define howEuropean Public Sector AccountingStandards (EPSASs) are going to bedeveloped and implemented, IPSASBChair Andreas Bergmann said in an

interview with Public FinanceInternational.

Dr. Bergmann said the adoption ofaccrual accounting by EU Member Stateswould represent a historic step in thedirection of achieving governmentaltransparency and serving the publicinterest but cautioned that developinghigh-quality accounting standards likethe IPSASs will require a rigorousprocess to ensure the EPSASs are of thesame caliber.

The IPSASB offers the EU's public sectoraccounting authorities its fullcooperation and resources in producing,adopting, and implementing EPSASs,he added.

The IPSASB has published a completesuite of 32 standards for the accrual basisof accounting, as well as one cash basisstandard for countries preparing for themove to the accrual basis. Nearly 80countries and many internationalgovernmental organizations, including

the United Nations, NATO, theOrganisation for Economic Co-operationand Development (OECD), the EC, andthe Association of Southeast AsianNations (ASEAN), are currently using orhave firm plans to use the standards.

IAASB ReleasesISA 610 (Revised 2013)

In follow-up to its 2012 release of strongerstandards dealing with the externalauditor's use of an internal audit

function's work, the InternationalAuditing and Assurance Standards Board(IAASB) has released International

Standard on Auditing (ISA) 610 (Revised2013), Using the Work of InternalAuditors.

The revised ISA now includesrequirements and guidance for externalauditors when determining whether theycan use direct assistance from internalauditors and, if so, in which areas and towhat extent. The material addressingdirect assistance does not apply if theexternal auditor is prohibited by law orregulation from obtaining direct

assistance. This new material is effectivefor audits of financial statements forperiods ending on or after December 15,2014.

In conjunction with ISA 610 (Revised2013), the International Ethics StandardsBoard for Accountants (IESBA) alsoreleased amendments to the definitionof engagement team in its Code ofEthics for Professional Accountants (theCode). The amendments clarify therelationship between internal auditorsproviding direct assistance and themeaning of an engagement team underthe Code.

IASB Exposes Guidanceon Regulatory Deferral

Accounts

The International Accounting StandardsBoard (IASB) has initiated a project toconsider whether the IASB shoulddevelop specific guidance for Rate-regulated activities considering manyjurisdictions applying the IFRS have

industry sectors that are subject to rateregulation, such as the transportationand the utilities sectors and that rateregulation can have a significant impacton the timing and amount of an entity'srevenue. The IASB is proposing aninterim Standard that would allow entitiesto preserve the existing accountingpolicies that they have in place for rateregulated activities with somemodifications designed to enhancecomparability. The IASB has published

the Exposure Draft 'Regulatory DeferralAccounts'. The proposed interim standardis applicable only upon the initial

adoption of IFRSs and therefore must beapplied at the same time as an entityapplies IFRS 1 First Time Adoption ofInternational Financial ReportingStandards.

The proposed interim standard cannotbe applied by entities that have previouslyadopted IFRSs and entities applying thisinterim standard. The Exposure Draft isopen for comment until 4 September2013.

IPSASB Publishes

Public Sector ConceptualFramework Exposure Draft

The International Public SectorAccounting Standards Board (IPSASB)has released for comment the fourthExposure Draft related to its project todevelop a Conceptual Framework for thegeneral purpose financial reporting ofpublic sector entities. The Exposure Draft'Conceptual Framework for GeneralPurpose Financial Reporting by PublicSector Entities: Presentation in General

Purpose Financial Reports', deals withthe concept of 'presentation' in generalpurpose financial reports, includinggeneral purpose financial statements ofgovernments and other public sectorentities, but also extending to additionalinformation and reports that enhance,complement, and supplement thefinancial statements. The first phase ofthe IPSASB's project was completed withthe release of the first four chapters ofthe IPSASB Conceptual Framework

project in January 2013, covering the roleand authority of the framework, theobjectives and users of general purposefinancial reporting, qualitativecharacteristics of information includedin general purpose financial reports, andthe reporting entity. Exposure draftsdealing with the second and third phasesof the project where issued in November2012, covering the elements andrecognition in financial statements, andthe measurement of assets and liabilities




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in financial statements. Comments onthe Exposure Draft are requested byAugust 15, 2013.

SBP NewsFinancial System mustplay a more meaningful

role in the economicdevelopment of the country:

Yaseen Anwar

The Governor, State Bank of Pakistan(SBP), Mr. Yaseen Anwar has observedthat the financial system in Pakistan isyet to grow to its full potential and play

a more meaningful role in the economicdevelopment of the country.

Delivering his speech on 'DevelopingNon-Bank Financial Models whileaddressing the risks of Shadow Banking'at the SECP Conference on Non-BankFinancial Institutions at a local hotel inKarachi, he said that we definitely needto add to its diversification and depth.NBFIs can play a meaningful role in thispursuit, he said, adding that in the lightof the global financial crises, we are better

informed about the various risks that theNBFIs/Shadow Banking carries with it.'As regulators we need to remain vigilantto ensure that those risks are mitigatedwithout inhibiting sustainable non-banking financing models,' he said.

Mr. Anwar said that while the overallassets of the financial sector in Pakistanhave increased from Rs. 5.202 trillion in2005 to Rs. 11.107 trillion in 2011, theshare of the financial sector in terms ofGDP is very low at 57.4 percent. He said

that in 2011, Banks held 74 percent of thefinancial assets while the share of NBFIswas only 4.7 percent of the total financialsector assets which was around 7.6percent in 2005. 'The low financial sectorto GDP ratio and NBFIs declining sharein financial sector assets clearlyunderscores the need for financial sectordevelopment and diversification offinancial sector assets to attract investorswith different return expectations andrisk appetite and channelize financial

resources for the economic developmentof the country,' he observed.

The shadow banking system is defined

as the system of credit intermediationthat involves entities and activities outsidethe regular banking system, he said,adding that the emergence of the termreflected recognition of the increasedimportance of entities and activitiesstructured outside the regular bankingsystem that perform bank-like functions.

SBP Governor briefly outlined thefollowing four major constraints that theNBFI sector in Pakistan is beset with:

First, although there has been an

increasing effort by NBFIs to broadenthe range of their business activitiesand product base, thereby diversifyingtheir revenue streams, the sector isyet to make a breakthrough in thisregard.

Second, the sector is fragmented andeach NBFI is trying to create its nichemarket in pursuit of establishing asustainable revenue stream. In thisregard, most companies areconcentrating on financial advisory

and other fee-based income segments.Unfortunately, the sector is yet tocapitalize on the huge opportunitiesoffered by previously relativelyuntapped areas like SMEs, Consumer,and Agriculture segments to enhanceavenues for fund deployment.

Third, the sector needs to develop anddiversify sources of funding forsustainable growth. This wouldrequire a shift from the traditionalsources such as commercial banks

credit lines etc. for on lending toclients. The NBFIs need to developcapital market instruments to poolfunds from a diverse set of investorsto ensure certainty to the source andcost of funding.

Fourth, we need to strengthen theoversight and regulation of NBFIs toreduce the risks emanating fromshadow banking. As observed byFinancial Stability Board (FSB), theobjective of this exercise should be to

ensure that shadow banking is subjectto appropriate oversight andregulation to address bank-like risks

to financial stability emerging outsidethe regular banking system while notinhibiting sustainable non-bankfinancing models that do not posesuch risks.

He expressed the hope that Conferencewill give further impetus to our efforts inpromoting NBFIs as an alternative sourceof funding for businesses and also as aseparate class of assets for investors inthe country, adding to the financialsector's diversity, stability and viability

in the long-run.Mr. Yaseen Anwar said that in Pakistan,NBFIs other than Investment banks andleasing companies, which offer savingand investment products on a relativelysmall spectrum, need to developappropriate and affordable products toincrease its market share.

SECP NEWSSECP Issues Public Sector

Companies (Corporate

Governance) Rules, 2013The SECP has issued Public SectorCompanies (Corporate Governance)Rules, 2013. They shall come into forceafter ninety days from the date of gazettenotification dated March 8, 2013. Theserules shall apply to all Public SectorCompanies, as defined in clause (g) ofrule 2 to mean a company, whether publicor private, which is directly or indirectlycontrolled, beneficially owned or not lessthan fifty percent of the voting securities

or voting power of which are held by theGovernment or any instrumentality oragency of the Government or a statutorybody, or in respect of which theGovernment or any instrumentality oragency of the Government or a statutorybody, has otherwise power to elect,nominate or appoint majority of itsdirectors, and includes a public sectorassociation not for profit, licensed undersection 42 of the Ordinance. In the caseof listed Public Sector Companies, where




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there is any inconsistency with the Codeof Corporate Governance, the provisionsof these rules shall prevail.

SECP Issues Draft Principles of CorporateGovernance for Non-Listed Companies

The Securities and Exchange Commissionof Pakistan (SECP) issued draft principlesof corporate governance for non-listedcompanies for stakeholders' comments.The set of thirteen principles aim topromote transparent and accountablegovernance practices in non-listedentities. NLCs constitute the bulk ofbusinesses in Pakistan; over 60,000 NLCsare registered with the SECP compared

to only 604 companies listed on thecountry's stock exchanges. It is believedthat virtuous corporate governance innon-listed companies will yield higherinvestments and capital formation fromlocal and foreign investors, and reduceeconomic vulnerability to financial crisis.Moreover, improved corporategovernance practices may also assist nonlisted companies (NLCs), looking to belisted on stock exchanges, in their smoothtransition to be a listed company

ICAP NEWSGlobal Recognitionfor ICAP members

The Canadian Institute of CharteredAccountants (CICA) has accorded specialrecognition to the members of theInstitute of Chartered Accountants ofPakistan (ICAP) in the form of the anevaluation of experience (Eve) program.According to this program the ICAPmembers with 12 years' experience and

with 5 years at senior level, are noweligible to become members of theCanadian Institute of CharteredAccountants without appearing in anyfurther examinations. This is a significantproof of the distinguishing status andacceptability of ICAP members by theCICA. This recognition opens up newavenues of global mobility of our CAs .

ICAP awards SDAI status to IBA

In line with the global trends The Council

of The Institute envisaged collaborationswith leading universities in Pakistan toattract the university graduate into the

folds of the profession. A collaborationarrangement has been signed betweenIBA and ICAP that aim to attract topstudents with a 4 year BS Accounting andFinance degree providing strongacademic knowledge of relevant subjectsalong with an excellent universityexposure. Exemptions of 12 papers willbe offered to students from this stream.This is for the first time that ICAP isoffering a stream of entry by givingexemptions to students of any university.This initiative has been implemented after

a long, rigorous and arduous process ofevaluation of course content and mappingof syllabi.

The product of this alliance will be a highlyskilled professional equipped to meetdemands of the workplace and specialneeds of a changing society and business.We are optimistic that this stream willoffer better quality intake leading to ahigher success rate in CA examinations.

Education Scheme 2013

In the current "information age", a neweconomy has emerged in whichknowledge is traded as a marketablecommodity. In this global knowledgeeconomy, it is imperative that ICAPstudents are prepared to undertake thecontemporary and future challenges ofbu sine ss , fina nc e an d ec onomy.

Keeping this in view, the Institute ofChartered Accountants of Pakistan(ICAP) introduces Education Scheme2013 by incorporating latest

developments in curriculum andstructure.

Modular structure prevalent in the CAcurriculum is being transformed into apackage of 4 tiers of CA qualification. Allthe stages of qualification are now stand-alone. The successful students of anystage will be allowed to use thecorresponding designation. Eachcertification has its market recognitionand will open the avenues for variousemployment ventures. Considering the

modern testing methodology computerbased examination at AFC and CAF stageis introduced for students. Study material

is aligned with the examination structureand to the learning outcome that willensure the development of professionalknowledge, skills and competencies inthe candidates. The Institute firmlybelieves that the new scheme will be anefficient step towards the value additionof the qualification and will provide acompetitive edge to the candidates.

ICMAP NewsCelebrating 62nd Year of

Professional ExcellenceLiving nations celebrate their foundingday with joy while rejuvenating theircommitment towards purpose ofexistence. The same is true for theInstitute of Cost and ManagementAccountants of Pakistan (ICMA Pakistan).It is the time when the members,students, employees, faculty and otherstakeholders proud of their pastachievements, remember the lessons thathistory taught and make commitment

towards an infinite future to maintain thelegacy of achievements and to continuebringing innovation.

It is the day to reaffirm your promises toprovide a better institution for thegenerations to come so as to see ourcountry progressing. It is the day to realisechallenges and to overcome thedifferences of opinion to give diversity anew positive look. It is the day to honorthose who served the Institute in differentcapacities to give recognition for their

services.The fraternity of the ManagementAccountants has now its presence allacross the globe. They play an importantrole in the development of economy.Currently, the members of the Instituteare serving in more than 50 cities withinthe country and 43 countries abroad. Theinception of this profession in Pakistanon May 23, 1951 was a dream becomereality when the era of industrialisationdemanded businesses to become




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internally effective and efficient forsurvival.

The focus was to ensure maximum

utilisation of resources and to achievecost effectiveness. Later, the factors ofproduction become a focal point for theindustries to achieve efficiency andeconomies of scale. The ManagementAccountants helped the industry achievethose objectives which were envisionedat the time of establishment of PakistanInstitute of Industrial Accountants (PIIA),former name of ICMA Pakistan.

The professionals provided by thisInstitute to the corporate sector proved

themselves to be cornerstone in theprogression of economy of the countryin particular and other economies ingeneral.

We can say with proud that ManagementAccountants' specialty towards costmanagement and managementaccounting made them part of thestrategic and decision making team wherenucleus of future direction depends oneffective utilisation of resources and costefficiency. The Management Accountants

throughout the world in general andPakistan in particular concentrated theircompetencies, skills and energy to:develop processes for the businesses;prepare, interpret and communicate suchinformation required by strategicmanagement to plan, evaluate and controlwithin an entity; assure appropriate useof and accountability for organisation'sresources. Apart from strategic changefrom within, Management Accountantsremained instrumental in resolvingmatters related to non managementgroups such as shareholders, creditors,regulatory agencies and tax authorities.Even today, if the corporate sector,industry, trade and businesses want tocome out of ongoing crisis situation, theyneed to turn their focus more towardsManagement Accounting.

Today, the Management Accountantsacross the globe are considered asBusiness Leaders and by virtue of theiraccounting and finance competencies and

business acumen, they are now the choiceof employers for top managementpositions. The industry, trade and

businesses consider ManagementAccountants an integral part of theirstrategic team due to effectiveamalgamation of finance and businessknowledge and skills.

With this legacy, we the members,employs, students and faculty celebrate62nd Management Accountants Day onMay 23, 2013 and reaffirm ourcommitment to further up bring thestandards so as to make the Institute ableto continue serving the country and its

people. On behalf of the Council andmyself, please accept our heartiestcongratulations on the anniversary dayof the Institute.

ICMAP holds certificatedistribution ceremony

The Certificate Distribution Ceremony of2nd Directors' Training Programmeorganised by the ICMA Pakistan was heldon Wednesday. Muhammad HaroonRasheed, Acting Managing Director-BSC,State Bank of Pakistan was the Chief

Guest. Nazir Ahmed Shaheen, ExecutiveDirector, Securities & ExchangeCommission of Pakistan and AbdulKhalil, Member National Council, andChairman CPD, Seminars & ConferencesCommittee were also present on theo c c a s i o n . Speaking on the occasion Rasheedcongratulated the participants and saidthat he was pleased to learn that theInstitute of Cost and ManagementAccountants of Pakistan (ICMA Pakistan)has been duly approved by the SECP toconduct the certified Directors' Training

P r o g r a m m e ( D T P ) . He said that it was heartening to knowthat the 2nd Directors' TrainingProgramme (DTP) has concluded todaysuccessfully by ICMA Pakistan which hasbeen participated by the Chief ExecutiveOfficers and Directors of reputable listedcompanies. Abdul Khalil congratulatedthe participants on successfullycompleting the training and said that theDTP of ICMA Pakistan has beenspecifically designed to impart knowledgeand develop necessary skills of the Board

of Directors of Listed companies forsuccessful achievement of company'sobjectives. It has been focused on thepossible role and duties of Directors, andthe knowledge and competenciesexpected from them in today'senvironment, leading to creation of aneffective board culture and performance.

SECP issues license to non-life insurance company

The Securities and Exchange Commissionof Pakistan (SECP) has issued a licenseto the Sahara Insurance CompanyLimited (SICL), a wholly-ownedsubsidiary of the Employees Old-age

Benefits Institution (EOBI), to transactnon-life insurance business in thecountry.

With continuing emphasis on socialinsurance, the EOBI decided toincorporate the SICL with the primaryobjective of providing health insurancecoverage to the EOBI pensioners, agedbetween 60 and 70. In addition,accidental death and disability coveragewill be provided to expatriate Pakistanisworking abroad.

In case of health insurance the premiumwill be funded by the Workers WelfareFund while premiums for accidentaldeath and disability insurance will bepaid directly by the expatriate Pakistanilabor force to Sahara Insurance CompanyLimited (SICL).

Following the registration of the SICL,the total number of active non-lifeinsurers has reached 40, while the totalnumber of active insurance companies(life and non-life), including Pakistan

Reinsurance Company Limited, nowstands at 50. It is important to note thatthe last time a license was issued by theSECP to an insurance company was in2009, and that was to a life insurer.

With this move, it is anticipated that thehealth insurance sector in Pakistan willwitness visible growth, while holisticallyimproving insurance penetration anddensity figures that have remained oneof the lowest in the region.




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