PIPFA JOURNAL

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Publication Committee:

Mr. Jawed Mansha ChairmanMr. Shahzad Raza Syed MemberMr. Sarmad Ahmad Khan MemberMr. Muhammad Sharif Member

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

PIPFA JOURNAL

Messages:

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

Chairman, Publication & Seminar Committee..................3

Articles:

Exchange Rate arrangements and policies in Pakistan .......5

Stakeholders Analysis .......................................................8

Commercial Papers' Regulations - 2013..........................10

Errors and omission usually made in the Public Sector ..13

Audit in Distressed Conditions ........................................16

News Updates:

IFAC News ........................................................................19

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

PIPFA News .....................................................................20

PIPFA Graduation Ceremony ..........................................21

PIPFA Seminar ................................................................22

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

Continuing Professional Development through publications, seminars, workshops etc.

Eligibility for 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 examination of ICAP, ICMAP, CIMA-UK, ACCA etc.

Professional activities like election of representatives etc.

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

Why PIPFA?PIPFA’s Membership entails many advantages like:

Salient features of PIPFA Qualifications:On qualifying Final Level, one may apply forthe management level jobs like FinancialManager, Financial Advisor, & Financial Officer.Elevation in Auditor General of Pakistan forBPS -17 is possible after qualifying PIPFA.Students may join audit firms as Audit Traineeor internship in Financial Institutes/Organizations.

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

Vol:12, Reg. No. MC-1112 January - March 2014

Compiled by: Zubair Muhammad

Pakistan Institute ofPublic Finance Accountants

E X E C U T I V E C O M M I T T E EMr. Shahzad Ahmad Awan ChairmanMr. Mohammad Maqbool MemberMr. Sajid Hussain MemberMr. Shahzad Raza Syed Member

BOARD OF GOVERNORS STANDING COMMITTEES

B O A R D O F S T U D I E SMr. Shahzad Raza Syed ChairmanMr. Jawed Mansha MemberMr. Sajid Hussain MemberMr. M. Sharif Tabani MemberMr. Mohammad Maqbool MemberMr. Sajjad Ahmad Member

E X A M I N A T I O N C O M M I T T E EMr. Mohammad Maqbool ChairmanMr. Jawed Mansha MemberMr. M. Sharif Tabani MemberMr. Muhammad Sharif MemberMs. Shereen Akhtar MemberMr. Sajid Hussain Member

R E G U L A T I O N A N DD I S C I P L I N A R Y C O M M I T T E E

Mr. Shahzad Ahmad Awan ChairmanMr. Jawed Mansha MemberMr. Sajid Hussain MemberMs. Shereen Akhtar Member

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

Mr. Jawed Mansha ChairmanMr. Shahzad Raza Syed MemberMr. Sarmad Ahmad Khan MemberMr. Muhammad Sharif Member

Mr. Shahzad Ahmad AwanPresident

(Nominee of ICMAP)

Mr. Mohammad MaqboolVice President

(Nominee of ICAP)

Mr. Sajid HussainSecretary

(Elected Member)

Mr. Shahzad Raza SyedTreasurer / Joint Secretary

(Nominee of AGP)

Mr. Jawed ManshaMember

(Nominee of ICMAP)

Mr. M. Sharif TabaniMember

(Nominee of ICAP)

Mr. Sarmad Ahmad KhanMember

(Nominee of ICAP)

Mr. Muhammad SharifMember(Elected)

Mr. Sajjad AhmadMember

(Nominee of ICMAP)

Ms. Shereen AkhtarMember

(Nominee of AGP)

Mr. Siraj Mustafa JokhioMember

(Nominee of AGP)

T E C H N I C A L C O M M I T T E EMr. Mohammad Maqbool ChairmanMr. Jawed Mansha MemberMr. M. Sharif Tabani Member

PIPFA JOURNALMessages

It gives me great pleasure to present 12th edition of PIPFA Journal. PIPFA experience isdemanding but it is eminently rewarding. Here you can follow your curiosity to explorenew things, to encounter new ideas and opinions and discover your own capabilities.

Journal will provide you extensive knowledge about exchange rate arrangements & relatedpolicies, how to turn white elephant organizations in to profitable engines which leadthe country's economy and other very edifying information.

On the other hand, as you know that Auditing is a cornerstone of good public sectorgovernance. By providing unbiased, objective assessments of whether public resourcesare managed responsibly and effectively to achieve intended results, auditors help publicsector organizations achieve accountability and integrity, improve operations, and instill

confidence among citizens and stakeholders.

We are committed to building a dynamic team, developing and implementing effective objectives and goals, establishingsystems to meet the needs of our students and implementing appropriate strategies for a reformation that will resultin a renaissance of PIPFA. Increasing enrollment, student retention, and passed out rates are our top priorities.PIPFA has a history of adding competitive and knowledgeable experts to the global workforce. It is our tradition toproduce responsible effective leaders of accounting profession and ready to contribute to industry equipped with thesolid foundation of values and principles taught at PIPFA.

Over the years, we have been blessed with unwavering support by all of our stakeholders from students to membersand from business partners to general public. At this critical moment in our development, we need your supportmore than ever. Together we will turn challenges into opportunities, dream into realities, adding a new chapter toPIPFA's fabled history.

As a Member, you can witness the impact your ideas, actions, and resources are having. And if you have thoughtsabout new opportunities to promote education, training, or services, I hope you will find further insights here andperhaps work with us to do even more.

Thank you for your dedication to PIPFA.

Jawed Mansha, FCMA

President

Chairman Publication & Seminar Committee

As President of the Pakistan Institute of Public Finance Accountants, it is immense pleasurefor me to present 12th edition of PIPFA Journal. As both a member and now President, Ican say that our institute is among the finest in the country.

If the economic performance since 1947 is evaluated, the overall results are not veryencouraging. Pakistan faces so many economic obstacles which includes external debts,fiscal deficits, financing the budgetary gap, deficiency of capital, scarcity of foreign exchange,energy crisis etc. The practical means of setting aside the barriers to economic developmentare now to be stored out. It is a big challenge to the planners. As per my opinion by takingmeasures like expanding the tax base, tax on agriculture income, self reliance, export ledgrowth, development of agriculture sector, administrative reforms, development of physical

& human capital etc are right earnestly applied, the rate of economic development can go up.

Continuing Professional Development (CPD) in any type of career is necessary to prevent knowledge and skills frombecoming obsolete and to remain on the forefront of theory, research, applied techniques, and other advancementin the profession. Completion of a qualification is an initial starting point for a career in PIPFA’s strategic plan forlife-long learning is necessary for continued effective services and responsive professionalism.

PIPFA has orangnized many comprehensive CPD activities in different cities for members & students like Seminars,Workshops, Awareness Programs etc.

I have personally always been a big proponent of the PIPFA CPD Program. I firmly believe that, where as feasible,most accountants will take advantage of any appropriate opportunity for the betterment their delivery of professionalservices to their clients.

We are also deeply indebted to all fellow board member, staff, members and students for their hard work. Yoursupport is the driving force for our progress. We will continue to endeavour to cultivate more talents for Pakistan.

Shahzad Ahmad Awan, FCMA, FPFA

ARTICLES PIPFA JOURNAL

IntroductionandBackgroundPakistan came intobeing on 14th August,1947, as a result ofp a r t i t i o n o f s u b -continent, the UnitedIndia. It is located inSouth Asia with thearea of 770,900 squarekilometer and thecurrent population isapproximately 180million (World Bank2 0 1 3 ) . R a p i dindustrialization wasconsidered necessaryfor rapid economicgrowth. As a result ofthis, economic growthwas striking and industrial output wassubstantial in the initial two decadesof the economic history of Pakistan.Pakistan's economic progress showedsuch an amazing trend that it becamethe model for other developingcountries in 1960s. For the nextcoming decades, attention was alsogiven to the equal distribution ofincome along-with high economicgrowth. In the last decade, thereappeared some good economicindicators but those could not lastlong. So, the economy of Pakistan hashad to face f iscal imbalances,unsustainable growth rates, high levelof poverty and unemployment(Husain 2009).

Exchange rate can be defined as “Anexchange rate is the price of onecountry's currency in terms of anothercountry's currency. Exchange ratesplay a role in spending decisionsbecause they enable us to translatedifferent countries' prices intocomparable terms. All else equal, adepreciation of a country's currencyagainst foreign currencies (a rise inthe home currency prices of foreigncurrencies) makes its exports cheaper

and its imports more expensive. Anappreciation of its currency (a fall inthe home currency prices of foreigncurrencies) makes its exports moreexpensive and its imports cheaper”(Krugman and Obstfeld 2012, p.346).

P a k i s t a n i c u r r e n c y r e m a i n e dconnected with British Pound Sterlingsince its inception till September 1971(State Bank of Pakistan [SBP], 2013)and afterward till January 1982 itremained linked with AmericanDollar. Pakistan got independencefrom British Crown and so afterindependence, link of Pakistani rupeewas developed with pound sterling,largely due to member of sterling area(Mahmood, Ehsanullah and Ahmed2011).

With effect from January 8, 1982,managed floating system of exchangerate was adopted in Pakistan, andunder this system the value of Pak-rupee was established on daily basiskeeping in view the basket of variouscurrencies of country's main tradingpartners and rivals. Subsequently,with effect from 22nd July 1998,Pakistan adopted two-tier system, i.e.

official rate and floatinginterbank rate afternuclear detonation in1998. However, market-based system of floatinge x c h a n g e r a t e w a sadopted w.e.f. 19th May1999 and this system wasbased on demand ands u p p l y o f f o r e i g ncurrencies in foreignexchange market. So, atpresent, Pakistan iskeeping floating exchangerate.

First time Pak rupee wasdevalued by 30% in June1955. This depreciationof Pak rupee was made inrelation to British pound.The purpose of this

depreciation was to bring in linevarious currencies of different tradingpartners of Pakistan. After that itsnominal exchange rate was kept fixedat the level of Rs. 4.76/1 US dollar fornext seventeen years. Some analystsare of the view that, during most ofthe time, rupee was over-valued inthose seventeen years. In Zulfiqar AliBhutto (ZAB) government in 1970s,rupee was devalued by 58% andresultantly, exchange rate reached atthe level of Rs. 11/1 US dollar. By thissignificant devaluation, the subsidyin the form of over valuation of Pakrupees in favor of industrialists wasremoved (Mahmood et al., 2011).

If we look at the history of exchangerate policy with the socio-culturalaspect, it is evident that it was keptfixed for the initial 35 years with twicedepreciation. The reason was to givesubsidy to the industrialists for theexpansion of industries for theultimate social benefit of the countryas a whole. Simply saying to enhancethe economic pie of the country,exchange rate remained tilted to theindustrialist. Unfortunately, efficiencyincreased but equality could not be

By: Sammer Ahmad, FPFA

Exchange Rate arrangementsand policies in Pakistan

January - March 20145


attained because the economic pie could not be dividedin letter and spirit. That is why the country excelled a lotbut poverty could not be reduced.

(i) Exchange Rate (EXRT)

If we look at trend of exchange rate of Pakistan, it showsa continuous rising trend for the last ten years. This showsthe nonstop depreciation of Pakistani currency. This factis also shown by the position of CPI in Pakistan becausethe data of CPI also present the similar trend. Therationale behind the depreciation of Pak rupee is toincrease the exports or at least maintaining the exportslevels. Because we know by increasing the exchange rateor by increasing the depreciation of Pak rupee, foreigncustomers can buy Pakistani products on cheaper priceswhile the domestic customers have to pay higher pricesof domestic products on one hand and they also have topay higher prices for the purchase of foreign goods. Soincreasing the exchange rate has the sole benefit ofincrease in the exports.

Whereas, the major source of foreign exchange earningsis being obtained on textile products and sports items.The other major source of foreign exchange in Pakistanis due to the remittances of Pakistani workers fromsending from abroad. The irony of fate is that there hasalways been a negative net balance. To remove thisdifficulty Pakistan always has to ask for loans fromdifferent donor agencies on high rates of interest. To payback the loan, Pakistan has to get more loans to pay theinterest of the previous loans!

(ii) Real Gross Domestic Product (GDP)Real GDP is the measure of output of a country (Blanchard2011). It is calculated by the adding all the quantities ofoutput in a country and then multiply it with their pricesof a base year. Real GDP is also known as GDP at constantprices.

Real GDP growth rate is one of the prime variables in the

assessment of a country’s economic progress. The graphshows a downward trend. Real GDP growth rate showedmaximum value at the level of 9% in the year 2005, andin the very next year it reduced to 5.8%. Again, it showedsomewhat better performance in 2007 but once again ittouched the lowest ebb of the real GDP growth history ofPakistan in 2009 by getting the growth rate of only 1.2%.After 2009, once again there is an upward trend.

(iii) Gross Capital Formation (GCF)Capital formation consists of production, transportationand then distribution of the fraction of a nation’s outputwhich is not utilized instantly rather that portion ispreserved and included in the stock of the nation’s wealth(Kuznets 1994). If an allowance is made by subtracting thecurrent consumption from current production, it is callednet capital formation, and if such an allowance is not made,then it would be termed as gross capital formation.

The data of last seven years (2005-2012) for gross capitalformation for Pakistan has been taken from WorldDevelopment Indicators (WDI). The curve obtained is justlike a bell-shaped frequency curve. This curve shows thatgross capital formation increases from 19% of GDP to 23%during the period of 2005-2007, and then it shows adeclining trend till 2012 and reaches its lowest value of12.5%. For a developing country such a Pakistan, this curveshould be moved in upward slope for economic progresswith the passage of time but here the case is opposite. Grosscapital formation is declining with the passage of time.

(iv) Money Supply (M2) It is a broader definition of money. Usually money supply(M1) refers to the currency in circulation and checkingdeposits. But we use here M2 and it includes M1 and timedeposits too. So, it is called broader definition of money.It also shows a non-stationary trend. Usually interest rateand money supply have a close relationship with eachother . If in an economy price level and real income levelis kept fixed, then increase in the money supply reducesthe interest rate. More simply, at the given price levelsand income levels, there is an inverse relationship betweenmoney supply and interest rate (Krugman et al., 2012).

In 2005, M2 was kept 19.3% and in the very next year itwas kept at the level of 15.2%. In 2007 it again reachedthe level of 19.3% then for the next two years it was keptlow till it reaches at the lowest level of 9.6% in 2009.After 2009, again there is an upward trend of moneysupply.

(v) Primary School Enrollment (PSEN)This curve shows a good trend for the long term economicprogress of Pakistan. It shows a positive relationship(directly proportional) between primary schoolenrollments with the time. It seems that education impartsawareness among the masses of a country. Awarenessabout their rights and about their responsibilities leads

100

80

60

40

20

102005 2006 2007 2008 2009 2010 2011 2012

CPI EXPT GCFGDP M2 PSEN

Analysis Graphical representation of data of last sevenyears are presented below



a country to the road of progressincluding economic progress. Butprimary education is a long terminvestment to masses; however, it isi n d i s p e n s a b l e f o r e c o n o m i cdevelopment of a country. Primaryenrollment was 65.3% in 2005 and itdeclined a little in 2006 and reachedat the level of 63.1%. From 2006 todate, the graph is showing upwardtrend.

(vi) Consumer Price Index(CPI)This graph shows a random trend.There are two types of inflation. Firstis measured by CPI and it is applicableto around 300 items of consumerbasket. The other is GDP deflator andit is applicable to both consumers andproducers. But we used CPI becauseit covers the items of common use forordinary citizens. In the differentcountries of developed world, inflationis around 1 to 3% except Japan wheredeflation is prominent. In thedeveloping countries like India, SriLanka and Bangladesh, it is about 9to 12%. In Pakistan, in 2005 and2006, inflation remained single digitbut in 2008 it reached at the level of12%. In 2009, it crossed 20%.However, again it showed thedownward trend and reached at thelevel of around 11%. Moderateinflation is good for GDP growth butafter threshold level of inflation, it isdisastrous for a country.

ConclusionThere is no blinking at the fact thatPakistan was very weak on all frontsat the time of its inception. But theleaders of Pakistan along with thenation backing excelled at loteconomically in the first two decades.Debacle of East Pakistan in 1971proved disastrous for the nation ingeneral and the economy in particular.East Pakistan (Now Bangladesh) wasa huge jute exporter to the rest of theworld and that was the major sourceof foreign exchange as revenue. Theother big loss of the same magnitude,as the debacle of East Pakistan, wasthe national izat ion of private

i n d u s t r i e s / i n s t i t u t i o n s . T h einstitutions which were workingunder profit stated showing loss andgovernment had to face the music. So,on all fronts the whole nation suffereda lot. Exchange rate stated increasingspeedily. At the moment, the currentexchange interbank rate is about 107rupees/ US dollar. However, the retailrate is more that Rs. 110 per dollar.

Owing to these menacing elements,real GDP growth rate is very low ascompared to the other developingcountries of the region; demand pullinflation and cost push inflation areincreasing day by day; money supplyis increasing which is the mother ofrapid inflation; and gross capitalformation is also stagnant. In shortterm, there is no remedy at all.Moreover, country can be on the trackof progress if it is succeeded inmanaging the worst law and ordersituation. The moment peace comesin Pakistan, foreign investment willstart coming in the country. By thearrival of foreign investment, all typesof developments will be started and,of course, exchange rate will alsobecome low and the value of Pak rupeewill be appreciated!

Pakistan was very weak on all frontsat the time of its inception. But theleaders of Pakistan along with thenation backing excelled at loteconomically in the first two decades.Debacle of EastPakistan in 1971p r o v e dd i s a s t r o u sf o r t h en a t i o n i ngeneral andthe economy inparticular. EastPakistan (NowBangladesh)w a s ah u g ej u t e

exporter to the restof the world and thatwas the major source

of foreign exchange as revenue. Theother big loss of the same magnitude,as the debacle of East Pakistan, wasthe national izat ion of privatei n d u s t r i e s / i n s t i t u t i o n s . T h einstitutions which were workingunder profit stated showing loss andgovernment had to face the music. So,on all fronts the whole nation suffereda lot. Exchange rate stated increasingspeedily. At the moment, the currentexchange interbank rate is about 107rupees/ US dollar. However, the retailrate is more that Rs. 110 per dollar.

Owing to these menacing elements,real GDP growth rate is very low ascompared to the other developingcountries of the region; demand pullinflation and cost push inflation areincreasing day by day; money supplyis increasing which is the mother ofrapid inflation; and gross capitalformation is also stagnant. In shortterm, there is no remedy at all.Moreover, country can be on the trackof progress if it is succeeded inmanaging the worst law and ordersituation. The moment peace comesin Pakistan, foreign investment willstart coming in the country. By thearrival of foreign investment, all typesof developments will be started and,of course, exchange rate will alsobecome low and the value ofP a k r u p e e w i l l b eappreciated!



“Aim of this article is to uncover traditional and modernphilosophy of stakeholder's treatment, understand why itis important to identify all the stakeholders and their impactin urging the organisation's strategic objectives”

CONCEPTStakeholders Analysis was originally published by R.Edward Freeman known as the “Father of StakeholdersTheory” an American Philosopher and Professor of BusinessAdministration, in the book Strategic management. In1984, he best defined stakeholders as: 'Any group orindividuals who can affect or be affected by the achievementof an Organization's objectives'. This shows the importantbi-directionality of stakeholders that they can be bothaffected by an organisation.

Traditional PhilosophyStockholder theory is a traditional view which advocatesshareholders alone have legitimate claim to influence overcompany, it argues that shareholders are owners of thecompany wish to maximise their return thereforemanagement has moral, fiduciary, and legal duty to takeinto account only shareholders interest i.e. to pursue profitmaximisation nothing new being primary objective of everycommercial entity. Grey, Owen and Adams called this pristinecapitalist view in their book Accounting and Accountability.Inherent drawback of this view is perceives everything toshareholders may jeopardise company; in fact shareholderis one among others coming under the umbrella ofstakeholders. However, Modern Philosophy of stakeholdersis discussed under Corporate Ethics and CSR content cominglater in this article.

IllustrationSuppose an entity has obtained loan from a bank withcovenant attached to maintain gearing ratio notexceeding to some percent, if covenant breach loan willbe repayable immediately. Here bank is importantstakeholder getting priority in addition to shareholdersand will keep eyes on entity's future performance toensure covenant condition has not breached and strictlyadhered, entity must remain conscious about power andinterest of bank, which might influence over futureperformance of entity.

Analysis of above situation crystallise that shareholdersinterest is to get dividend unlikely to bank interested inreceiving timely interest and principle amount payment ondue date. Every stakeholder has desired interest expectedto be fulfilled by entity, not any stakeholder afford tocompromise his stake he wishes to be considered on prioritybasis always he does not want to be ignored. Consideringall stakeholders collectively might give rise to conflict ofinterest which give rise to more critical situation at the timeof decision making when setting priorities who should befirst and then after.

Types of StakeholdersWhen we think of stakeholders, it is possible to have manyexamples but those who usually come into our mind areshareholders, management, employees, trade unions,customers, suppliers, and communities. Despite the size,structure and nature of business no one entity has similarstakeholders may vary from one entity to another evenoperating in same country's Micro and Macro environment.

Generally, all stakeholders can be classified into three (3)broad categories internal, connected and external fewexamples of each category are tabulated below respectively:

1. Internal Stakeholders are those operating internallywithin the boundaries of organisation.

2. Connected Stakeholders also called primary stakeholderswho have an economic or contractual relationship withorganisation.

3. External Stakeholders or secondary stakeholders arethose who are not directly connected to organisationbut have an interest in the organisation's activities ormight be impacted by the same in some way.

Stakeholder Examples

Stakeholders Analysis-overviewIn 1999 Mendelow introduced Stakeholders Analysis Matrixbased on two dimensions power held and likelihood ofshowing an interest in organisation activities by stakeholdersthis is known as Power / Interest Grid (Stakeholderinfluence = Power x Interest). During preparation phase ofa project stakeholders analysis objective is to assess attitudeof stakeholders regarding potential changes, can be doneonce or on a regular basis to track changes in stakeholder’sattitude over time becomes supportive for entity in order toavoid any disturbance while making future strategies.

Therefore, stakeholders analysis has goal of developing co-operation between stakeholders and the project team and,ultimately, assuring successful outcomes for the project.Stakeholders analysis is performed when there is a need toclarify the consequences of envisaged changes or at start ofnew projects and in connection with organisational changesgenerally. It is important to identify all stakeholders for thepurpose of identifying their success criteria and turningthese into quality goals.

Corporate GovernanceThe Organisation of Economic Co-operation and

STAKEHOLDERS ANALYSISBy: Bunti Lal, APFA

INTERNAL CONNECTED EXTERNAL• Executive Management • Shareholders • Federal Government

• Managers • Bankers / Financiers • Local Government

• Employees • Suppliers • Regulatory Bodies

• Lower level staff • Customers • Public / Society

• Union • Alliance Partners • Media



Development (OECD) established few Principles of CorporateGovernance in 1999 and subsequently reviewed in 2004 inthose established principles one principle talks about thestakeholders, which is quoted as under:

“The corporate governance framework should recognise therights of stakeholders established by law or through mutualagreements and encourage active co-operation betweencorporations and stakeholders in creating wealth, jobs andthe sustainability of financially sound enterprises”.

Ethics and CSRA debatable issue has always remained regarding recognitionof stakeholders or if not then why? Possible solution, whichmight help to understand and resolve this issue in light ofEthics and Corporate Social Responsibility (CSR) are twoview points instrumental and normative, are expressedbelow respectively.

1. Instrumental stakeholders theory was advanced by T.M. Jones in (1995), this argues only those views arevalued and accounted for which results in economicbenefit to entity in other words congruent with primarilyfundamental performance objective common to everyentity might always running on road of competitionwith expectations to chase profit maximisation orincrease in investors wealth.

2. T. Donaldson & L.E. Preston (1995) stresses stakeholdersin normative theory based on the ideas of GermanPhilosopher Immanuel Kant which is contrary to aboveinstrumental theory, in normative theory views areacknowledged irrespective of condition that only thoseviews will be welcomed which results in economic benefitor congruent with primarily fundamental performanceobjective of entity. However entity recognises all viewsassuming its ethical and philanthropic responsibility,philanthropic responsibility means sense of moral dutyto take into account concerns and opinions of allstakeholders unconditionally.

Stakeholders Mapping TechniquesStep 1 Identify Stakeholders: The first step is to

brainstorm who entity’s stakeholders are. As partof this, think about all the people who will be affectedby entity’s operations, have influence or power overit and have an interest in its successful orunsuccessful conclusion.

Step 2 Prioritize Stakeholders: An entity may now havea long list of people and organizations that are goingto be affected by its operations. Some of these mayhave the power either to block or advance and somemay be interested in what organisation is doing,others may not care.

Step 3 Map out Stakeholders: On a Power/ Interest Gridas shown below, Stakeholders are classified by theirpower over and interest in organization work.

Grid InterpretationHow to deal with all stakeholders would become so easy

after mapping position on the power-interest grid, whichrecommends the appropriate actions/ strategies organizationhas to take with are described as follows:

High power-Highinterest: these are thekey players, entity mustbe fully engaged andmake the greatest effortsto satisfy them.

High power-Lowinterest: put enoughwork to keep themsatisfied, but not somuch that they becomebored.

Low power-Highinterest: keep adequately informed and talk to them toensure that no major issues are arising. These people canoften be very helpful with the detail of entity’s project.

Low power-Low interest: again, monitor these peoplerequiring minimum effort to handle them, but do not borethem with excessive communication.

Stakeholders Analysis BenefitsThe benefits of using a Stakeholders Analysis approach are:

a) Enabling the entity to use the opinions of most powerfulstakeholders to shape activities at an early stage. Notonly does this make it more likely that they will supportbut also their input can improve the quality andperformance of entity.

b) Entity will be gaining support from powerfulstakeholders who help to win more resources – thismakes it more likely that entity will be successful.

c) By communicating with stakeholders early andfrequently can ensure that they fully understand whatentity is doing and understand the benefits will berealised– this means they can support you actively whennecessary.

d) Entity can anticipate what stakeholder's reaction mayresult out, and incorporates into the action plan thatwill win stakeholder's support.

Stakeholders Analysis is principle of “Whoor What Really Counts.”ConclusionIn order to achieve strategic objectives of an organizationsmoothly without any interruption or delay, to avoid conflictof interest and for future survival in dynamic environmenthighly recommended modern approach is taking into accountof all stakeholders should not be ignored; sometimes ignoranceof stakeholders might results in dangerous consequences oflitigation leading to winding up of entity, therefore it isimportant to consider all prioritised stakeholders and theirrespective interest claims towards entity.

KeepSatisfied

ManageClosely

Monitor(Minimum

Effort)

KeepInformed

Low Interest High

High

Power

Low



PreambleThe Securit ies and ExchangeCommission of Pakistan (SECP) hasapproved and notified the Issue ofCommercial Papers' Regulations, 2013vide SRO # 1036(I)/2013 dt. December04, 2013. It is aimed at facilitatinghighly-rated companies to raise fundsfrom the capital market to meet theirshort-term financial needs throughissuance of Commercial Papers (CPs),to provide the investors an additionalfinancial product and to develop andbroaden the domestic debt market.The Commercial Paper (CP) is anunsecured short-term debt instrumentissued by corporates at a certaindiscount to its face value normally formeeting working capital requirements.These regulations have replaced theprevious guidelines for the issue ofcommercial papers issued in 2002.The regulations provide a set ofprocedures for issue of CommercialPapers as under:The regulations require the CP issuer:i) that it is authorised by its

Memorandum and Articles ofAssociation or other constitutivedocument, if different from theMemorandum and Articles ofAssociation

ii) that its equity is not less than Rs25million,

iii) it is rated by a credit rating agency(CRA), with rating no less than A-(long term) and A2 (short term),and

iv) that it has appointed a scheduledbank, an investment financecompany or a development financeinstitution as an issuing and payingagent (IPA).

The regulations describe the role andresponsibilities of the issuer, the CRAand IPA.Under the regulations:i) the IPA has been given a key role.

The regulations al low andencourage the issue of CPs underthe shelf registration arrangement.

ii) CPs can be issued only indematerialised form, ie electronic

form, therefore, the issuers shallseek eligibility of their CPs throughthe Central Depository System.

iii) the CPs can be issued with amaturity of not less than 30 daysand not more than one year.

iv) The size of the issue of a CP shallnot be less than Rs10 million. Beingshort-term instruments, the CPsare normally issued to theinstitutional investors throughprivate placement, however, maybe issued to retail investors throughpublic offer.

In case of a public offer, approval of theSECP is required whereas in case ofprivate placement no such approval isnecessary. The regulations require thatin case of private placement CP shallbe issued only to the qualifiedinstitutional buyers (QIBs) as definedtherein. A sizeable CP market serves asan anchor for the corporate bondmarket of a country.So far, as many as 34 issues of CPs havebeen floated by various corporates foran aggregate amount of Rs16.15 billion.It is hoped that with the promulgationof the regulations, the CP market willfurther flourish.Salient features of the CommercialPapers Regulations, 2013 are as follows:

Conditions for issue ofCommercial PaperAny company or body corporate canissue Commercial Paper if it fulfills thefollowing conditions, namely:-(a) it is authorized by its Memorandum

and Articles of Association, or otherconstitutive document to issuedCommercial Paper;

(b) its equity is not less than Rs. 25million as per the latest auditedbalance sheet;

(c) it has obtained the entity creditrating from a Credit RatingCompany and such rating is notless than “A” (medium to long-term) and A2” (short term) andmore than six months old;

(d) it has a credit rating contract withits credit rating agency valid till theperiod not earlier than the date of

the maturity of the CommercialPaper; and

(e) it has no overdue loans or defaultsin the report obtained from theCredit Information Bureau of theState Bank of Pakistan and the saidreport is not more than two monthsold.

Period of Commercial Paper(1) The Commercial Paper shall be

issued for maturities betweenminimum of 30 days andmaximum of one year and the dateof maturity shall be reckoned fromthe first day of subscription.

(2) Where the maturity datehappens to be a holiday, the issuershall make payment on theimmediate following working day.

Size and Denomination ofCommercial Paper(1) Size of an issue of Commercial

Paper shall not be less than Rs. 10million and denomination of aCommercial Paper shall be its facevalue.

(2) Where Commercial Paper is issuedthrough private placement it canbe issued in denomination of Rs.100,000 or in multiples thereof andwhere Commercial Paper is issuedto general public it can be issuedin denomination of Rs. 10,000 ormultiples thereof.

Ceiling on amount of Issueof Commercial PaperThe aggregate amount of a CommercialPaper shall be within such limits as maybe approved by its Board of Directors,provided the total liabilities of the issuerafter the issue of such CommercialPaper do not exceed four time of theissuer's equity.

Mode of issue and discountrateThe Commercial Paper shall beissued in scrip less form at suchdiscount to face value as may bedetermined by the issuer keeping inview the prevailing Karachi InterBanks Offer Rate (KIBOR) and itscredit rating.

Commercial Papers' Regulations - 2013


By:Wasful Hassan Siddiqi, FPFA, FCMA


Issue expensesThe issuer shall bear all the expenses relating to the issueof the Commercial Paper including the fees payable to theissuing and paying agent and the Credit Rating Companyconcerned, and the stamp duty payable to the concernedprovincial government under the Stamp Act, 1899(Act II of1899) at the rules prescribed by them and any other relevantcharges connected with such issue.

Investment in Commercial PaperCommercial Paper may be issued by way of public offerand/or through private placement or Qualified InstitutionalBuyers. In case of public offer approval of the Commissionshall be sought under section 57 of the Ordinance.

Procedure for issue of Commercial Paper(1) Every issuer shall appoint an issuing and paying agent

through an agreement in writing and the agreementexecuted shall contain all the basic terms and conditionsand role & responsibilities of both the parties of theagreement.

(2) The issuing and paying agent appointed under sub-regulation (1) shall not be associated company orassociated undertaking of the issuer.

(3) Where the issue of Commercial paper is through privateplacement it shall be completed within a period of twoweeks from the date on which the issue opens forsubscription and any unsold portion of the issue aftertwo weeks of its opening for subscription shall not beissued.

(4) Where the issue of Commercial Paper is through publicoffer it should be completed within the time period asspecified in the Ordinance.

(5) Where the issue of Commercial Paper is through privateplacement, the initial subscribers of Commercial Papershall pay through the Issuing and Paying Agent thediscounted value of the Commercial Paper by means ofcrossed cheque or any other mode acceptable to theissuing and paying agent, to the account of the issuer.

(6) The issuer shall intimate in writing to all initialsubscribers and all financial institutions, who haveprovided working capital limits to it, about the amountand tenure of the issue of Commercial Paper and copiesof such intimation shall also be provided to the Issuingand Paying Agent.

(7) An issue of Commercial Paper may be underwritten ifso desired by the issuer and in case thereof,-(a) the number of underwriters should not be less thantwo; and(b) the underwriters should not be associatedcompanies or associated undertakings of the issuer.

Issue of Commercial Paper under ShelfRegistrationWhere the issue of Commercial Paper is under ShelfRegistration, following conditions shall be fulfilled, namely:-(a) Issuing and paying agent for all the tranches shall remain

the same;(b) Complete plan for issue of Commercial Paper in tranches

under the Shelf Registration (the Shelf RegistrationPlan) shall be disseminated to the prospective investorsthrough the websites of Issuing and Paying Agent andthe issuer;

(c) Change, if any, in the Shelf Registration Plan subsequentto its initial dissimination shall be dissiminated in thesame manner as provided in clause (b);

(d) Issing and Paying Agent, before the issue of first tranche,shall provide copy of the agreement executed with theissuer containing the term sheet and complete ShelfRegistration Plan to the Commission; and

(e) Issuing and Paying Agent shall confirm in writing tothe Commission before the launch of each tranche thatthe issuer fulfills all the conditions as mentioned inregulation 3 of the Registrations.

Duties and Responsibilities of Issuer,Issuing and Paying Agent and Credit RatingCompanyThe duties and responsibilities of issuer, Issuing and PayingAgents and Credit Rating Company are set out as follows,-

(1) Issuer:- The issuer shall ensure that,-(a) the Regulations and procedures laid down for the

issuance of Commercial Paper are strictly adhered to;(b) Issuing and Paying Agent is provided copies of all the

investor agreements i.e. the agreements executed withthe initial subscribers and the said agreements containsalient features and other terms and conditions of theissue including the following:-

(i) convenants of the issue of Commercial Paper;(ii) non availability of any recourse to the initial subscribers

on the issuer and Issuing and Paying Agent and to thesubsequent purchasers on the sellers in the secondarymarket;

(iii) non availability of any guarantee by any bank or otherfinancial institution;

(iv) d e f a u l t h i s t o r y o f t h e i s s u e r i n c l u d i n grescheduling/restructuring of loan for the last 5 years; and

(v) detailed provisions on rollover, if any.(c) specimen of the investors' agreement between the issuer

and the subscribers containing minimum terms andconditions is placed on its website and on the websiteof Issuing and Paying Agent for information of theinvestors;

(d) within five days of the close of subscription list, reportto Issuing and Paying Agent and the Commission thefollowing information, namely:-

(i) province and place of issue;(ii) amount and rate of all Federal and Provincial levies

paid if applicable; and(iii) term sheet containing salient features of the issue.(e) the Commercial Paper shall be redeemed through



Issuing and Paying Agent; and(f) roll over, if any, shall be made through Issuing and

Paying Agent.

(2) Issuing and Paying Agent.-The issuing and paying Agent shall.-

(a) enter into an agreement in writing with the issuer toact as Issuing and Paying Agent for the issue of theCommercial Paper;

(b) ensure that the issuer has the minimum credit ratingas specified in regulation 3 above;

(c) ensure that the quantum of amount proposed to beraised through issuance of the Commercial Paper iswithin the limit as prescribed in regulation 5 above;

(d) ensure that the issuer has met all the requirements asprescribed in these Regulations before the issuance ofCommercial Paper;

(e) verify all the documents submitted by the issuer i.e.copy of Board's resolution etc. and have in custodycertified copies of the original document and issue acertificate that documents are in order;

(f) credit, on the issue date, the Commercial Paper toinvestors against proof of payment and at maturityhaving received funds from the issuer, it will effectrepayment on receipt of the Commercial Paper backfrom the investors;

(g) make it clear to the initial subscribers in the investoragreement/offering document that investors investmentis subject to credit and other risks inherent in suchinstruments and payment will be made to them only ifthe issuer has made the funds available to Issuing andPaying Agent;

(h) inform the initial subscribers that in case of any defaultby the issuer, it will not be in a position to seek recoveryfrom the issuer or initiate any action against the issuereither on its own or on behalf of the investors;

(i) in case of any default by the issuer, be responsible forthe immediate notification of such default to the holdersof the Commercial Paper and the Commission but notlater than three (3) working days of occurrence of suchdefault;

Explanation:- For the purpose of these Regulations the term“default” shall include partial payment of redemption amount.(j) in case of partial payment by the issuer, distribute the

received funds, among all the holders of the CommercialPaper, on pro-rata basis and while doing so it shall takeall necessary measures to safeguard its position againstany adverse consequences including incorporation ofthis provision in the agreement executed between theissuer and the Issuing and Paying Agent;

(k) submit a report on the issue to the Commission withinfifteen days from the last date for closing of thesubscription of the Commercial Paper and the reportshall contain all the material facts and figures relatingto the issue including those as required under theseRegulations to be reported to the Commission; and

(l) obtain from the concerned depository company list ofCommercial Paper holders on monthly basis.

(3) Credit Rating CompanyThe Credit Rating Company which conducts credit ratingof the issuer shall, at the time of rating, clearly indicate,-(a) the circumstances where the rating shall be due for

review; and(b) circumstances of issue of subsequent tranche(s), fresh

issue of securities by the issuer and any other activityundertaken by the issuer which may adversely affectthe credit rating of the issuer.

Payment of Commercial PaperOn maturity of Commercial Paper, the holder shall presentthe instrument evidencing deposit of the Commercial Paperin depository account for payment to the Issuing and PayingAgent who, having received funds from the issuer, shalleffect repayment through crossed cheque or bank transfer.

Periodic ReportsIssuing and Paying Agent shall submit a report to the Commssionon the redemption of Commercial Paper within ten (10) workingdays of the date of its maturity and the report must be signedby any officer authorized by Issuing and Paying Agent to do so.

Transfer of Commercial PaperCommercial paper shall be transferable according to theclearing and settlement systems developed for transfer ofsecurities in such form under the stock exchanges, CentralDepository Company of Pakistan Limited and NationalClearing Company of Pakistan Limited's Regulations.

Roll Over and Early Redemption Options(1) Commercial Paper may be rolled over at maturity for a

maximum of two terms of the same tenor subject to thefollowing conditions, namely:-

(a) the circumstances where a Commercial Paper can berolled over and full modus operandi for such roll overare provided in the investors' agreement or the offeringdocument;

(b)the option of role over is agreed in writing between theissuer and the Issuing and Paying Agent;

(c) written consent of all the holders of the CommercialPaper is obtained; and

(d)the issuer fulfills all the requirements of regulation 3 atthe time of roll over.

(2)The issuer may redeem a Commercial Paper beforematurity under a call option and an investor may askthe issuer for early redemption under a put optionsubject to the condition that such options are providedin the investors' agreement or the offering document.

PenaltyAny contravention of these Regulations shall be punishablewith a fine which may extend to five hundred thousand rupeeand, where the contravention is a continuing one, with furtherfine which may extend to ten thousand rupees for every dayafter the first during which such contravention continues.



Errors and omissionusually made in thePublic Sector BY: Shabbir Ahmed Pasha, APFA

Financial statements furnish bits ofknowledge into an organization's healthand fiscal status for a specific timeperiod. Fiscal financial statements areintended to furnish information to theo r g a n i z a t i o n ' s s h a r e h o l d e r s ,incorporating potential shareholdersor speculators. Consequently, thesereports must furnish correct andapplicable information to empowerdecision making. Relevant componentof financial statements may as well holdenough information to help moguls insettling on key monetary decisions forthe business.

The International AccountingStandards Board has made theInternational Financial ReportingStandards (IFRS) to help achieve

consistency in the models ofstandardized financial reporting. Thisaddi t iona l ly he lps guaranteeconsistency in the reports that areprocessed. The IFRS illustrates how tostate finance related transactions insidea report, consequently making for amore standard arrangement, crosswiseover reports. The guidelines built bythe IFRS make it simpler for financialstatements for be contemplated allaround, without making disarraybecause of diverse governs in distinctivenations.

Notwithstanding set norms beingfol lowed in making f inancialstatements, there are still mistakes thatsurface and that can bargain the nature

of a financial statements. These mightbe identified with mistakes of oversight,or include matters, for example, longhaul obligation. Mistakes can likewisehappen when managing data going withthe financial statements.

1. Mistakes ofexclusion/omission

Now and again , report ing ofexpenses/cost may be deficient, forinstance, expenditures may berepresented however expensesincluded in raising subsidizes andincomes could get precluded inreporting. This could apply tooccasions too, where overheade x p e n s e s a r e n o t a r c h i v e dlegitimately or timesheets are notadministered.



2. Cash and cash equivalentIt is known that statement of financialaccounting standards no. 95 para 8defines the cash and cash equivalentfor purposes of this Statement, as short-term, highly liquid investments that areboth: Readily convertible to knownamounts of cash and so near theirmaturity that they present insignificantrisk of changes in value because ofchanges in interest rates. It continueswhile stating that generally, only thoseinvestments with original maturities ofthree months or less qualify under thatdefinition.

BUT the mistaken part found here thatnot all investments that qualify arerequired to be treated as cashequivalents. Because here enterpriseshould establish a policy concerningwhich short-term, highly liquidinvestments that satisfy the definitionof paragraph 8 may be treated as cashequivalents. For example, as statementof financial accounting standards no.95 illustrated that an enterprise havingbanking operations might decide thatall investments that qualify except forthose purchased for its trading accountwill be treated as cash equivalents, whilean enterprise whose operations consistlargely of investing in short-term, highlyliquid investments might decide thatall those items will be treated as

investments rather than cashequivalents. An enterprise shall discloseits policy for determining which itemsare treated as cash equivalents. Anychange to that policy is a change inaccounting principle that shall beeffected by restating financialstatements for earlier years presentedfor comparative purposes.

3. Data going hand in handwith report

When furnishing data incorporatingmonetary archives, mind must be takento guarantee that correspondingreferences are available in the financialstatements, also. Illustrations of goingwith data can incorporate postingsholding work plans, accounts andliabilities.

4. Long term obligationdisclosure

Inappropriate statement of long termobligation is a regular lapse found inthe financial statements. While thestandard is that any long termobligation or borrowings must berevealed, slips might incorporatefragmented disclosure or obligationportions completely precluded out ofhuman failure or through estimationbotches. Hence, inadequate disclosuremay be made, or revelations are notmade whatsoever, bringing about

budgetary report ing fa i lures .

5. Related party disclosureWhen there is a trade of cash included,there is related party disclosure that isrelevant. In any case, now and again,this may not be accounted for properly.On occasion the sum or termsaccompanied by both gatherings maynot be accurately revealed. This canbring about an error.

Who are related parties?

Para 9 of IAS 24 defines a related partyis a person or entity that is related tothe entity that is preparing its financialstatements (referred to as the 'reportingentity').

a) A person or a close member of thatperson's family is related to areporting entity if that person:

i) has control or joint control overthe reporting entity;

ii) has significant influence overthe reporting entity; or

iii) is a member of the keymanagement personnel of thereporting entity or of a parentof the reporting entity.

b) An entity is related to a reportingentity if any of the followingconditions applies:

i) The entity and the reportingentity are members of the samegroup (which means that eachparent, subsidiary and fellowsubsidiary is related to theothers).

ii) One entity is an associate or



joint venture of the other entity (or anassociate or joint venture of amember of a group of whichthe other entity is a member).

iii) Both entities are joint venturesof the same third party.

iv) One entity is a joint venture ofa third entity and the otherentity is an associate of thethird entity.

v) T h e e n t i t y i s a p o s t -employment defined benefitplan for the benefit ofemployees of either thereporting entity or an entityrelated to the reporting entity.If the reporting entity is itselfsuch a plan, the sponsoringemployers are also related tothe reporting entity.

vi) The entity is controlled orjointly controlled by a personidentified in (a).

vii) A person identified in (a)(i) hassignificant influence over theentity or is a member of the keymanagement personnel of theentity (or of a parent of theentity).

viii) The entity, or any member ofa group of which it is a part,provides key managementpersonnel services to thereporting entity or to the parentof the reporting entity (It is the

requirement added by AnnualImprovements to IFRSs 2010-2012 Cycle, effective for annualperiods beginning on or after1 July 2014).

Para 11 of IAS 24 defines the followingare deemed not to be related:

a) two entities simply because theyhave a director or key manager incommon

b) two venturers who share jointcontrol over a joint venture

c) providers of finance, trade unions,public utilities, and departments andagencies of a government that doesnot control, jointly control orsignificantly influence the reportingentity, simply by virtue of theirnormal dealings with an entity (eventhough they may affect the freedomof action of an entity or participatein its decision-making process)

d) a single customer, supplier,franchiser, distributor, or generalagent with whom an entity transactsa significant volume of businessmerely by virtue of the resultingeconomic dependence

What are related party transactions?

As defined under para 9 of IAS 24related party transaction is a transferof resources, services, or obligationsbetween related parties, regardless ofwhether a price is charged.

DisclosureAs defined under para 16 of IAS 24Relationships between parents andsubsidiaries. Regardless of whetherthere have been transactions betweena parent and a subsidiary, an entitymust disclose the name of its parentand, if different, the ultimate controllingparty. If neither the entity's parent northe ultimate controlling party producesfinancial statements available for publicuse, the name of the next most seniorparent that does so must also bedisclosed.

Management compensationAs defined under para 17 of IAS 24Disclose key management personnelcompensation in total and for each ofthe following categories:

- short-term employee benefits

- post-employment benef i ts

- other long-term benefits

- termination benefits

- share-based payment benefits

- Key management personnel arethose persons having authorityand responsibility for planning,directing, and controlling theactivities of the entity, directly orindirectly, including any directors(whether executive or otherwise)of the entity. [IAS 24.9]

As defined under para 17A and 18 A ofIAS 24 If an entity obtains keymanagement personnel services froma management entity, the entity is notrequired to disclose the compensationpaid or payable by the managemententity to the management entity'semployees or directors. Instead theentity discloses the amounts incurredby the entity for the provision of keymanagement personnel services thatare provided by the separatemanagement entity (This requirementsw e r e i n t r o d u c e d b y A n n u a lImprovements to IFRSs 2010-2012Cycle, effective for annual periodsbeginning on or after 1 July 2014).

The point when planning financialstatements for your business, take noteto keep away from the normal slipsrecorded previously.



AuditingAudit is a conduct of checking theaccounting aspect from each angle tostream line the accounting transactionsand reporting the highlights, where itis sound proofing of recovery anddesired checks either within theorganization it is practiced or the systemof operation of accounting and itsreporting to the management where theweakness is sounded and requiringi m p r o v e m e n t s a n d / o rimplementations.

Audit Problems inDistressed CircumstancesAudit in uncongenial or internal distressatmosphere is something that theAuditor is to behave below his capacityto oblige his responsibilities. If anyinformation is desired by the Auditor,and the accounting staff is not co-operating the auditor with his requiredinformation, it seems that the auditoris hung around in discharge of his duty.He takes different measurement of

coherence among the staff vis-à-viscontrolling the Management with hisdesired options and modus operandifrom which the Auditor can satisfyhimself regarding the accurateness ofaccounting and operational data onwhich he can report and convince theManagement without lime lighting theconditions of distress. The Auditor canquantify the objects of financialactivities that if under the system ofinternal control the cost and benefitscan be an outlook to measure andcompare with the actual financialactivities in the organizations.

Fund Investment in StockSometimes heavy investments inpurchases or imports are being carriedwhich could be disparity to the leadtime sales, and unwanted fund blocking.This can be a situation the Auditor canthink what actual benefit is beingearned for the organization in bulkpurchases and imports. Is the suppliersame? Are the goods actually needed

for processes for ultimate according toSales Plan and Sales Contracts? Is theprice of purchase or imports are generaland not unusual which may creep inmind that there can be some financialintimacy with persons ordering forpurchases and imports and thesuppliers.

Acquaintances to Board ofDirectorsThere are certain circumstances whereunder the distress the proper books ofaccounts are not shown to the Auditorand time taking circumstances prevailwhich the Auditor has to sustain fromhis own time of money. There must becomprehensive Representation Lettersto be used for all departments wherethe head of departments will answer allhis related activity in duly signed notes.All the Representation Letters of eachdepartment will then be put to theBoard of Directors. The Board ofDirectors should be made educated forparticular Audit that certain

Audit in Distressed ConditionsBy : Rashid Pervez, FPFA



Management Information Systemswhich should be required from thePrincipal Officers who are accountableto the Corporate Law. The Board ofDirectors can directly ask the guidedinformations from the concerneddepartments. At the end, the MasterRepresentation Letter from thecompany's Board of Directors will beobtained by the Auditor in support ofconsensus of Audit and liability ofconduct of different departments.

Say for instance, Auditor reaches to thefinancial controller for checking theinvestment in company physically, theaccountant has delayed or avoided inproviding such books and records forsatisfaction of his audit responsibility.The Auditor can go to the highermanagement for such supportive co-operation from financial controller. Thehigher management also could not domuch help to the Auditor. What auditorcan do , he can mention the outstandingobservations in his Management Letterregarding the unsettled areas of auditoperation which forms part of AuditReport. Audit Report is issued toshareholders of the company and theManagement Letter is issued to Boardof Directors.

Books And AccountsThere are circumstances when all thebooks of accounts are not provided tothe Auditor. The Auditor in suchcircumstances takes the third parties'confirmations, like :

1 Bank confirmations, including bankstatements during the year.

2 Debtors confirmations, includingtransactions with debtors during theyear.

3 Creditors confirmations, includingtransactions with creditors duringthe year.

4 Utility confirmation :

a) Electricity confirmation fromElectricity company

b) Gas confirmation from Gascompany

c) Telephone confirmation fromTelephone company

5 Company's lawyer confirmationregarding any litigation pending for

and against the company.

6 Sales Contracts.

7 Purchases Contracts.

8 Capital works contacts.

9 CDC Confirmation of shareinvestments of the company in thelisted securities.

10 Members on Board

11 Minutes of Board Meeting

12 Minutes of Annual and ExtraOrdinary General Meeting.

13 Premise ownership or rentalagreement.

Stock HandlingThere can be distress for the Auditorfor production report of the company.The auditor may analyse physical goodshandling as from warehouse keeper, ifnot receipts entered accurately, thenthe Auditor may go to check gate passpayments and payables to the tradecreditors , opening stock of rawmaterial, closing stock of raw materialand the company normal input andoutput relativity. From such analysisthe Auditor can form the production offinished goods. The closing stock offinished goods can give a tentative Salesoutput. Which the Auditor can discusswith the Board of Directors. The Boardof Directors will help confirm theproduction and sales. In any case theAuditor can use the RepresentationLetters and Management Letters fromand to the Board of Directors.

Cash in HandCash in hand is operated through theimprest account, which are replenishedafter the ceiling is exhausted by thenormal allowed expenses through pettycash or cash in hand. There are thepolicy that certain maximum perpayment can be made through cash.The Auditor should check if there is anydistress in the functioning of cash inhand. Normal monthly ceiling shouldhave established. If the imprestreplenishment is crossed to the normalmonthly ceiling in the expense in cashin hand. The Auditor should analysewhat excessive expenses in particularor same accounts have been incurredor what extra amount has been used

from cash in hand ceiling. And if therewas management approval sought forsuch expenses crossing the normal fixedceiling?

Purchases & ContractsThere can be distress in the Audit thatthere are purchases and contractsawarded for capital works in progressor services. Are there proper quotationscalled from different parties are theyanalysed for quality and low price. Arethey performing the job according toterms of contract. Is there anycompensation available to the companyin the case of deviation of purchasesquality and contract performances?

Audit PapersThere are certain distress in the auditthat Auditor has to face the difficultygetting audit papers for working on itand keeping in the record. The staffnormally stress to make papers byyourself. This situation is a very timeconsuming and unwanted works whichcost the Auditor within the time frameof Auditing schedules. Sometimes staffcomplain the stationery cost for makingAudit papers. The Auditor has to go tothe Managing Director for suchdistresses and even non providing ofgeneral ledger accesses on computer,for which the Managing Director mayask to bring Management InformationSystem of details of stationery cost fromthe finance manager and may makeaccountable for extra expenditures onstationery cost as wasteful expendituresand may order to arrange audit papersand general ledger excesses on separatecomputer with lock of data handling.

Audit EnvironmentAudit is a task where there is leastbearable disturbance to concentrate inauditing and proper proofing. Auditenvironment distress can be that theseating arrangement of the audit staffis not properly provided despite thepremise has sufficient amount ofseparate spaces in the shape of extrarooms. The staff of the company dodistress to the Auditor that seatingamong us will make us easier toapproach for any need your staff mayrequire. The Auditor may not want suchdistress as open environment of audit



is non-confidentiality vis-à-vis not a healthy or peacefulenvironment to do theaudi t ing o f fu l l yearaccounting activities in alimited time. Nor the Auditormay wish to be very informalwith all the staff of thecompany. The Auditor mayspeak to the managingdirector for such issue andmay arrange the separateroom for his boys for smoothaudit checking.

T h e A u d i t o r a s k t h eManagement that thecompany's internal controlsystem is not effectively runor being operated nor thesystem is compatible tomeasure the accounting andoperational checks. TheManagement asked theAuditor what should be theeffective system of internalcontrol whereby we canmonitor our businessoperative in an effective ands m o o t h m a n n e r . T h eManagement said that wecontrol the payments andrealizeablity of our businessincome. The Auditor saidthere are lot of chances ofover payments of the same bills as it isnot properly maintained by theresponsibility of the bills purchasedmeaning to say a bill is purchased forexpenses or goods is personal ofcustodian responsibility as such goodsor services are purchased and duly paidmarked, but normally it was observedthat authority was not being adheredby the internal checks and the financialcontroller.

For any purchases there should be dulypurchase order raised and approved byauthorized person. Quotations shouldbe called and statement of suchquotations should be submitted forapproval. Good price should have beenopted for purchase. A proper gate passserial numbered should be issued at

gate; the goods or services which areeither purchased for stock or personaluse should be acknowledged asreceived; upon the person concernedfor purchase or services' authorizationthat the bill is a genuine bill which isagainst the purchase of goods orservices is duly signed by him and givento finance department for paymentprocesses.

Management ControlsWhile discussing with the Auditor, theManagement concisely briefed ' that wedo not rely all to our financedepartment, reason is, operations hasto be smooth line first, what I myselfcan control is better than borrowedcontrols'. We have the Cheque Register

S y s t e m . T h e S y s t e mcontrols all the cheques weapprove for payment areentered therein withPurchase Orders. We get thereports Cheque Registerand Purchase Orders. Wecontrol the Purchase orderswith payments. But as yousaid there can be duplicatepayments. We would likefrom you to investigate thatall the purchases of goodsincluding fixed assets ands e r v i c e s a r e r e a l l ysupporting billed withconsideration of receipts ofgoods and services. TheAuditor said ' Sir this Iwould take as a special taskto be assigned with separatebilling by us for 'Purchasesand Creditors checking andreviews'. The Managementsaid okay it is agreed.

Dispatch ControlsThe Management said , aswe have already said that allwe can not timely rely onour finance and accountingfunctions, that is whysubsequent checking isrequired as you are here

with us and obviously mainly forfinancial statements, any way. We havenotes in which we have quantified theamount with the package, which weenter in our Dispatch system with alldetails. The collections are to be doneby Marketing Operational Managementand set off under each dispatch. All thereceipts from customers are banked inseparate account and is entered in ourSystem. For payments we transfer thiscollection accounts to payment bankaccounts.

The Auditor said fine it is very good. Inthe end I will appreciate your co-operation. The Management said youmay please include this gesture in yourManagement Letter. The Auditor saidwhy not it is my appreciation.


News PIPFA JOURNAL

IFAC NewsIAESB Publishes New

Standards on Content of theProfessional Accounting

Education ProgramThe International Accounting EducationStandards Board (IAESB) published thefollowing three International EducationStandards (IESs):

• IES 2 , In i t ia l Profess ionalDevelopment-Technical Competence;

• IES 3 , In i t ia l Profess ionalDevelopment-Professional Skills; and

• IES 4 , In i t ia l Profess ionalDevelopment-Professional Values,Ethics, and Attitudes.

These three IESs will replace theeducational requirements of thethree extant standards:

• IES 2, Content of ProfessionalAccounting Education Programs;

• IES 3, Professional Skills and GeneralEducation; and

• IES 4, Professional Values, Ethics, andAttitudes.

The content of a professional accountingeducation program supports the aspiringaccountant in developing the appropriateprofessional competence. Professionalcompetence is the integration andapplication of (a) technical competence,(b) professional skills, and (c)professional values, ethics, and attitudes.Each of the new IESs specifiescompetence areas and learningoutcomes that describe the professionalcompetence required of aspiringprofessional accountants.

These new standards, which are effectivefrom July 1, 2015, aim to assistprofessional accountancy organizations,as well as educational organizations,employers, regulators, governmentauthorities, and any other stakeholderswho support the learning anddevelopment of professional accountants.

“These three education standards formthe content of the professional accountingeducation program,” explained IAESBChair Peter Wolnizer. “The learning anddevelopment that is demonstrated withina professional accounting educationprogram by aspiring professional

accountants remain one of thefundamental pillars in achieving high-quality financial reporting.”

Highlights of each new IES include:

• IES 2 prescribes the learning outcomesfor technical competence that aspiringprofessional accountants are requiredto demonstrate by the end of InitialProfessional Development (IPD).Technical competence is the ability toapply professional knowledge toperform a role to a defined standard.

• IES 3 prescribes the learning outcomesfor professional skills that aspiringprofessional accountants are requiredto demonstrate by the end of IPD.Professional skills are the (a)intellectual, (b) interpersonal andcommunication, (c) personal, and (d)organizational skills that a professionalaccountant integrates with technicalcompetence and professional values,ethics, and attitudes to demonstrateprofessional competence.

• IES 4 prescribes the learning outcomesfor professional values, ethics, andattitudes that aspiring professionalaccountants are required todemonstrate by the end of IPD.Professional values, ethics, andattitudes are defined as the behaviorand characteristics that identifyprofessional accountants as membersof a profession. These include theethical principles generally associatedwith, and considered essential indefining, the distinctive characteristicsof professional behavior.

As part of its initiative to improve theclarity of its standards, the IAESB hasredrafted and revised IESs 1-6 toprescribe the requirements for IPD. Inaddition, IES 7, Continuing ProfessionalDevelopment, has been redrafted inaccordance with its new draftingconventions. IES 8, the remainingstandard in the suite of eight IESs, isexpected to be redrafted and revised bythe fourth quarter of 2014.

IASB issues interimStandard, IFRS 14 on rate-

regulated activitiesThe IASB has issued an interimStandard, IFRS 14 Regulatory Deferral

Accounts. The aim of this interimStandard is to enhance the comparabilityof financial reporting by entities that areengaged in rate-regulated activities. IFRS14 Regulatory Deferral Accounts iseffective from 1 January 2016, with earlyapplication permitted. Many countrieshave industry sectors that are subject torate regulation, whereby governmentsregulate the supply and pricing ofparticular types of activity by privateentities. This can include utilities suchas gas, electricity and water. Rateregulation can have a significant impacton the timing and amount of an entity’srevenue.

IFRS 14 permits first-time adopters tocontinue to recognize amounts relatedto rate regulation in accordance withtheir previous GAAP requirements whenthey adopt IFRS. However, to enhancecomparability with entities that alreadyapplies IFRS and do not recognize suchamounts, the Standard requires that theeffect of rate regulation must bepresented separately from other items.An entity that already presents IFRSfinancial statements is not eligible toapply the Standard

SECPSECP amends Code ofCorporate Governance

The governance standards are dynamicand changing with the development ofconstantly evolving corporate sector andfinancial markets. This calls for aconstant review of the governanceframework to keep pace with globalbenchmarks. In an endeavor to aligntheir governance regime with enhancedrequirements of the present times andglobal best practices, the Securities andExchange Commission of Pakistan(SECP) has approved amendments tocertain provisions of the Code ofCorporate Governance for listedcompanies. The amendments have beenmade taking into account the lessonslearnt from the practical issues andconsiderations relevant to the listedcompanies and to ensure that it reflectschanging governance concerns, practicesand economic circumstances and bestinternational practices.


News PIPFA JOURNAL

The amended provisions relax eligibilityrequirements for the chief financialofficer (CFO) and the head of internalaudit (HOIA) for listed companies. Theexperience requirements for the CFOhave been reduced from five years ofhandling financial or corporate affairsof a listed company or a bank/financialinstitution to three years of experiencein a public practice (audit/accounting)firm or in managing financial/corporateaffairs of a company. The experiencerequirements for HOIA have also beenreduced from the earlier restrictive fiveyears of relevant audit experience tothree years in audit, finance orcompliance function. As per an earlierclarification issued by the SECP,experience in a public practice

(audit/accounting) firm would also beconsidered relevant audit experience.

These amendments have been approvedfollowing a review focused primarily onfurther refining practicality of the codefor listed companies. The saidamendments are expected to improvecompliance with the code and encouragenew entrants to the fields of finance,audit and related functions, therebyexpanding the existing talent pool ofprofessionals in the country.

Moreover, the mandatory condition ofappointing an independent director aschairman of the audit committee hasbeen made voluntarily to facilitatecompanies in appointing suitablyqualified non-executive directors aschairmen to the said committee.

PIPFA NewsSyllabus for following

subjects of Public Sector hasbeen changed/revised from

Summer-2014 onwardsPIPFA has introduced new/revisedsubjects of public sector as hereunder:

1. The subject of Cost & ManagementAccounting has been replaced withthe subject of Financial andManagement Accounting forCommercial Audit Branch.

2. The syllabus for the subject of Work(MES) & Stores for Defense Audit

Branch has been revised.

3. The syllabus for the subject of Postaland Telecom Accounts & WorksRules and Procedures for PT & TAudit Branch has been revised.

4. Further, former RRA Branch hasbeen replaced by Customs andPetroleum Branch and Income TaxAudit Branch has been replaced byInland Revenue Branch with theirspecialized papers at Final Level. Thesequence of the subjects forFoundation and Intermediate Levelswill remain unchanged.

New PIPFA Website LaunchPIPFA has launched its new website. Inan increasingly virtual age, a siterepresents the public face of an Institute,as well as a forum for interaction withstudents, members and rest of the world.Throughout the process of developingour new website, it has been our goal tocreate an accurate depiction of PIPFAthat is not only direct and informative,but also inviting and engaging. We areexcited to announce the launch of ournew website. We are very thankful toMr. Tariq Zafar (Software Engineer) toachieve PIPFA's New WebsiteDevelopment Target well before time.The advantages of the new websiteinclude a more robust page layout, easynavigation, more detailed informationabout PIPFA and an easier way forexisting students & members and as wellas for prospect students & members tofind relevant information. The site willbe updated on regular basis to betterreflect current accounting industrydevelopments. When you have a fewminutes, please review PIPFA newwebsite. You will feel the commitment,the passion, and dedication of everyonein the PIPFA family. We hope you find

the new website has a fresh look, is easyto use and is informative.

As always, if you have any quries or needassistance you can contact us at:

[email protected]

Employee of the QuarterMr. Tariq Zafarhas been servingin PIPFA as aS o f t w a r eEngineer, sincelast three years.He possesed B.E.d e g r e e i nComputer SystemEngineering andcurrently doingM a s t e r s i n

Software Engineering.

He initially developed Members AffairsSoftware in PIPFA to automate theMembers Affairs Department andproviding online login facility toMembers on PIPFA Official Website.

He is the one who introduced acustomized ERP solution that integratesand automized the internal PIPFAdepartmental structure, and also facilitatethe online connectivity to regional offices.

In recognition of his services he isawarded "Employee of the Quarter" fordeveloping Payroll and Launching ofupdated version of PIPFA website.

Invitation for ArticlesPIPFA Journal is the Official Journal of the Pakistan Institute of Public FinanceAccountants and is being published to keep abreast its members and studentswith the latest developments in Accountancy Industry.

We would welcome articles from our valued members and students forforthcoming issue. Articles are not restricted to specific topic; students& members may send us the articles of their field of interest at followingemail address:

[email protected]


PIPFA arranged its f irst everGraduation Ceremony on March 22,2014. The qualified students receivedtheir certificates during this prestigiousceremony held at the Crown Ball Room,Regent Plaza Hotel, Karachi, attendedby 250 guests, including families,faculty, staff and businesses.

The 72 graduates were congratulatedby Mr. Shahzad Ahmad Awan,President, Mr. Mohammad Maqbool,Vice President, Mr. Sajid Hussain,Secretary, Mrs. Rozina Muzammil,Executive Director of PIPFA and ChiefGuest Barrister, Mrs. Shahida NighatJamil, who, each in turn, encouragedthe students to be committed andoptimistic in their future endorsement.

Mr. Shahzad Ahmad Awan (President)explained to the congregation that aprofessional qualification is a key thatopens the door to a professional avenue,with its official accreditation by theInternational Federation of Accountants,and also to keep their feet firmly on theground in order to seize the opportunitiesand new perspectives that arise. In thisquest for success, commented Mrs.Rozina Muzammil, the important thingis "to know your rough edges and refinethem but liking people is also soimportant if you want to succeed in life".

Mr. Mohammad Maqbool, vicePresident remarked, "Armed with aPIPFA's professional qualification, youwill go out into the world with anenormous amount of knowledge andanalytical capability but it is probablyadvisable to retain a healthy dose ofhumility, self-awareness and ethics."

Mr. Sajid Hussain, Secretary said try tobe a good person and good managerdon't become typical dry & rude sort ofan accountant or a person and how thatis known for it, so try to read many booksand novels about fiction, adventure,politics, nature, sports, autobiographiesetc. and try to improve your knowledgeabout life it develops skills to becomegood manager & decision maker.

In her keynote address, Mrs. Shahida N.Jamil Ex Federal & Provincial Ministeremphasized how important it is for

qualified students to regard theirprofessional certification as the mostrecent stage of their education. "Life inthe 21st century is increasingly becomea process of constant learning andannotation. Never stop learning." "Peopleto people links are becoming moreimportant in diplomacy, because theworld is a much smaller place and peopleare connecting with each other at an ever

increasing speed and intensity."

During the evening guests engaged inlively discussion in the hotel lobby,where a lavish dinner reception wasserved. We wish our qualified studentsevery success in their careers, butremember, as Mrs. Rozina Muzammilremarked, "success nearly always comeswhen you least expect it".

PIPFA JOURNALPIPFA News

First Ever Graduation Ceremony 2014


PIPFA News PIPFA JOURNAL

PIPFA Lahore office organized its CPDs e s s i o n s e m i n a r o n “ E c o n o m i cChallenges and Way Forward” atMumtaz Hall, ICMA Pakistan, Lahoreon 17th January, 2014.

T h e g u e s t s p e a k e r s P r o f . D r .Muhammad Ehsan Malik, Director IBAand Dean Faculty of Economics andManagement Sciences, University of thePunjab and Prof. Muhammad Ijaz But,Head of Economics Department, PunjabGroup of Colleges their presentationwhich mainly covered the Factors whichaffect the economy like energy crisis,water shortage, political stability, Law& order situation, environmental issue,high cost of production, Balance ofpayment, budget and trade deficit. Theyalso shared their ideas and views tor e s o l v e t h e e c o n o m i c a l i s s u e s .

The session was quite interactivewherein the speakers responded tovarious quest ions raised by theattendees.

Mr. Shahzad Ahmad Awan, PresidentPIPFA graced the event as a Chief Guest.Mrs. Rozina Muzammil, ExecutiveDirector PIPFA presented WelcomeAddress. She apprised the participantsabout objectives of the Seminar.Besides, she presented a comprehensivebrief ing upon PIPFA to make adistinction of PIPFA education fromthat of ICAP and ICMAP.

The President PIPFA distributed shieldsamongst keynote Speakers & the EDPIPFA. The Seminar ended with a Voteof Thanks by Mr. Muhammad Sharif,Member BOG.

The participants took keen interest inthe Seminar and praised the PIPFAManagement for organizing such asuccessful of event.

In the end, all guests and participantswere served with Dinner.

Seminar on EconomicChallenges & Way Forward


PIPFA News PIPFA JOURNAL

Seminar on CorporateGovernance

PIPFA Islamabad office organized seminaron “Corporate Governance” on January10, 2014 at Islamabad Stock ExchangeAuditorium. Speakers were Mr. WaheedSharif, Fellow Member of ICMAP,Managing Director of IBL, Islamabad andMr. Basharat A. Mirza, Fellow Member ofICMAP attached with OGDCL, Pakistana s E x e c u t i v e D i r e c t o r(Admin/HR/SBP). Chief Guest of theevent was Mr. Nazir Ahmed Shaheen,

Fellow Member of ICMA Pakistan andPIPFA, currently working with SECP,Islamabad as Executive Director (CCD).

The topic covered in this seminar was needof Corporate Governance in Private andPublic Sectors Organizations, and howbetter Governance achieved througheffective Corporate Governance Practices.

Mr. Sajjad Ahmad, FCMA, FPFAappreciated the efforts of the speakers and

also the Organizing Committee of PIPFAIslamabad & Corporate Office andencouraged the participants for attendingsuch an informative seminar.

The event was a great success and wasattended by PIPFA members & studentsfrom different Industrial & Services sectors.At the end, Shields were distributed todistinguished Chief Guest and Speakers.


ResignedPIPFA Board of Governorshas accepted resignation ofMian Muhammad Shoaib, ashe resigned from PIPFA BOGdue to his personalengagements.

He had been associated withPIPFA since 2005 as amember of the Board ofGovernors. He actively

participated and made contributions to the Institute'sactivities since his inception as member of variouscommittees. He also served PIPFA as President in 2012.

PIPFA Board has appreciated his efforts andcontribution during his tenure and wish him all the bestfor future endeavors.

Best Employee of the Year AwardWe are pleased to share that Mr. Sajjad Ahmad, member Board ofGovernors-PIPFA has received the “Best Employee of the Year Award”in recognition of his valuable services rendered for the PTCL.

He is serving as GeneralManager (Cost Accounts)i n P a k i s t a nT e l e c o m m u n i c a t i o n sCompany Limited (PTCL)The Publication & SeminarCommittee congratulatesits member on achievinglaurels at his workplace andwishes Mr. Sajjad Ahmadall the best for his futureprofessional endeavor.

PIPFA JOURNAL

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