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    Pak july sep_2010 Pak july sep_2010 Document Transcript

    • J U L Y - S E P 2 0 1 0What arE YoU Practicing?
    • co nTecTsVolume 43 Issue 3 JUlY-SEP 2010 The mosT imporTanT issuepublications committee facing The profession inchairman and chief editorAdnan Zaman, FCA 2009 is addressing ThemembersAbdul Rashid, FCA needs of smesAbdul Wahid, FCA and smpsAijaz Ahmed, ACAAltaf Noor Ali, ACAAsad Feroze, ACAHeena Irfan Ahmed, ACAJehan Zeb Amin, ACAM. Amir Afzal Rana, ACAM. Fahim A. Rauf, FCAMuhammad Rehan Razzak, ACAMutee-ur-Rehman Mirza, FCAOmer Mustafa Ansari, FCARaheel Abbas Rizvi, ACA 16The councilpresidentShaikh Saqib Masood, FCA By way ofVice presidentsHafiz Mohammad Yousaf, FCA puBlicZahid Iqbal Bhatti, FCA accounTing pracTicemembersAbdul Rahim Suriya, FCAAdnan Zaman, FCAAhmad Saeed, FCANazir Ahmad Chaudhri, FCAKhalid Rahman, FCAMohammad Abdullah Yusuf, FCANadeem Yousuf Adil, FCANaeem Akhtar Sheikh, FCAPervez Muslim, FCARafaqat Ullah Babar, FCARashid Rahman Mir, FCASalman Ali ShaikhShaikh Saqib Masood, FCASohail AhmadWaqar Masood Khan 4 Adnan Ahmad Mufti, FCAYacoob Suttar, FCA Strategic Decisions During Recession 28secretary M. Amir Afzal Rana, ACAShoaib Ahmed, ACA Something Beyond Financial 32publication coordinatorAsad ShahzadZehra Hassan Corporate Governance 37 The Pakistan Accountant July-Sep 2010 Page 1
    • ediTor’s lETTEREditor’s LetterwhaT are you pracTicing? Evolution and transformation are perhaps the most remarkable processes that create simultaneously excitement as well as apprehension. In today’s rapidly changing environment stagnancy is the first step towards decline, anyone who does not move with the change gets left behind. Diversifying and expanding the area of expertise is the new mantra for the decade, the complete amalgamation of technology in even mundane practices has increased consumer’s awareness, with their needs changing and demanding more, smart providers who are able to anticipate and match their needs move ahead. Historically, the SMP-SME relationship is regarded as being underpinned with the need for SMEs to have statutory audit and this necessary relationship provided a foundation for subsequent advice and support. From the SME relationship, the factors underpinning a strong SMP-SME relationship include competency, trust and proximity. However now the equation is changing, with the incessant changing environment, the role of Accountants has also drastically undergone transformations, no more are accountants just confined to auditing. With the needs of the SMEs expanding they expect more from SMPs. SMPs need to match the growing demand and in order to do so they need to develop capacity and overcome the challenges lying ahead. There is a changing regulatory environment; growing competition from new entrants to the advice marketplace; and the capability of SMPs themselves to provide specialist advice. Opportunities and challenges come hand in hand; while the diversification of role of accountants presents a great opportunity for the SMPs it also brings forth the challenges of capacity building and threats of competitiveness. I feel that SMPs need a platform where they can collaborate and learn together to overcome the competitive challenges ahead. I feel the time is now when we have to nurture our practice, realizing that the beauty of a garden lies in the different varieties of flowers and like flowers no two practices offer the exact same, they each bring a unique and distinctive color to the canvas of accounting. I feel that the new way forward for the SMPs particularly for building capacity lies in capitalizing on their uniqueness while being open to adaption and change. I feel Wayne Dyer’s “Transformation literally means going beyond your form.” appropriately shows the way to strive for continuous improvement, meet the increasing expectations and paves the way to the road leading to a brighter future. Adnan ZamanThe Pakistan AccountantJuly-Sep 2010Page 2
    • presidenT’s PAGEPresident’s PagewhaT are you Experts and economists unanimously hail assurance services principally but not the development of small and medium exclusively to clients who are small andpracTicing? enterprises as a crucial factor in medium entities (SMEs) and other strengthening Pakistan economy. accountants to the extent that they According to the Small and Medium support SMEs. Enterprises Development Authority (SMEDA), “SMEs constitute nearly 90% The SMP committee formed as a part of of all the enterprises in Pakistan; employ ICAP’s initiative to provide a platform for 80% of the non-agricultural labor force; SMPs to come together and jointly work and their share in the annual GDP is towards identifying problems and issues 40%, approximately.” faced by the SMPs. The committee reviews international and regional best The recent times have practices for consideration of adoption by witnessed a gradual the SMPs after affecting suitable changes change in the mindset with in the context of the business the role of the Accountants requirements and local environment as widening considerably, well as the relevance and proportionality According to a research of professional standards and provides conducted by the recommendations on the extent of their International Federation of applicability to SMPs/SMEs. Accountants (IFAC) a shift is seen in the needs and A critical factor is effective networking. I the expectations of Small feel the solution lies in collaborations and and Medium Enterprises (SMEs) from sharing of resources, SMPs should Small and Medium (accountancy) collaborate while not compromising their Practices (SMPs) from being focused individuality and uniqueness. In order to primarily for audits to a much wider match to the growing needs of SMEs, continuum of business advisory services. SMPs have to specialize as well as work on the capacity building to be able to I feel this expansion in role presents an cater to the increasing competitive opportunity for SMPs; they must evolve to environment. I must acknowledge the role match the expectations and meet the of SMP committee which coordinates with growing needs. The opportunity ICAP for issuance of consultation papers, presented is huge but so are the initiating debates or discussion on issues challenges. Information Technology has affecting the SMPs in bridging the gap drastically changed the environment; I between the SMPs as well as with other classify Information Technology as entities. possibly the greatest tool as well as a challenge for the SMPs. It is imperative In order to strengthen the understanding that its impact is analyzed and assessed. and application of International In order to match to the growing Standards, the Institute has embarked expectations SMPs need to be updated upon an awareness program, focusing on with the emerging Information Technology the SMPs. The Institute is mindful of the techniques and adoption in the conduct of problems that might arise in their professional practice. understanding the implementation of ISCQ1 and is imparting the required The definition of Small and Medium training to educate and support the Practices varies from one jurisdiction to practicing members. another. There is no precise globally recognized definition of Small and Medium Practices, because what is considered small or medium-sized in one jurisdiction may be quite larger in another. However, certain general parameters are used to help determine what constitutes Shaikh Saqib Masood an SMP; they provide accounting and The Pakistan Accountant July-Sep 2010 Page 3
    • Join THE DISCOURSEJoin thE This issue’s topic is: Ready to manage theDiScoUrSE Generation Y? The Generation Y has arrived and is here to stay. Is your organization ready to manage the new generation? “Children and young adults born during the 1980s and 1990s are known as Generation Y. Generation Y professionals are in their 20s and are just entering the workforce. With numbers estimated as high as 70 million, Generation Y is the fastest growing segment of today’s workforce.” commenTs ,Z on X,Y enerati te world G w well corpora rs is ho I fee l in the ha t matte , ount, w e, learn really c observ do es not able to e inted is . Anyon n appo xecute the perso and re-e , rectify rvive in plan, e xecute rely su g tha t will su of doin capable re. te cultu corpora 3180) CA (R # S ana, A Ahmad , UAE p.ae ghgrou S harajah rateoffice@s orpo sana.cNo question not to welcome Generation Y. They are I am the only one in my organization falling into thisalready in mainstream. While being more educated, generation, therefore having none to manage. I think myintelligent and joining practical life in an advanced high ups know better how to manage me:)-technological era as compared to two decades back’sgeneration, it is sad that a peaceful, high growth oriented Arshad Khan, ACA (R # 6215)atmosphere essential for opportunities could not be Peshawarprovided to them. Good luck Generation Y. arshad.yousufzai@hotmail.comTameez-ul-Haque, FCA (R # 0973) ‘Generation Y has created a need for a cultural overhaulKarachi for which most organizations, including mine, are yet nottameezul.haque@adamjeeinsurance.com ready. One reason could be Generation Y being a high- maintenance generation which requires their managers to set clear expectations from them, offer flexibility, respect The Pakistan Accountant July-Sep 2010 Page 4
    • Join THE DISCOURSEand communicate with them in their language. However n Development and mentoring: Continue to invest inthis generation, can prove to be most high-performing one personal development and training-explore expandingif organizations are able to leverage on the information, coaching/mentoring programs to younger workers.creativity and technological skills which they bring to the Provide variety and fresh challenges - considerworkplace with them’. promoting cycles of experience in mentoring programs to younger workers.Zeeshan Khurram, ACA (R # 6056) n Brand your Organization: The Generation Y expectsDammam, Saudi Arabia more from their employer and is not afraid to ask forzeeshan.khurram@aqpci.net more!! Articulate your employer brand—communicates internally and externally what it means to work for your organization. Have clear goals, statements and be committed to deliver the promise.I feel before being able to effectively manage it isimportant to understand the people. Naveed Abdul Hameed, ACA (R # 5905) KarachiThe main difference in Generation Y and previous naveed.a.hameed@pk.pwc.comgenerations is their confidence and ambitions. TheseGeneration Y qualities along with their familiarity withinformation technology have resulted in Generation Yhaving high expectations of the employers, seeking out A key to managing people is realizing that everynew challenges and not being afraid of questioning generation brings its unique set of values andauthority. expectations to workforce. Organizations need to understand the expectations of the Generation Y andA recent study conducted in UK showed the priorities of meet them accordingly.Generation Y regarding employment, being completelydifferent from their predecessors. Career development and I feel that following tips can be useful to manage thelearning opportunities topping the list followed by generation Y effectively.compensation package, the nature of job and job security. n They need to be treated respectfully.Career development is the top most priority of Generation n They are goals driven; they need clear goals andY, organizations should ensure that all the available career objectives.paths are understood and are clearly communicated to n They expect and should be awarded with challengingprospective employees. Further, for learning aspirations of jobs for better performance.Generation Y to be met the organization should employ n Involvement in decision making enhances their moralejob rotation and formal and informal training techniques. leading to better output. n Allowing a little fun at the job significantly enhancesShah Rukh Memon, ACA (R # 5913) their productivity.Doha, Qatarshahrukhmemon@hotmail.com Muhammad Abrar, ACA (R # 6126) Sialkot abrarmuhammad@hotmail.comBefore Organizations get ready to manage the GenerationY, they need to understand what they want. Studies showthat the millennials crave International experience, prefer YES……because we have to!development opportunities to cash bonuses, Experience,sustainability and career planning is a major factor for Since we are the people who stand ahead of Generation Ythem. According to Peter Sheahan, Generation Y is not in the row of managers, we are responsible to manage notjust about demographics- it’s about mindset! only them but also ourselves. I feel it does not surmount to be an uphill task for us as Generation Y has alreadySome tips to manage millennials could be: adopted most of our thoughts, knowledge and styles, asn Know what they want: Use market research in order to major psychological theories suggest by now hence there understand what millennials want and how these is no major chance of difficulties, clashes or hurdles desires might differ from older workers. emanating from the process of management ofn Motivation: Think creatively when rewarding Generation Y. millennials, is it time to shift focus from cash bonuses and company cars to other things? What we need to do is to keep an open mind to theirn Grow Globally: The Generations Y rates international positive thoughts and be ready to understand their psyche exposure highly and is more technologically inclined, towards development and humanity. border and boundaries are no limitations. Consider global working opportunities-how might this Muhammad Rehan, ACA (R # 5547) enthusiastic generation support your global mobility Khanewal needs? mdrn@live.com The Pakistan Accountant July-Sep 2010 Page 5
    • coVer STORY The most important issue facing the profession in 2009 is addressing the needs of SMEs and SMPs (Source: IFAC Global leadership Survey 2008) Small and medium sized definition for the SMPs also act as an integral enterprises and practices had not been prescribed. component in SME’s must be considered as a However IFAC has chosen financing need. The SME main driver for innovation, to define SMPs as – SMP relationship can be employment as well as “accounting practices regarded as a necessary social and local integration whose clients are mostly relationship. SMPs around the globe. They SMEs, external sources perform a large number of are playing a vital role in are used to supplement important tasks of SMEs. the economic activities limited in-house technical Most important among around the globe and can resources, and contain a them is the financialUsman Akbar Manda, ACA never be ignored in the limited number of reports or annual reports. worldwide conferences professional staff. What So they always turn to and agendas. SMEs are constitutes an SME differs SMPs to produce these now crucial to most depending on the country.” statements. Also SME- developed and developing (IFAC 2010) SMP relationship is also economies. For instance, prominent because of the in the European Union, SMPs are uniquely meant compliance work being SMEs contribute to over for helping the SME’s. provided to SMEs by 99% of all enterprises and They help SME’s to SMPs in common 100 million jobs. This perform in a more efficient business world. represents almost 67.1% and effective way, of private sector assisting in compliance In the credit crunched employment. For the with the rules and world, SME’s are playing a survival of SME’s, SMP’s regulations and business very important role as run as a blood. A unique support services. They world big giants are inThe Pakistan AccountantJuly-Sep 2010Page 6
    • coVer STORYdoldrums and cannot Bringing improvement and in this credit crunched for ensuring the quality ofemploy more labor force. strength in the work and world economy and in work in the SME’s andInstead big corporations structure of SMP’s shall future business world. They SMP’s sector, there is aare in the move towards bring the same effect in need to develop more dire need for thefiring and layoff. In this SME’s. SMP’s in today’s effective communication improvement in financialscenario, SME’s provide a world offer a wide range of networks with clients, reporting. The frameworkplatform for the provision of services to SME’s. They coworkers, government for reporting on financialjob facility and hence put range from payroll instrumentalities, legal and statements of SME’s needsome healing effect on the processing, forecasts and other professionals. In improvement so that theinjured worldwide projections, litigation taking initiative towards interests of theeconomy. In my opinion, support, personal financial advisory role, they need to stakeholders can beroles and work of SMP’s planning, business involve themselves in protected and presentand SME’s have a direct valuation, mergers and strategic decision makingco-relation between them. acquisitions, financial including proficiency inIn financial terms, we can management, assurance forward thinking andsay that there is a perfect and related services, enhancing the abilitypositive co-relation co- reporting, strategic to weigh alternatives.efficient of 1 between the planning, tax planning, a They also need totwo arms of the economy. few of them to be focus on sharpeningSo SMP’s should focus on mentioned. In the recent the analytical skills forimproving the quality of trends of the business analyzing the potentialwork and concentrate on world, range and quality of opportunities andmore areas for the advisory advice to be provided to projects andto SME’s. This is quite SMEs by SMPs has been continually striving forevident from a survey growing at an exponential the devises to bringconducted in different rate. This is due to the improvement in bothcontinents. information needs of methods and owner-managers of SMEs effectiveness. ThisAccording to a survey who are in a need to fulfill can be very effectiveconducted in UK, Australia their regulatory obligations for the SMPs are thisand Canada, SME’s think and day-to-day and shall strengthen tothat SMP’s provide them strategic challenges. absorb the shocks ofthe in the following ways: economic downfalls. Before discussing on how At the sametimel practitioners most SMEs redefine themselves managing, motivating popular source of in this credit crunched and inspiring their own business advice for world, let’s have a look on professional SMEs; what is the main Motivation personnel so thatl practitioners most and Reason for SMEs’ Use quality and competent trusted source of of Accountants or SMPs as workforce is available business advice for Business Advisers. Broadly all the time. SMPs SMEs; and there are three main issues also need to developl practitioners most because of which SMES strength to highly rated source of rely on SMPs as business acknowledging and business advice for advisors; recognizing people for SMEs their contributions and l Competency performance withinIn this perspective, SMP’s l Trust their workinghave to act as a very l Proximity and environment withoutresponsible segment of the responsiveness considering theeconomy and in helping personal interests.the medium sized SMPs should consider This factor is oftenenterprises. They have to them and keep them as a lacked very much inimprove and broaden the focal point before taking most of the corporateextent of their services for any change or redefining world and especiallytheir own safety and for themselves. in Pakistan.protecting the SME’s whichrely heavily on them. They There are some very Now referring to someare a key business important roles which specific issues for theadvisors to the SME’s. SMEs are required to play initiatives for SMPs, The Pakistan Accountant July-Sep 2010 Page 7
    • coVer STORYinformation in a way that is SME’s. In addition to this, lending activity to the accurate and reliableuseful to the decision audit quality control SME’s. provision of information,makers. Now SME’s need standards also need to be Internet centers for SMP’sa lot of attention by the implemented in the SME’s. l Obtaining financial and SME’s should beregulatory bodies for the Again this objective can be statements of the small developed. Centers forreporting standards setting achieved if SMP’s step clients, information sharing can bebodies. In this regards, forward and take the l Time taken in gathering developed andSMP’s can take an initiatives. They can also information to make the membershipinitiative to identify the use accounting information decision for lending facility created inloopholes and defects in to achieve sound financial l Timeliness of the order to get thethe current prevailing management. information provided funds for theframework. They can take maintenance ofall the stakeholders in this Another important role, the Source: Micro-Entity Financialambit and identify the accountants are supposed Reporting: Some Empirical the center. Any Evidence on the Perspective ofproblematic area and share to play is the assistance of Preparers and Users (IFAC SMP information whichthem with the standard SME’s in obtaining bank Committee Information Paper, Oct. is to be shared insetting bodies. One of the finance and other financing 2007, draft) the center shouldproblems due to ineffective facilities. As discussed be accurate. Afinancial reporting is the earlier, SME’s face For obtaining financial checklist for the reliableSME’s also face problem in problems while obtaining statements and information should begetting financing activity loan or other financing from consistency in the fulfilled by the data before itdue to this which is the financial institutions. presentation, this can be can be entered in thediscussed in detail in the lending organizations are best overcome by using internet center for sharing.following paragraphs. more inclined for lending computerized packages. As a more proactiveImprovements to financial facilities towards large Today, IT has become approach, a dedicatedreporting can increase the corporations, SME’s face integral component in search engines can beconfidence of investors and difficulties in obtaining financial reporting and developed for SME’s andusers of these reports can them. This bridge can be consistency cannot be SMP’s. This shall bring ingive an impetus to the best covered with the help brought without using the the quality of work not onlyeconomy which is badly of SME’s. The main clutches of IT and its for SMP’s but in the work ofhurt by the blow of global problem that is faced in this related facilities. SME’s and othereconomic crisis and credit respect is the non Computerized packages stakeholders as well.crunch. availability of information to can be helpful in order to the lender or in the required ensure that the consistency In the era of globalization,Reliance on the financial format. SMP’s can help is achieved in the the sharing of knowledgestatements can be SME’s to develop a presentation of information. and experience across theimproved by applying ISA’s framework in consultation world is very important foron audits of SME’s. Till with the lenders and SME’s In order to counter the the improvement in qualitynow, no auditing standards for provision of information problem of time lag in of work and provision offor the small and medium and subsequent help in obtaining information for good service in every nooksized enterprises have decision making for the financial institutions, and corner of thebeen developed. This is a extending financing facility facilities need to be continents. Thebig vacuum for the SMP’s to the SME’s by financial developed for the sharing improvement in the qualityto step forward and perform institutions. According to a of knowledge. Again to of work by SMP’s can betheir role. SMP’s should study conducted, financial achieve this objective, brought about by sharing ofendeavour to develop institutions face the reliance is on the IT knowledge and experienceauditing standards for following problems in facilities and internet. For on a platform. This can be The Pakistan Accountant July-Sep 2010 Page 8
    • coVer STORYa very effective quality demand for advice. This in some relaxation in and at the same time beinitiative by the SME’s. It is turn brings new challenges some corporations for profitable. This can beimperative to get in touch for SMPs. The major the statutory financial done by introducing taxwith the fellow accountants challenges are: audits but a rise in incentives. Along with thataround the world. Seminars compliance linked to on the recommendations ofshould be conducted for l consolidation within the environment, health SMP’s, develop nationalSMP’s for achieving this. accountancy industry: and safety and and international standardsThe geographical scope of Big giant firms are employment. This that are easy forservice can be extended always ready and in a reduces the market for application and tailoredbeyond the boundries of stronger position to the SMEs. according to thethe home country to other acquire small requirements of SME’s andcountries as well. practitioners. They l reluctance of some stakeholders. SMPs alsoAccounting, auditing and often present golden SMPs: Some cannot work in an effectiveconsulting services can be offer to the SMPs, customers are not able manner and provide qualityprovided through especially when to the pay the required work until and unlessnetworking at far furlong entering in the foreign fee as desired by the quality labor force isdistances. This shall help market to get local SME. So there is available in the market. ForSME’s as well for the representative and market but still no the supply of qualitygrowing globalization market as well. So with service is provided. advisors and accountants,needs in the upcoming a growth merger and Also with some SMEs, institutes and professionalfuture business world. acquisition there is a their heterogeneity of body too shall have to play decline in sole need makes SMPs their very sensitive role. One fact to be practitioners. reluctant to provide the Ensuring that the worth mentioned services. professional and members here is that SME l rise in the provision of of their respective bodies market is very services by larger Such changes for the remain competitive and dynamic. The practitioners: large demand of services by more supply is entered in The market conditions and regulatory environment within which SMEs operates is constantly changing. With this background, it is imperative for the advisors of SMEs to respond to the market demands and requirements. If SMPs do not cope with the changes and devise strategies for them, it can pose a serious threat to their position as key providers of advice and support to SMEs. practitioners are in a SMPs and their clients’ the market after ensuring market conditions better position to environment have that they are competitive and regulatory capture market. significant implications for and able to provide good environment Although their rates are SMPs. If SMPs do not cope quality work. within which comparatively high but with the changes and SMEs operates is with the recent financial devise strategies for them,constantly changing. With crises and reduction in it can pose a serious threatthis background, it is the clientage, large to their position as key The author isimperative for the advisors corporations have providers of advice and Senior Business Consultantof SMEs to respond to the reduced their fees and support to SMEs. in IBM Italia S.p.amarket demands and hence grabbing the Global Business Servicesrequirements. Among them market of SMEs. Neverthless, national and Department.the most important is the international institutionsrequirement of statutory l shift in the regulatory also have to play a veryaudit which is increasing environment: As important part to achieveand also bringing changes discussed earlier, all the above aims. Theywithin it in almost every regulatory environment shall have to providecountry. But other factors has been constantly practical support to SMP’sare also affecting the changing. Now there is to provide high quality work The Pakistan Accountant July-Sep 2010 Page 9
    • coVer STORYthE LaW oF thE corPoratE JUngLE –SUrViV oF thE aLFittESt Saira Shamsie, ACAAs the socio economic dynamics are human element helps in reducing treating the other SMPs as a supportchanging with shrinking boundaries, turnover and ensures stability. In fact group rather than a business rival.ever changing technology, this is an attraction for people joining This change in attitude can help inuncertainty, survival is only for the any organisation in the current broadening resources andfittest. scenario of instability. harnessing opportunities. With the internet age sharing intellectual dataAs the world stage is set for change The million dollar question is how do latest professional developments andthis gives empowerment to the SMPs with limited resources and guidelines is possible more than evermiddle tier the Small and Medium financial constraints manage to before. A strong intellectual dataPractices (SMPs) and Small and provide the enabling environment base of case studies, guides,Medium Entities (SMEs). The game is needed to sharpen the softer skills of illustrative and presentations can helpof making the right choices, to make their staff to have the cutting edge. in training the SMP staff to bringefficient use of resources, be tech them at par to the big foursavvy, use net working and last but The only answer is to build an professional standards.not least be open to change. environment of trust and mutual sharing. It is essential to use net Further, round tables and experienceTo evolve and to gain market share working and pooling of resources. sharing sessions can be invaluable inthe importance of a proactive human SMPs need to foster change by sustaining development. The Instituteresource equipped to of Charteredface the challenge Accountants ofcannot be over Pakistan (ICAP) hasemphasized. The Sidat was been playing a key Ebrahim YacoobSMPs need to build ing Session with role in this front by Ex perience Shar ne 30, 2009on their cash knowledge of arranging workshops held on Ju perience andgenerating asset - ed his vast ex He said the to p on varied subjects and Mr. Sidat shar his audience.their staff by providing g issues with eir bu siness also inviting seasoned the accountin ere growing thcareer growth, MPs faced w logy. members from thetraining, mentoring challenges S d keeping current techno profession to ity anand the spirit and and productiv share their rich ider the need to consenvironment for He emphas ised that firms best the firm experience in practice. who want thetackling challenges. of their clients that the need for expectations so recognizeProviding an enabling rm s must al rvices is There is need for has to offer. Fi lue added seenvironment with client specia lization and va networking amongample training firms as more firmsopportunities and the growing. globally are becoming The Pakistan Accountant July-Sep 2010 Page 11
    • coVer STORYmembers of professional networks to IFAC BOARD APPROVES Small First” approach to tacklingserve the specialized needs of RECOMMENDATIONS TO ASSIST complexity.clients. SMPS The recommendations can beTo give the competitive edge the The IFAC has approved a set of categorized into the following areas:International Federation of recommendations designed toAccountants (IFAC) has been expand support to member bodies in n Increase the visibility, voice, andproviding full support to the SMPs by their work to assist SMPs. The profile of SMPs - for example, bydeveloping material especially for recommendations are intended to communicating and advocatingtheir needs. Some of the latest aids give SMPs the additional practical the importance of the SME sectorare Practice Management Guide, QC support needed to provide high- and the role of SMPs inGuide, ISA Guide to name a few. quality professional services to their supporting this sector;Further, for informal interaction SMP main clients: small- and medium- n Expand the monitoring of globalCommittee twitter has also been sized entities (SMEs). IFAC considers regulatory reform to ensure itslaunched. the health of the SME sector, which suitability for SMEs and SMPs; accounts for the majority of private n Develop guidance, resources, and sector employment and gross tools-in collaboration with member domestic product (GDP) worldwide, to bodies - that help promote and be crucial to global economic build the capacity of SMPs to growth and financial stability, as well deliver high-quality accounting, as the public interest. Through these assurance, and business advisory recommendations, IFAC also seeks services; and, to enhance SMP participation in n Enhance the extent andThe SMP Committee is piloting Twit- international standard-setting and effectiveness of participation ofter as a vehicle for communicating regulatory and policy development. SMPs in the development ofand engaging with SMPs, member IFAC’s independent standard-setting IFAC’s standards throughbodies and others. The SMP Commit- boards and other groups will be increased SMP representation ontee Twitter will keep users up-to-date encouraged to further embed SMP certain independent standard-with global developments in the and SME considerations into their setting boards and other activitiesSMP/SME sector. Please visit work programs - for example, through where SMP contributions arehttp://twitter.com/IFAC_SMP increased involvement of SMPs in essential. projects and by adopting a “Think Quarterly Magazine of The Institute of Chartered Accountants of Pakistan Advertisment Rates Positions Per Issue Four Issues Rupees Rupees Back Cover 30,000 116,000 Inside Front Cover 20,000 76,000 Inside Back Cover 20,000 76,000 Inside Pages 10,000 38,000 Subscription Rates Single Copy Annual CA Students (After Completion of Training Periods) Rs. 40 Rs. 150 Others Rs. 60 Rs. 200 The Pakistan Accountant July-Sep 2010 Page 12
    • coVer STORYSMAll AND MEDIUM SIZED reduce the reporting burden for SMEsENTITIES (SMES) revisions to the IFRS will be limited to once every three years.In Pakistan the SMEs make up amajor portion of the documented In particular, the IFRS for SMEs: Comparison to full IFRS:economy representing the privatesector. It was generally felt that in the It covers most of the full IFRS n provide improved comparability requirements, but includescase of small and medium-sized for users of accounts relaxations for SMEs:entities, the cost of compliance withcomplete set of IAS as notified by the n enhance the overall confidence in The following topics have beenSecurities and Exchange the accounts of SMEs, and excluded:Commission of Pakistan (SECP) wasconsiderably more than the benefits n reduce the significant costs n earnings per shareaccruing from the use of such involved of maintaining standards n interim financial reportingstandards. In order to address this on a national basis. n segment reportingissue, the Institute (ICAP) developed n special accounting forthe accounting framework that could The IFRS for SMEs has to date been assets held for salebe used for the preparation of the adopted by over 60 jurisdictionsgeneral purpose financial statements The following options have worldwide. been disallowed:by the Small and Medium-Sizedentities. The decision of which entities these n financial instrument standards may apply to has, however, options, includingAlthough, the International been left to the individual jurisdictions available‐for‐sale,Accounting Standards Board (IASB) discretion. held‐to‐maturity and fairwas working on a project to develop value optionsIFRS for Small and Medium-sized Currently the Institute is in the n the revaluation model forEntities, it was expected that it may process of adoption of IFRS for SMEs property, plant andtake a few years for finalizing this equipment, and for for Medium Sized entities (excludingstandard. To fill the gap during the intangible assets small size entities for whichtransitory period the Institute had n proportionate consolidation compliance to these standards is for investments intaken the initiative to formulate the considered not practicable). jointly‐controlled entitiesStandards for Accounting and n for investment property,Financial Reporting for Small and With the IFRS for SMEs the SMEs measurement is driven byMedium-sized Entities. On the have a tool for greater transparency circumstances rather thanrecommendation of the ICAP the and comparability of financial allowing an accountingSECP vide SRO No. 860(I)/2007 statements in the global market. policy choicedated August 21, 2007 had notified Hence giving an opportunity to n between the cost and fairthe Accounting and Financial expand and reach out to markets value modelsReporting Standards for MSEs and beyond the geographical borders. n Various options forSSEs issued by ICAP under Section government grants.234(3) of the Companies Ordinance,1984. The following areas have been The author is simplified: Manager Technical ServicesIFRS FOR SMES at ICAP, Karachi. n Financial instrumentsThe IASB issued on July 9, 2009 an measurementIFRS designed for use by SMEs, n Goodwill amortizationwhich are estimated to represent n Borrowing cost expensedmore than 95 per cent of all n Investments in associates and Jvs can be measuredcompanies. The standard was a at costresult of a five-year development n PPE useful life reviewprocess with extensive consultation of n Defined benefit plansSMEs worldwide. measurement n Simplified tax approachThe IFRS for SMEs is a self- n No separate held for salecontained standard of about 230 assetspages tailored for the needs and n Biological assets FV notcapabilities of smaller businesses. necessaryMany of the principles in full IFRSs for n Equity settled share basedrecognising and measuring assets, payment measurementliabilities, income and expenses havebeen simplified, topics not relevant toSMEs have been omitted, and thenumber of required disclosures hasbeen significantly reduced. To further The Pakistan Accountant July-Sep 2010 Page 13
    • coVer STORY By Way of Public accounting Prelude: Practice took the idea of being a fish in a tiny pound of my own, and applied for a practicing certificate. The The coming year 2011 will mark the Golden Jubilee idea flourished when a dear friend in practice of this august Institute. On a humble note, it will also encouraged me to get rolling and I seized the mark completion of my first decade in public moment. accounting practice. Here is what this journey has been like…..... Verily, the first sacrifice my new venture required was the prospect of giving up whatever pittance I How it started? was assured towards the end of the month, as a salaried employee throughout my professional It must be a proverbial sunny day of my life when I career.Altaf Noor Ali, ACAThe Pakistan AccountantJuly-Sep 2010Page 14
    • coVer STORYThe ideal way to end up as for a fresh qualified person to set up I would find it difficult to have a go.somebody notable in a public practice an office without any seed money ongoes through audit training in a his own and ofcourse without any On the way there was some comicrelatively larger audit firm, and option of external finance? relief as well. It was in the form of myultimately gaining partnership, after interaction with symbolic cool andqualifying and serving in managerial A related step was to set aside colourful professional clowns, two ofcapacity for some time. My case was enough to get the practice going to which I describe below. I believedifferent. Yes, my audit training was settle financial commitments in time, every practitioner gets to meet them.from one such firm, but I was whether of paying monthly rent or How they are responded depends ontempted by the glamour of the other expenses for maintaining the the individual.‘industry’, and eight years later the office. It looked as if I complete theconventional route was not there for full cycle from being a month end One day, a gentleman walked in myme. payee to the payer. From now office and asked me if I would be onwards, on every first of the month interested in doing an audit of hisWith practicing certificate in my hand instead of myself receiving a salary, I small business. He wanted it done toa month later, I felt privileged and would be paying rent and the rest of obtain visa for the U.S. As thehappy. That day a new firm bearing the stuff. discussion progressed, I came tomy name came into being. know that he was in import export Paraphernalia and financing: business of which he had notThe Silent Vow: maintained any books. He went on to As the firm started rolling, I add what he wanted me to ‘show’ inI remember holding the practicing appreciated how important it is to his financial statements.certificate with reverence. When my have some kind of financialfather (a physician) saw it, he asked arrangement available to achieve the The next one was a semi-qualifiedwhen I will be taking the oath. He expansion but who’s there to finance accountant who walked into my office.shared my faint disappointment when it? This is true for a green field office His purpose of meeting me was toconveyed that the chartered like my own or an established firm. I find out if I would be interested inaccountants do not take a ceremonial have not heard of any bank providing ‘thapafy’ (certify without verification)oath like physicians, though both finance, possibly because a statements prepared by him forprofessions hold the element of practitioner like myself would not applicants of consumer loans frompublic interest supreme. have a collateral to offer. That may be commercial banks. Easy money for one reason why the growth of most one signature but guess not my typeMy first reading was the bulky code professional firms is so retarded. The of work!of ethics for the practitioners. I fact is any start-up firms goes throughreflected on its application and a painful period during the initial In the times ahead, some goodsilently vowed never to let my years. Guess too much to expect our opportunities also came by goingcommercial interests come above the Institute to have some arrangements through press advertisements. Goodprofessional ones. I felt a worthy in place to ease the process? to see that reading newspaperburden of trust and a collective became more interesting. It becameresponsibility placed on my shoulders Not to be deterred, my first act in a source for searching organizationsin this new role, something I never office was to place a small portrait of searching for auditors. For example, Ifelt all the while I was serving as an a young and handsome Mr. was keen about developing auditemployee. Mohammad Ali Jinnah, with brilliance expertise in educational institutions and inspiration radiating from it, on from schools to university, compatibleEnergising the firm: my desk. I have been a great admirer with my appointment in a panel of of his character and ability…wishing monitoring consultants by the InstituteMy first step towards my practice was to emulate it in my own humble way. for inspecting and reporting onto secure suitable rented premises. selected academic and financialFortunately, the search came to a In action: aspects of private educationfruitful end. I got a fine office at institutions registered for tutoringreasonable terms from an I remember my first audit job well. It students of first four modules.acquaintance. I wish I had the came as an audit of an employeefinancial prudence of saving enough provident fund scheme of a non- Even today, the newspapers continuein my earlier career to have bought banking financial institution. The next to be a valuable source. However, asthe premises and save the rent. one was something similar from a software company. These kinds of a practitioner I found negotiating a fairThe process of setting up an office audits became my principal expertise audit fee to be a major hurdle in mostinvariably involves higher funds than in years ahead. The issue was that such cases. This may be so becauseone would estimate; items required to these audits are annual events most clients do not see an audit as amake the office functional keep on lasting for less than a month. What value adding business activity, and inadding up, so does the cost. From should I be doing in the meanwhile? my opinion rightly so because anoffice fittings, furniture and computer audit is primarily a complianceto electric kettle all is necessary. I I started actively looking for more activity. Our only contribution ashad to draw upon my savings to get it opportunities as external auditor. I auditors to the financial statementsdone but imagine what it must be like was aware that without quality ratings appears to be a The Pakistan Accountant July-Sep 2010 Page 15
    • coVer STORYone-page standard audit report, which match those paid to an individual. The last audit when you start the audit forin principle is also correct. The emoluments of a ceo exceed those of the current year. Similar sob storiesbehind-the-scene endless hours of an auditor, without any exception, in from my network and one wonders ifthe auditor that goes into bringing the all cases I studied. The board of payment of audit fee is a priority at allrag-tag financial statements handed directors appear to be more generous for the client.over initially to bring it to the point than the shareholders who appointwhere that to him and one-page- auditors in the general meetings. With time as the most preciousstandard-report appears respectable irreplaceable commodity alargely remains unacknowledged. Graceful reputable firms, with global professional has, there is no time to affiliations, who are in best position to waste on following up clients to payThe issue of audit fee and of its not command audit fee of their liking, if their dues. I decided to get paid inbeing paid: they find themselves often in such a advance. Some of my colleagues position, what would be the level of argued with me on charging fee inWith only one in five chartered audit fee for the rest of us? In short, advance, even going on to suggestaccountants in public practice and the minimum hourly rates, provided in that it is not permitted, but failed tothey being only ones providing audit ATR-14, apply to the listed show me where it says so. Instead,service, the context is right forbooming public practices. In additionthere is ATR-14 that prescribes theminimum hourly rate for computingaudit fee for accepting audits ofcompanies only. However, the waythe profession has evolved over lastfifty less one year, its caretakersclearly failed to capitalize on itsstrengths. Many questions haveremained unattended. For example,what about the audit fee of theentities other than companies? Theseconcerns affect small and mediumsize and it practices most and haveonly cumulated over a period of time,resulting in unbelievably low auditfee.The severity of how low the audit feesare can be gained from studying thegiants of the profession - from thosewho are in the best position tocommand a fair audit fee. let us doso by comparing the emoluments of companies only and even there it is as a counter-attack they would askan external auditor and a chief not applied in majority of cases. I am me to show them where it is permittedexecutive officer of a listed company yet to hear any professional firm ever to charge audit fee in advance, orand see who’s getting a better deal. being reprimanded on this count to even half of it. The fact is that our convince me that the Institute while technical literature is completely silentEssentially we are profiling a awarding quality ratings considers if on the issue.professional firm, maintaining the audit fee is commensurate withinternational affiliation and technical the number of hours on-the-job. Beyond audits:human resource base, giving an Undercutting audit fee has become aindependent opinion about the favourite pass time in which the Apart from audit, I did interesting duefinancial statements of a listed professional firms appear to be diligence assignments for acquirers.company and an individual who is the contributing or is it an indication that One such assignment was on behalfhighest executive officer of a listed they are finding it increasingly difficult of a freight forwarding company forcompany. As to responsibilities, the to reach a break-even point. equity injection in a trucking ventureauditor is bound by a code of conduct with another company. It turned outand follows certain technical Add to the issue of low level of fee the that major recasting and reformattingstandards in giving his audit opinion. issue of not being paid for the of the key financial information wasOn the other hand, ever heard about services rendered in a reasonable required and about 50% morea code of conduct applying to the time. Clients somehow tend to go resources, for validating agreed-uponceos in general or any ceo ever short on memory and priority about parameters. The Hobson’s choicebeing held responsible for whether the audit fee is paid, once was in doing a mediocre job andprofessional negligence? Given this, the audit report is signed. Infact, one attaining the standard I had in mindthe sad fact is that the emoluments colleague shared that his clients are when accepting it. I concluded thepaid to the audit firm do not even so spoilt that they pay the fee for the assignment with a financial loss but The Pakistan Accountant July-Sep 2010 Page 16
    • coVer STORYwith a professional consolation. research for individual clients. My first with latest technical developments in break through came from a accounting and auditing, specially asAt this point my clients included discussion with a former colleague the practitioner ages. That thebusinesses where owners appointed who virtually became a victim of number of listed companies beingme to act as a consultant and internal financial scam involving placing an audited by sole practitioners hasauditors. Sometimes, I was applying amount with an individual for a high gone down is cited as evidence.my knowledge to present the most return. He was lucky to escape it and There is a limited amount of truth in itpressing business issues to the made it a point never to trust as well but you cannot ignore theowner independently, or analyzing individuals and was looking for some character of auditor out of thisarea sales receivables, or assistance in setting up an picture. Enron was not audited by adocumenting year-end closing of the investment account with a broker, sole practitioner.accounts. advice on acquiring investments, and doing the keeping book-keeping. As a practicing member, it is alsoMeanwhile, extra effort in developing important to take charge of your owngood rapport with fellow professionals We got the ball rolling by setting up professional development. There is astarted paying off. I collaborated with an account with a stock broker of noticeable improvement in the stellar repute. Meanwhile, we technical literature coming out from defined his risk profile, the international standard-setters. The practice of auditing has become expected returns and However, the Continuing Professional sophisticated over last many years. investment strategy. We Development program of the Institute agreed upon certain has not shown much improvement in Regulators have started believing fundamentals, the foremost terms of relevance, contents, delivery that most sole practitioners find it being that we will not be and evaluation of participants. A clear increasingly difficult to be updated trading securities in short- exception to this general trend was awith latest technical developments in term. We will build his CPD program in which Mr. Ibrahim investment portfolio on a long- Sidat, FCA was invited to share hisaccounting and auditing, specially as term basis, buying experiences as a practitioner. I wish the practitioner ages. That the pre-determined equities at a such “tea sessions” can be a regular number of listed companies being reasonable cost with the monthly feature to groom objective of enjoying a steady practitioners. audited by sole practitioners has return with protection ofgone down is cited as evidence. There capital as objective. The web offers most fantastic of is a limited amount of truth in it as opportunities to learn in your own Another avenue that time. In my case, I find myself well but you cannot ignore the somehow shaped during frequently visiting and commenting character of auditor out of this these years was imparting on the exposure drafts of the picture. Enron was not audited by a training. It started with a International Accounting Standards sole practitioner. session on ‘international Boards (www.ifrs.org) and auditing framework’ for junior International Auditing and Assurance joint directors at the State Standards Board (www.iaasb.org).other firm of chartered accountants Bank of Pakistan at the Nationalon management consultancy Institute of Banking and Finance Meanwhile, my quest for freshassignments, which kept my precious (NIBAF). I found myself designing learning took me to a post-graduatedfinancial analysis and reporting skills courses for NIBAF in corporate diploma in Islamic Banking andcrisp and relevant. governance, internal auditing, Insurance, clear the exams of international accounting, licensed International FinancialOne such assignment was to monitor consolidation, corporate valuation etc. Analyst, US and go for a lawand report to a banking syndicate on This stream further developed when I graduation. I served uninterrupted asthe cashflows of corporate entity on did a two day work shop for internal a humble worker in some committeesmonthly basis that had defaulted on a auditors of commercial banks as an of the Institute and also contributed ahuge facility. The challenging part open-enrollment course. It is hard few articles for this magazine as well.was to wade our way through a work but much fun conducting anplethora of information, validating and activity as a facilitator than a Conclusion:presenting it in a manner that quickly participant and gaining CPD hours.informs the syndicate about the story Since then the training has been a looking back the past decade, beingbehind the numbers. Within six favourite activity. in practice gave me a new dimensionmonths of this assignment the debt to look at life. Most experienceswas renegotiated and the syndicate Professional Development: bought me immense satisfaction as awas able to claim most of the struck practitioner and an individual.amount. The practice of auditing has become looking forward, I see a realistic sophisticated over last many years. potential for the public practices allSometime during this exciting period, Regulators have started believing that over Pakistan to grow well in theI started exploring the area of most sole practitioners find it coming decade.investment book-keeping and increasingly difficult to be updated The Pakistan Accountant July-Sep 2010 Page 17
    • coVer STORYThe evoltion of smpsInternational Federation of Accountant’s President Robert l Bunting says“SMPs Should Evolve to SatisfySMEs’ growing needs.”Small- and medium-sized practices (SMPs) today can no empathise with their clients’ resource constraints. Thislonger rely strictly on compliance work to pay the bills. The contrasts with very large practices where the focus is onreason why is simple: SMEs (small- and medium-sized large companies and SME clients may have to deal withenterprises) – the traditional client of the SMP – several departments.increasingly need a broad range of competencies beyondthe core skill set of the small practice. At the same time, Building Trustthe threshold for mandatory statutory audits has risen in But the assumption that SMEs nearly always choose ansome countries and increases are under consideration in SMP is not correct. A significant proportion of the clients ofmany others. A fast-changing and complex regulatory large accounting practices – the Big Four and second-tierenvironment means that SMEs want their SMP to provide practices in most countries – are SMEs. These are moreproactive business advisory services. SMEs need advice likely to have the resources and the benefits of economiesthat will help them generate business plans and financial of scale to offer services and products to meet theirforecasts, identify and manage risk, define and implement clients’ accounting and other specialised support needs; inIT systems, and value the business. SMPs must evolve to fact, they often position themselves as ‘professionalmeet these growing needs or face dwindling clients and services supermarkets’. Many SMPs actually use largerrevenues. A new study by the International Federation of firms to provide limited speciality services to their SMEAccountants (IFAC) makes clear that smaller accountancy clients or as a technical backstop for their own clientpractices need to address their skills base, their working service work. While compliance work will remain hugelymethods and their referral models if they are to meet the important for SMPs – accounting services and tax areevolving needs of the SMEs that are their lifeblood. The core services at all levels in public practice – technicalstudy – The Role of Small and Medium Practices in competency and timely delivery in compliance work buildProviding Business Support to Small- and Medium-sized trust and usually lead to requests for non-complianceEnterprises, written by professors Robert Blackburn and advice and support. This is a time-proven formula drivenRobin Jarvis – points out that accountants are still SMEs’ in part by the nature of most small business owner-most frequently used source of advice. According to a managers, many of whom are determined to make all theirstudy last year by the UK’s Open University, trade own decisions and avoid advertising any managerialconnections, the media, family and friends are all weakness. In this kind of ‘fortress enterprise’ culture, manyimportant, but none ranks as highly as the accountant. SMEs do not request advisory services until the expertSMPs are usually highly experienced in dealing with has already provided a specific demonstration of theirSMEs and, as small enterprises themselves, can competency. The Pakistan Accountant July-Sep 2010 Page 18
    • coVer STORYBecoming Knowledge Professionals provision of compliance services wins them ‘competence’Business consulting services represent a crucial growth trust.area for SMPs. As mentioned at the start, the raising ofthe statutory audit threshold has diminished a key Responsiveness/ proximity: SMEs rate SMPs’revenue stream for many SMPs and the market is responsiveness to their demands so highly that it can beincreasingly competitive. As a result, if they are to thrive regarded as more important than a qualification orrather than merely survive, SMPs must diversify and competency. The geographical proximity of SMPs to theirfocus on other advice requirements for SMEs (or provide SME clients is also important. Many owner-managersaudit services to larger companies). They must develop prefer face-to-face meetings with their advisers, and valuetheir skills base beyond bookkeeping, tax preparation and ease of access.audit. In short, they must move from being accountingtechnicians to knowledge professionals. So how can Robert l BuntingSMPs overcome the unavoidable resource constraints in- becamehouse and provide a range of services to their clients? president of theThe most common model is to expand the technical and Internationalsoft skills of existing personnel. Some accountants can Federation ofmake the transition from ‘accounting expert’ to Accountantsmanagement adviser through experience and self (IFAC) indevelopment. Others may need training or coaching to November 2008.grasp the necessary flexibility and an understanding of the He is a partner atcontext and cultural environment of the SME. For Moss Adamsexample, accountants might need to hone their where he servedinterpersonal skills or make time to discuss a client’s as chairman andsuccession planning (or other business advisory needs). chief executiveAnother common model is to focus on a specific industry officer from 1982sector or speciality linked, for example, to the music to 2004. Mossindustry or environmental legislation. This model usually Adams is aworks best in large cities or where a particular industry is member ofhighly concentrated. But there have been successful Praxity (formerlycases where SMPs are willing to travel further to serve Moores Rowlandtheir clients. A third model, which can be a standalone International)strategy or one that complements the first two, involves where Buntingthe SMP participating in a high-quality referral network. served asBefore using one, SMP owners should analyse the chairman fromdifferent types of networks and carefully consider how 1998 to 2004. From 2004 to 2005, Bunting was chairmanthey will monitor service quality and timelines for the of the Board of Directors of the American Institute ofclients they refer. But referral networks offer SMPs many Certified Public Accountants (AICPA). Go topotential advantages: they are an effective way to satisfy http://ifac.org/SMP for more about the SMP Committee.the increasing breadth of demands from SME clients.They also offer the opportunity to gain clients through The Role of Small and Medium Practices in Providingreferrals from other network members or to win new ones Business Support to Small and Medium-sized Enterprisesdue to their more extensive service capabilities. – by ACCA’s head of small business Professor Robin Jarvis and Professor Robert Blackburn of KingstonWhy SMEs Use SMPs University and published by IFAC –is available forCompetency: SMEs often lack the full range of download at http://web.ifac.org/publications/small-and-managerial expertise. Most outsource their financial medium-practices-committee/information-papers-3.management to SMPs with their required technicalcompetencies and expertise in statutory audit and This article originally appeared in the ACCAstaxation. Accountancy Futures.Trust: As members of a regulated profession with codesof conduct, accountants enjoy ‘institutional’ trust. Their The Pakistan Accountant July-Sep 2010 Page 19
    • coVer STORY An Interview with sylvie Voghel chair, small and medium practices committee international federation of accountantsQ QHow does IFAC support Small- and While IFAC can do little to help SMEs How does the IFAC SMP CommitteeMedium-Sized Entities (SMEs) and directly - IFAC is not, after all, an operate and how is it resourced?Small and Medium Practices association of SMEs - IFAC(SMPs)? recognizes their importance and The IFAC SMP Committee was provides invaluable indirect support formed in 2004, and is now aA thriving SME sector is a vital part of to them. First, IFAC supports SMPs committee of 18 members from alljob creation, social cohesion, (primarily through their member across the globe, with a wealth ofinnovation and economic growth. In bodies) so that they can provide experience in the SMP and SMEmany – if not most – countries around better services to their SME clients – sectors. We have formal workingthe world, SMEs represent the vast services that meet the SMEs’ needs procedures, project teams, a strategicmajority of entities as well as the and are of high quality; this in turn and operational plan, a communications plan, and a full-timemajority of private sector employment helps SMEs prosper. And second, senior technical manager. Ourand Gross Domestic Product. IFAC supports professional strategy is two-fold. Firstly, we helpAccording to the Organisation for accountants in business (again shape international standards –Economic Co-operation and primarily through their member primarily auditing and assurance,Development (OECD), SMEs account bodies), many of who work in SMEs. ethics and accounting – by providingfor over 95% of enterprises and 60– Much of the support that IFAC input into the standard-setting70% of employment in OECD provides for SMPs and SMEs comes process. We do this to ensure thatcountries. from the work of the SMP Committee these standards are relevant to SMPs that I chair. and SMEs and can be cost effectively applied. The Pakistan Accountant July-Sep 2010 Page 21
    • coVer STORYSecondly, we provide practical support to SMPs, includingguidance and Web-based tools. This practical supporthelps build the SMPs’ ability to efficiently implementinternational standards so that they can deliver high-quality, cost-competitive services to their clients. Oursupport is also intended to help SMPs manage their Q What can we expect IFAC to do for SMPs in the future? In early 2009, the IFAC Board initiated a fundamental review into how IFAC can best support SMPs. The outcome is a series of recommendations that include:practices better, to help them to remain relevant to theirclients, and – ultimately – to maximize their profitability. l Expanding monitoring of global regulatory reform to ensure its suitability for SMEs and SMPs; l Increasing the visibility and voice of SMEs and SMPs;How can individual SMPs access that practical support? l Developing guides and resources in collaboration withQ IFAC members to provide practical assistance toIndividual SMPs can access a wide range of practical SMPs; andsupport by visiting the SMP section of the IFAC website, l Considering strategies for increasing the participationat www.ifac.org/SMP, which is constantly added to and of SMEs and SMPs in its standard-setting activities.updated. In addition, the International Center for Smalland Medium Practices (hosted by IFACs SMPCommittee) provides resources and facilitates the Inevitably the SMP Committee will be playing a lead roleexchange of knowledge and best practices among SMPs in the implementation of these recommendations. Qand other accountants who serve SMEs. SMPs can alsoaccess and sign up to receive the free of charge SMPeNews – an electronic communication issued three to four How do you see the role of SMPs changing in the future?times per year that discusses covers initiatives relevant toSMPs. The SMP Committee recently conducted a study of the role of SMPs in the provision of business support servicesOther resources on the IFAC Web site include relevant to SMEs. The evidence suggests that accountants arepublications in the Publications & Resources section (all seen as competent and trustworthy advisors, thatof which can be downloaded free of charge), which accountants are the most popular source of externaladdress such topics as micro-entity financial reporting and advice and support for SMEs, and that SMPs provideIT management. SMPs will also find information on much of this advice and support. We need to help positionrelevant conferences; links to sites of interest; and details and equip SMPs to satisfy the growing appetite of SMEsabout the clarified ISAs, including the complete set of for business advice. Going forward this will be a majorISAs, support and guidance, and frequently asked focus of the committee.questions. In addition, the IFAC site has a sectionfeaturing resources to assist SMPs and SMEs in Sylvie Vogheladdressing issues related to the financial crisis, as well as Sylvie Voghel became chair of the IFAC Small and Mediuma Discussion Board in which small practitioners and Practices Committee in January 2006. She was nominatedothers are invited to share their views on topics relevant by the Certified General Accountants Association ofto SMPs and SMEs. Canada (CGA-Canada). Ms. Voghel served as a member of the IFAC Board from 2003 to 2008 and was a technicalI would like to specifically point out some of the SMP advisor to the Board from 2000 to 2003. In addition, sheguidance material that is available to download free of was a member of the IFAC Governance Task Force in 2002 and chaired the IFAC SMP/SME and Developing Nationscharge, including: the Guide to Using International Consultative Conference in Prague in 2005.Standards on Auditing in the Audit of Small- and Medium-sized Entities and the Guide to Quality Control for Small- Ms. Voghel is the co-owner of a privately held corporationand Medium-sized Practices. In addition, the Guide to in Québec, Canada. Previously, she was a member of thePractice Management for Small- and Medium-sized senior management team of Hydro-Québec, one ofPractices, slated for publication in June 2010, will Canadas largest energy enterprises. Ms. Voghel is aencompass eight largely stand-alone modules on topics former chair of CGA-Canada and CGA-Québec. She isincluding planning, human resource management and involved in academic, professional and other volunteerclient relationship management, and will be accompanied board and committees.by forms and checklists as well as an office proceduresmanual. The Pakistan Accountant July-Sep 2010 Page 22
    • oTher ARTIClES sales Tax general order 34/2010 Extra JUDiciaL LEgiSLation Adnan Ahmad Mufti, FCAThe sphere of indirect taxes specially can safely be termed as an ‘extra condition that such directions cannotthe sales tax law has always been an judicial legislation’. be inconsistent with the provisions oforphanage both for our tax authorities the Act. In other words, any Generaland legislators. Due to this untoward While the basic intent of the STGO is Order has to have a limited andattitude by the fiscal managers, the to restrict and discourage non specified role, i.e., to remove thelaw could not be developed on the compliant taxpayers from doing difficulty arising out of the mainpattern of international or regional business freely in the society and statute.best practices. The recent accordingly compel them to makecatastrophe on this front was the ill due compliances with the tax laws, The STGO suffers from fundamentaltimed Value Added Tax which, due to we are mindful of the obstinate legal infirmity since, on one hand, thebad handling and confused approach principal that subordinate legislation Act does not contain any specificof the Government, demised even derive its powers from the superior / definition or criteria whereby abefore it could see the light of the primary statute and as such no law / taxpayer may be classified as ‘nonday. procedure may contravene / override active’, on the other hand, the STGO its basic framework. Unfortunately, does not only lists down a selfHaving said that, one side of the the STGO not only overrides the contradictory definition of ‘non activepicture has remained consistent for enabling provisions of Sales Tax Act taxpayers’ but also specifies themany years – the inherent desire of 1990 (the Act) but is also repercussions if business isour tax machinery to illegitimately contradictory to Income Tax conducted by / with such taxpayers.withhold taxpayers’ money ! Rampant Ordinance 2001 (the Ordinance). In short, the FBR has attempted toefforts are on the rise to curtail, legislate an entirely new mechanismrestrict or atleast defer the repayment The STGO has introduced a wider which obviously cannot be madeof refunds to the taxpayers on one definition of ‘non active taxpayers’. under Section 55 through a Generalpretext or the other. A latest classic is Besides, various serious Order. Thus the STGO may be struckSales Tax General Order (STGO) 34 repercussions have been listed down on this single score alone.which has been issued by Federal therein when either such non activeBoard of Revenue (FBR) “for taxpayers carry out businesses or Coming towards the point wisemaintenance / updation of active when business transactions are analysis of the STGO, every persontaxpayers‘ list in the FBR’s made with them. However, when we who fails to file the return underdatabase”. look into the powers of FBR section 26 of the Act within the prescribed in Section 55 of the Act, prescribed period for two consecutiveA detailed analysis of the STGO we note they may only be exercised months has also be classified as atranspires while drafting the STGO, when any difficulty arises in giving non active taxpayer. We are mindfulno one at the helm of the indirect tax effect to the provisions of this Act / that usually FBR Web Portal suffersaffairs even bothered to examine the rules. In such a case, the FBR may from system problems near the filinglegal backing of the measures through a General Order issue date which delays timely filing by theproposed therein. As a result of instructions or directions to remove taxpayer. Nonetheless, no suchserious legal loopholes, the STGO the difficulty subject to the mandatory cushion has been made in the STGO The Pakistan Accountant July-Sep 2010 Page 24
    • oTher ARTIClESwhere the delay in filing is beyond the statements between registered Moreover, the clause regardingcontrol of businesses. Secondly, this buyers and sellers, mismatching of mismatching of invoices in taxpayers’requirement is in direct conflict with import goods declaration in the sales tax return is also legally defectiveRule 11(4) of Sales Tax Rules 2006 tax return by the registered person since such mismatching is duly(the rules) whereby non filing of tax vis.a.vis data furnished by the protected under section 7(1) of thereturns for consecutive 6 months may Customs or any other discrepancy Act which empowers the buyer tolead to de-registration of concerned intimated by the tax administration to claim his input tax credit in any of thetaxpayer. A person who fails to file the taxpayer. 6 succeeding tax periods to which theany missing return within 15 days of purchase relates. In view of suchnotice issued to him can also be glaring legal protection to the buyer,classified as non active. However, it Income tax and sales tax are mismatching is bound to happen andhas not been specified whether this two different set of fiscal is not even probable let alone thereference is made towards missing laws. Non compliance under penal action there against. Hence,return in the departmental data base this part of STGO is also in clearor otherwise. one tax law cannot make the contravention to section 7(1) of the taxpayer suffer under another Act. Without prejudice aboveAnother glaring legal defect listed in contentions, the author feels that the law. In the absence of anythe STGO relates to certain income correct wordings of the clause oughttax non compliances on the part of inter-tax / contra penal action to have been ‘mismatching of invoicetaxpayer. The STGO stipulates that prescribed in both Act and the summary statements betweenanyone who fails to file any due registered buyers and sellersIncome Tax return under section 114 Ordinance, the proposed resulting in loss of tax’.or who fails to file the monthly action under STGO lacks duewithholding tax statement under We reckon mismatching of Goods legal backing and hence, absection 165 of the Ordinance for two Declaration between taxpayer’sconsecutive quarters will also stand inito void. records and that furnished bydisqualified as non active taxpayer. customs could be when a particularThe term ‘non active’ has also not import was not recorded / uploadedbeen defined in the Ordinance. Despite best efforts, this by Customs’ in their own scribe failed to find the database. On this account,The author feels perhaps our condition of filing penalizing the taxpayerdraftsman erred in ignoring the invoice summary would be highly incardinal principal that both income tax statements in the appropriate / unjustified.and sales tax are two different set of statute since thefiscal laws. Non compliance under same has A mechanism has beenone tax law cannot make the been done proposed wherebytaxpayer suffer under another law. In away with the abovethe absence of any inter-tax / contra 2 years discrepancypenal action prescribed in both Act back. will be sentand the Ordinance, the proposed toaction under STGO lacks due legal taxpayer’sbacking and hence, ab inito void. In email addressthis regard, we place our reliance at or placed in his e-two identical judgments folder at efbr portal.pronounced by the Sales Tax The taxpayer will beAppellate Tribunal whereby required to get suchthe Tribunal had held that discrepancy removed bythe department is not getting himself ‘audited’ byauthorized to use the tax authorities or explainingdata or information and his position. It is pertinentfigures, supplied by the to note that under Sectionbusinessmen in their 56, a notice shall only beIncome Tax Returns, as treated as having servedbasis for assessment of sales tax to the taxpayer if it isliability. personally delivered to him or his representative, sent byWhosoever fails to respond to the registered post or courier or served“discrepancy notice” or any other as prescribed under Code of Civilnotice issued by tax authorities Procedure 1908. In view of governingwithin 15 days of the issuance of explicit provision, one would wondersuch notice will also be treated as the wisdom of bringing a change innon active. The term “discrepancy” manner of service of notice throughhas been defined in STGO to mean email and that too by a secondarymismatching of invoice summary legislation via General Order. In other The Pakistan Accountant July-Sep 2010 Page 25
    • oTher ARTIClESwords, this measure is in conflict with his purchases legal reference which might facilitatesection 56 of the Act. On the practical over his tax such an audit exercise. This wouldside, the service of notices through return. Again, virtually mean once a person isemail is also likely to incite other the STGO declared to be suspicious in the eyesquestions such as proof of fails to of tax administration, it would beservice to the taxpayer, date mention advisable for him to cease hisof email, etc. the law business rather extending troubles to under which his clients / customers. All suchlooking the other the department illegitimate measures proposed inangle of the proposed seeks to disallow STGO clearly speak that the tax‘resolution’ of the said the sales tax credit machinery has little or virtually nodiscrepancy, we find of a person if he respect for fiscal laws and care foranother back door is being fails to file his business progression particularly at acreated under this garb to income tax return ? time when the economy is at theinitiate audit proceedings. It looking at this perspective, verge of collapse due to multipleis common for tax we can safely conclude such internal and external factors.authorities to initiate assertion of STGO to be intaxpayers’ audit on self clear deviation and violation of As regards refunds, the STGOconcocted grounds like provides that the non active taxpayer‘abnormal tax profile’, ‘scrutiny of It is common for tax will be denied expeditious refundsinput tax’, ‘revision of returns’, etc. At under Rule 26A of the rules. Thisthe judicial fora, quite a few times authorities to initiate condition ought to have been placedsuch proceedings have been taxpayers’ audit on self under the relevant rule instead ofsuspended and declared to be of no concocted grounds like STGO to avoid confusion andlegal effect since they are not ‘abnormal tax profile’, ‘scrutiny misinterpretation of Refund Rules.prescribed under the law. It appearsanother attempt has been made to of input tax’, ‘revision of lastly, the STGO has advisedbypass Section 25 of the Act which is returns’, etc. At the judicial taxpayers not to have any transactionlikely to be misused by tax officers fora, quite a few times such with non-active taxpayers unless theybesides causing undue harassment are restored on active taxpayers listto the taxpayers. proceedings have been on the recommendation of their suspended and declared to be respective tax office or appellateSelf contradiction is also apparent in of no legal effect since they forum. The ‘advice’ has also placedclause 2(vi) wherein the taxpayer is upon another restriction of settlement are not prescribed under therequired to furnish reply against of transaction with non activediscrepancy notice within 15 days of law. It appears another taxpayers through banking channelsissuance. Interestingly, on other hand, attempt has been made to even if the value of goods is belowclause 3(ii) requires him to furnish his bypass Section 25 of the Act the limit of Rs. 50,0000 prescribed inreply within 15 days of the receipt of section 73 of the Act. Here again, thediscrepancy notice. which is likely to be misused STGO has crossed the ambit of by tax officers besides statute which categorically prescribesThe surmise of the foregoing causing undue harassment to settlement of business transactionssituations would mean the taxpayer through banking channel only whenbeing declared as ‘non active’ without the taxpayers. the value of supply increases Rs.service of any formal show cause 50,000.notice and associated appealableorder being served upon him. The the Act as the STGO has travelled The upshot of the foregoingabsence of such a mandatory beyond the vires of Section 7 and discussions may result inprocedure is against all norms of Section 8. Numerous decisions enhancement of disputes andnatural justice and fair play and pronounced by superior courts also consequent litigation, economic slownegates the fundamental principle of fortify such viewpoint wherein the down and mistrust among theequity which is the basis of every Courts have held that except business community. It is advisabletaxation system. amending the Act, no one can be that our fiscal management must put deprived from his vested right of input their fingers crossed and takeAnother lamentable aspect of the tax. Hence, we are afraid this STGO cognizance of the legal and practicalSTGO revolves around the person may be struck down by the Courts on lacunas before the legislation landswho procures taxable goods from this ground as well as being discord up in Court of law for a final verdict.such ‘non active’ seller. The STGO with its mother law.provides that the buyer would bedeprived of related input tax credit in The ill-fated buyer will not only have The author is Partner, Shekha & Mufti,case he purchases goods from a non his input tax credit debarred but he Chartered Accountants and Honoraryactive supplier. In such a case, the would also be placed in “high risk” Advisor to Karachi Chamber of Commerce & Industry on Tax Matters.FBR’s web portal would blink such category for the purpose of audit. adnan.mufti@shekhamufti.commessage whenever he tries to feed Again, the FBR failed to highlight the The Pakistan Accountant July-Sep 2010 Page 26
    • oTher ARTIClESsTraTegic decisionsduring recession M. Amir Afzal Rana, FCAMost of the mature organizations, at hand start looking at horizontal and 1. Human Resources –some point of their life span, would have vertical integration with increased Staffing & Environmentfaced with economic recession or reliance on outsourcing in order to face 2. Human Resources - Compensation &depression. A majority plans for the good the rough tide. Incentivestimes, not the bad. During normal days, 3. Human Resources - Training &management teams are pressed for Another important dimension requiring Developmentcontinuous growth and healthy bottom strategic decisions is the balance 4. Systems and IT Infrastructurelines. The possibility for recession or between “Centralized” and 5. Marketing & Business Developmentdownturn is therefore rarely thought of “Decentralized” organizational structures. 6. General Cost Cutting Measuresand certainly not planned for. Normal course of action during years of growth and economic boom is maximum These areas are discussed briefly inSo, when the difficult time gazes around, independence and delegated form of following part of this paper:the pressure of strategic and tactical hierarchies. However, during difficultdecision making picks up strength. Some times, the focus naturally turns towards 1. HUMAN RESOURCES – STAFFING &of those decisions have overwhelming more controlled and centric environment. ENVIRONMENTimpact on the organizations’ ability to In the later case, it is very important torebound. The top management group recognize that there would probably be a During recession, one of the first stepshas to make key decisions to reorganize gap between the organization’s current organizations normally take is to start laythe entity for taking into account the ability to collaborate cross-functionally, offs. It is common having inefficient workchange in the business model (redesign within and outside its management tiers. teams and redundant operations due tothe organizational structure, tighten up In such cases, a reasonable focus should lesser focus on these areas during goodthe internal controls and taking cost be on organizational improvement efforts times. If it is the case then this is the pay-cutting measures etc). The decisive in order to enable cross-functional off time for past actions. The aspect,factor however for an organization to collaboration. The said efforts could however to be considered in this regardsuccessfully come out of pressure time is include; is, if the layoff is a short term, financialwhether the future was kept in mind while only, decision? If the headcount reductionmaking key decisions? l Encourage team work by giving means losing the people experienced responsibilities to team players within enough to keep seeing the future, thenThe recession will ultimately end and key different levels of organization, the loss might be too hard for the futuredecisions need to be made in a manner l Improve the level of goal congruence positioning. The organization may lookto ensure that the company is positioned lean after all the storming, but might not with enhanced conflict resolutioncorrectly to: be limber enough to take advantage of efforts emerging opportunities. Keeping on the l Create interlocking processes toa) Timely recognize the turn round, and people that have experience andb) To be amongst the first ones to take develop smart workflows and empowering them to solve the short term advantage of it l Establish flexible lines of financial problems could be a much accountability smarter strategy.One of the most important aspects forlong term sustainability and survival is the Building on previous two points, most of Working environment, morale ofability of people in top management to the organizations would need a well workforce and corporate governance,understand the corporate positioning of planned and controlled process redesign which are mostly qualitative in nature, arethe organization in changed scenario. program to help with the development of in their own, difficult to be measured andThe strategic decision making should be interlocking processes. A team presented in hard numbers but futuredirectly in line with the said positioning. comprising of members with good numbers are definitely the direct results organizational understanding and future of these factors.For instance, a medium sized vision is the key for establishing clearorganization could create a shield by lines of accountability in a cross- Investing in key staff, strategic systemsshifting from being a profit center to a functional environment and to improve upgrades, training and programcost center in support of bigger business the collaborative leadership skills. development in pressure times willunits. This is not unusual during a generally be a worthwhile investment fordownturn that medium sized Areas within corporate structure which future growth. Since all this has to beorganizations line up around a few bigger are mostly under focus in pressureplayers. The large ones on the other situations generally include: The Pakistan Accountant July-Sep 2010 Page 28
    • oTher ARTIClESdone in line with current economic How companies are likely to respond to the economic crisis:conditions, so making sure theorganization’s long term strategy and Planned Action Very Somewhat Somewhat Very Too soonbusiness model still holds true is likely likely Unlikely Unlikely to tellessential. % % % % % Significant reduction in headcountTo sum up this area, the key points are: (10% or more) 8 8 22 44 18 Targeted reduction in headcountl During recession (or depression), (focus on less critical roles or decision making should not be done under such a duress that may lead to lower performers) 22 24 17 22 15 unintended negative consequences. Freeze or reduce hiring 36 24 15 15 10 It is a known fact that without Reduce training budgets 17 30 24 15 14 preservation of the human and Reduce pay / merit increase budgets 26 23 22 18 11 intellectual capital, an organization Reduce annual benefits / bonuses 18 21 23 25 13 would not be able to sustain its Reduce number entitled to receive financial capital. So, any action long term benefits 5 13 26 41 15 having potential to endanger the Cut back on perquisites 12 17 23 32 16 motivation level or morale of Cut travel and entertainment expenses 41 33 12 6 8 employees should be taken with Scale back holiday parties and/or utmost care. other employee events 32 26 20 13 9l Working environment, morale of provide a good opportunity to fix what messages from senior leadership. workforce and corporate governance, was broken in the past, if handled loyalty could only be maintained if which are mostly qualitative in nature properly. Good leaders position the transparency of whatever is being are, in their own, difficult to be themselves to do this part very effectively done is maintained. Clear and honest measured and presented in hard during recession periods. Some or all of explanations for what went wrong numbers but future numbers are the aforesaid cost-cutting measures and how the company plans to move definitely the direct results of these might be necessary for an organization to forward would also be vital. factors. float through rough waters. It would however be even more important to l Employees should be provided withl A famous HR quote is “Reduced communicate effectively and to be candid opportunities to openly discuss and muscle will result in losing the tone with the employees. ask questions about the business and balance while cutting the bone situation being faced by the will damage the fundamental Rewarding the employees in creative organization. This would also result in structure”. So, down-sizing should ways and enlisting them to help make improving the mood in the office so not become dumb-sizing in the end. hard decisions can not only keep the that everyone can get back to work. team remaining motivated but pull the organization out of slump. Traditionally,l Organizations behave like organic 3. HUMAN RESOURCES – TRAINING & the top executives make strategic entities, which need to be flexible and DEVElOPMENT decisions (including those directly have the energy reserves that can affecting employees) and let those trickle In a pressure situation, corporate leaders anticipate and react to future down. The problem with this approach is find themselves under distress to stop challenges - not just the present that it rarely touches the level of investing in organizational improvements. short-term issues. effectiveness with which the It is a known fact however that acting communication needs to be passed rashly causes problems. Morale of staff is2. HUMAN RESOURCES – through various channels. Mature and hampered and when the economy COMPENSATION & INCENTIVES successful leaders instead focus on improves, the things would have to start harnessing employees to participate in over from scratch.It is very easy for the decision makers to the efforts to identify where to cut costsget carried away during downturn and how. Senior leadership would thus Generally during recession, even someresulting in heavy layoffs followed by be focusing on areas like product lines, of the most rational leaders just startruthless cost-cutting measures. The said headcount, or moving operations off- looking at the training & developmentcost-cutting measures generally include shore, while employees, on the other budget with more attention than theyfreezing the increments or even cutting hand, can use their collective wisdom to devote to other operational expensesthe existing compensation packages. eliminate clumsy and costly procedures which are higher many-fold. A balanced across functional hierarchies. strategy during down time of economicA recent survey from Towers Perrinexpanding over 450 companies showed cycle is very important in order to avoid Following is a summary of various the problems caused by indiscriminatethe following results: important aspects relating to this area: budget cuts. Following are a few pointsAll such actions, if not designed and that should be taken into consideration incontrolled carefully, could highly l Expertise within the organization this regard:endanger the projects by sending the should be leveraged. Motivate andmorale in a digging position. From a engage employees by including them l Strategic management team shouldmanager’s perspective, getting the most in the problem-solving process thus develop a clear understanding aboutout of employees in this kind of creating a critical buy-in. the competencies their organizationenvironment will seem like an uphill task. really needs in order to execute theOn the other hand, as rightly suggested l The middle management tier should overall business strategy.by lindsay Blakely, such situations also play a crucial role in communicating The Pakistan Accountant July-Sep 2010 Page 29
    • oTher ARTIClESl Roots and basis of areas under l Equipment life cycles could be in societies which are on a higher consideration should be identified stretched. Computer hardware ladder of Maslow’s hierarchy while before agreeing to a budget number. usually has a three-year life cycle. items of basic necessities would pick During a recession it is OK to stretch strength in underprivilegedl Strategies with rigid statements like, this to four years. Minor upgrades demographics. “Cut the training budget by 30%,” such as increasing RAM etc might however be necessary. l This is not the time to cut advertising. which has no link and bearing on the Brands that increase advertising business, should be avoided. Right l licensing and support agreements during a recession, when competitors way would be to figure out which are cutting back, can improve market training, if any, will help address should be re-visited for bringing the costs down where possible and to share and return on investment at critical organizational needs. Based lower cost than during good upon findings, the T&D budget avoid any duplicate coverage. economic times. Uncertain should be rebuild from the bottom up. consumers need the reassurance of In certain cases the whole budget l In a recession, good spending in IT would support an organization to known brands and more consumers could be wiped off and vice-versa. at home watching television can protect itself in a downturn. For deliver higher than expected instance; protection of key datal For sustaining and moving forward audiences at lower cost. Brands with through firewalls, extension of until better times, it is essential for the deep pockets may be able to hardware warranties, backup organizations to develop their high- negotiate favorable advertising rates mechanism and disaster recovery potential leaders on an ongoing and lock them in for several years. systems. basis. However, foreign trips and costly high profile locations are not l Marketers must reforecast demand 5. MARKETING & BUSINESS for each item in their product lines as necessary at all in this regard. DEVElOPMENT Focusing on in-house development consumer’s trade down to models programs and local rotational Another very important area which that stress good value. Tough times assignments could prove as good as comes into focus of strategic decision favor multi-purpose goods over bigger development “events” making right from the start of a downturn specialized products and weaker involving high operational cost. is marketing and business development. items in product lines should be Besides a number of downward slides, pruned. Industrial customers prefer to an economic recession may also present see products and services unbundledl A relatively higher investment to positive opportunities to grow sales and and priced separately. Gimmicks are coach a few senior leaders in out; reliability, durability, safety and mission-critical roles may create marketing success. The best way to effectively manage these key areas performance are in. more return than a similarly priced generic training program for the would be to focus mainly on developing strategies to capitalize of various l In uncertain times, no one wants to masses. tie up working capital in excess opportunities. inventories. Early-buy allowances,l Group coaching can be quite cost extended financing and generous Overall marketing strategy might need effective besides providing the major revisions. Following is a brief return policies motivate distributors to benefit of building relationships description of some circumscribing ideas stock the full product line. This is between up-coming leaders. propounded by John Quelch, a non- particularly true with unproven new executive director of Pepsi Bottling Group products.4. SYSTEMS AND IT and WPP Group plc, the world’s second INFRASTRUCTURE largest marketing services company: l Customers will be shopping around for the best deals. It is not necessaryRecession planning for this area should l Price elasticity curves change to cut the list prices. Instead, it wouldbe just like a zero-base budgetary drastically during recessions. be better to offer more temporaryplanning. Changing economic conditions Consumers take more time price promotions.require a change in thinking. The current searching for durable goods andoperating budget should be re-evaluated negotiate harder at the point of sale. l In all but a few technology categoriesduring a recession. Following are some They are more willing to postpone where growth prospects are strong,important factors which should be kept in purchases, trade down, or buy less. companies are in a battle for marketconsideration: Must-have features of yesterday are share and in some cases, for today’s can-live-withouts. So, instead survival. Knowing the cost structurel Part of technology must be of cutting the market research can ensure that any cuts or maintained or implemented that could budget, organizations need to know, consolidation initiatives will save provide competitive edge to the more than ever, how consumers are money with minimum customer organization and is instrumental in redefining value and responding to impact. helping to attract new customers the recession. besides retaining the current ones. l Although most companies are l When economic hard times loom, making employees redundant, chiefl Technology investments should be masses tend to retreat to their executives can cement the loyalty of got balanced by looking at the village. look for cozy hearth-and- those who remain by assuring comprehensive picture. home family scenes in advertising to employees that the company has replace images of extreme sports, survived difficult times before,l Saving should be made on upgrades. adventure and rugged individualism. maintaining quality rather than cutting No further upgrades should be made Telephone usage and discretionary corners and servicing existing except for those which are of critical spending on home furnishings and customers rather than trying to be all home entertainment will hold up well things to all people. Managing nature until after the recession is over The Pakistan Accountant July-Sep 2010 Page 30
    • oTher ARTIClES working capital can easily dominate ones to be controlled. This is managing customer relationships. because cutting back on fixed costs l Businesses in service sector should Successful companies do not can cause more financial and especially be careful not to cut abandon their marketing strategies in operational pain than when variable corners on things that relate to quality a recession; they adapt them. costs are cut. of service. l Those costs arising from l Another common mistake made6. GENERAl COST CUTTING unnecessary processes should not during pressure times is that the MEASURES only be curbed but the related business owners start taking on process should also be analyzed for marketing responsibilitiesThe primary objective of almost every total elimination.business concern is to make profits. Most themselves. For an entrepreneur,of the business owners believe that the what s(he) contributes first and l Every expense should be looked at foremost is the “Vision & leadership”best way to do that is by increasing sales.But that brings up another conundrum - from level zero and be analyzed at and if s(he) gets mired in taking overin order to increase sales, there has to be length regarding; how each one adds someone else’s job, it would normallya corresponding increase in costs to the value of the business and is it be at the cost of effective leadership.because of the increased amount of work material enough to make anyinvolved. But increased costs are just difference to the bottom line? Too l A general approach towards cost-what need to be curtailed. Therefore, much focus on too small things could cutting process is that it should beanother way of going about lowering easily detract the whole cost-cutting done in a disciplined, firm, and hardcosts is by controlling them, and thus process. manner. In contrast, more effectiveincreasing profit margins. would be a motivating approach that l Cost controlling is a function to be starts off acknowledging that makingThere are two main types of costs in a performed continually. It should not cost reductions is not the mostbusiness i.e, fixed costs and variable be shelved once short- term wanted experience but is the need ofcosts. Fixed costs are those that are not objectives are met. A track of the time.related to the amount of sales or finances should always be kept inproduction. They usually include rent, this regard. l The steering team for a cost-cuttinginsurance, and the costs incurred by the process should not comprise ofutilities in use, or for running the Cost Cutting during Recession – What people who are rigid professionalsbusiness, such as salaries, advertising should not be done: within their own field. Representationetc. Fixed costs can change over a should instead be of criticalperiod of time, although the increase or In a sluggish economic sphere, getting influencers or pride builders withdecrease is not connected to production. leaner is important, but not every money- good understanding of the businessVariable costs, however, are directly saving measure is a good one. Following process. Those people should berelated to business activity. Raw are some moves which organizations identified from within the organizationmaterials and inventory are perfect should not make during tough times, and nominated as leaders in the cost-examples of the variable costs of a even if they seem like easy ways to cut cutting efforts.business enterprise. costs:There isn’t one cut and dry answer as to l Notions such as “We have to improve l Cost savings should never come athow the cost control measures could be the bottom line” are much less the expense of the ability to execute effective than “lets’ eliminate whatdesigned and adopted. Especially in days a long-term vision. Short-termof difficulty, the situation gets even more annoys our customers”. So the solutions normally lead to regret former should not be used as thecomplex. The whole business strategy when economic conditions improve.needs to be reviewed carefully in order to frontline buzz.determine how to achieve cost-reduction l Cost cutting process should not be In the end, the article is concluded withwithout impacting the business adversely.Paradoxically, sometimes in order to save performed by a small management following words:money the organization would need to group in isolation. It is common tospend money, such as upgrading the loose morale when cost cutting gets Business success stories are rarelyequipment in use. a high priority within management made during boom periods. The decision making process. Therefore, economic recessions are the mostSome effective cost-cutting strategies: getting people involved becomes opportune times to act for the long-term. pivotal for this process to be It is the time when big players areFollowing are a few points that should be successful. People can be on changed. Market shares get shifted andkept in mind while undergoing a generic management’s side or feel excluded gainers are those who position and poisecost cutting process: and most people want to be part of themselves in a timely manner. The the solution if given a chance. organizations which come out froml Organization should scrutinize its downturn as winners are those lead by l Performance evaluation process people with strong nerves, having skills to products and/or services to find out should not be put to halt even if it is make decisions with a long-term vision which of them are the most or the got temporarily de-linked with and the courage to ignore what everyone least cost-effective. A cut should then increments and benefits. People else is doing. be drawn on those that give the least profits, while investing more on those should still be setting goals and working toward them. The employees The author is products that are the most lucrative. will certainly want to know how GM Systems & Audit, Beaconhouse Group.l Variable costs should be the first they’re doing and what’s expected of amir369@yahoo.com them going forward. The Pakistan Accountant July-Sep 2010 Page 31
    • oTher ARTIClESSOMETHINGBEYONDFINANCIALPERFORMANCE Naveed Abdul Hameed, ACA The world is experiencing a shift. The circumstances have changed. Now, the CEOs have concerns beyond the financial performance of an organization. Since the financial performance of an organization is directly linked to its activities and, each activity of an organization has an impact. Management of these impacts is necessary. These impacts have triggered a question. Will my business, my company, my operations will sustain in the long run?? How can a company have a goal broader than its financial performance and still be a winner?? Or can it be a winner in this changing business environment without changing its ‘usual financial goal’ approach?? How does one define and measure the non financial goals? How will they impact the ultimate financial results?? The issue has broadened the governance thinking from single bottom line financial performance to triple bottom line or the concept called SUSTAINABIlITY. What is Sustainability? Sustainability represents those impacts which are mentioned in the aforementioned lines. These impacts are:The sustainability IdeaMeet the needs of the o Socialpresent without o Economic, andcompromising the o Environmentability of future Financial success is no longer the sole measure by whichgenerations to meet corporations are judged by their stakeholders – primarily investors,their own needs. consumers, employees and the communities in which they operate. Companies are now expected to perform well in non-Earth is not inherited financial areas, such as human rights, business ethics,from our forefathers environmental policies, corporate contributions, community development, corporate governance and workplace issues. Thererather it is borrowed is an increasing expectation that traditional financial reportingfrom our future. boundaries should be extended to include information about environmental impact and corporate social responsibility. The Pakistan Accountant July-Sep 2010 Page 32
    • oTher ARTIClESOTHER NAMES OF SUSTAINABIlITY As in the rest of the world, businesses in Pakistan are“What’s in a name? That which we call a rose by any other concerned with profit maximization. An important obstaclename would smell as sweet.” in the adoption of sustainable business practices is thato Corporate Citizenship (CC) many of the companies, both larger and SMEs, cannoto Corporate Responsibility (CR) appreciate the link between sustainability initiatives ando Corporate Social Responsibility (CSR) profits. This link needs to be illustrated to convince the business community to adopt sustainable businesso Philanthropy practices and to report them.o Economics, Equity, Environment (EEE)o People, Planet, Profit (PPP) Sustainability is the requirement of foreign brands. As theo Sustainable Development (SD) requirements come, people will have to follow sucho Sustainability practices. If you do not follow those practices you will beo Triple Bottom line (TBl) out of business.Some sustainable business practices? The following lines will highlight about what is happeningl Energy saving around us regarding sustainability.l Water savingl Reduction in fertilizer use 1. Sustainability Reportingl Reduce green house gas emissions The concept of public sustainability reporting is still in itsl Reduce wastes and effluents infancy. A handful of listed companies are reporting onl Concern for bio-diversity sustainability-related matters in their annual reports. A fewl Water purification companies are also preparing stand-alone environmentall Compliance with product and waste disposal reports. One of the major drivers of increased regulations environmental and sustainability reporting is the ACCA–l Forestation WWF Pakistan Environmental Reporting.l Employee education and training The ninth ACCA – WWF best sustainability report awardl Workforce passive diversity was held on April 22, 2010 in Islamabad. Fifty eight (58)l Workforce healthcare provision Pakistani companies registered their sustainability reportsl Community investment/local philanthropy for the competition. Out of fifty eight (58), nineteen (19)l Poverty alleviation programs companies were shortlisted for the award. Followingl Conformity with recognized environmental companies were awarded for the sustainability reports: management standards, e.g. ISO 14001l Public environmental / sustainability reporting l Attock Refinery limitedl Independent assurance of sustainability reports l Engro Corporation limited l Engro Polymer Chemicals limitedSustainability in Pakistan l AES lal Pir (Pvt) limitedThe concept of sustainability is relatively new to the l National Refinery limitedbusiness community in Pakistan. It is, however, becoming l Qarshi Industries (Pvt) limitedan important business concern, mainly because ofincreasing pressure on the Pakistani business community The following graph shows the total number of entries for(especially in the export sector) to comply with European the ACCA – WWF sustainability report award for last eightUnion environmental and social responsibility standards years:such as those relating to packaging waste and watertreatment.In accordance with the view point of a large number of 58business people, these environmental and socialresponsibility standards are regarded as barriers to trade 44 40and as a ‘neo-colonial agenda to exploit the export sectorof Pakistan’. The business community in Pakistan faces a 25number of micro and macro economic challenges. Theirprofits are already under pressure due to heavy taxation, 14 14 11 10inflation, fuel prices and utility bills. At the same time,European Union buyers are demanding lower prices; but 09 08 07 06 05 04 03 02exporters in Pakistan are increasingly finding it difficult to YEARScomply with this requirement.Globalization has brought about increased pressure on GRI’s reporting frameworkcompanies in Pakistan to demonstrate commitment tosustainable business practices if they are to remain in the The GRI (Global Reporting Initiative) has promulgated asupply chain. reporting framework, called G3 Guidelines. “G3 The Pakistan Accountant July-Sep 2010 Page 33
    • oTher ARTIClESGuidelines” is intended to serve as a generally accepted The four perspectives are summarized below:framework for reporting on an organization’s economic,environmental, and social performance. It is designed foruse by organizations of any size, sector, or location.The “G3 Guidelines” consist of Principles for defining BUSINESSreport content and ensuring the quality of reported STRATEGYinformation. It also includes Standard Disclosures made upof Performance Indicators and other disclosure items, aswell as guidance on specific technical topics in reporting. INTERNAl FINANCIAl MANAGEMENT INVESTORS OTHER STAKEHOlDERS 2. Code of Corporate Governance The Code of Corporate Governance, implemented by the Securities and Exchange Commission of Pakistan in March Areas of reporting under G3 Guidelines: 2002 has the following provision on the organization’s Human Rights environmental impact. Product Responsibility Society (CSR) SOCIAl labour Practices Under ‘Responsibilities, Powers and Functions of Board of Directors’, Section (viii) sub section (b): GHG Emissions Waste The Board of Directors [should] adopt a vision/mission ECONOMICS Water statement and overall corporate strategy for the listed Biodivercity company and also formulate significant policies having Destruction regard to the materiality as may be determined. ENVIRONMENT ‘Significant policies’ for this purpose includes ‘Health Wealth Connection Safety and Environment (HSE)’. Indeed, many of the & Wealth Distribution policies are interrelated and may have an impact on HSE. Under ‘Significant Issues to be Placed for Decision by the Board of Directors’, Section (xiii):IFAC’s Sustainability Framework In order to strengthen and formalize the corporateIFAC’s Sustainability Framework can help professional decision-making process, significant issues shall be placedaccountants grasp all the important aspects of for the information, consideration and decision of thesustainability that they may encounter, directly or indirectly, Boards of Directors of listed companies.and that will be important to their organizations. Itconsolidates all of the important aspects of sustainability Here, ‘significant issues’ includes, among other things:for organizations wishing to deliver long-term sustainablevalue to their stakeholders. Any significant accidents, dangerous occurrences and incidents of pollution and environmental problems involvingThe Framework addresses four perspectives in bringing the listed company.together all the critical areas required to successfullymanage a sustainable organization. These perspectives 3. SECP’s SRO on CSR / Environmental initiativesare: business strategy, internal management, financialinvestors, and other stakeholders. Organizations that have SRO 983(1)/2009 dated Nov 16, 2009 requires everysuccessfully embraced sustainable development to add public company to provide descriptive as well as monetaryvalue to the organization and its stakeholders have usually disclosure of the CSR activities / environmental measurestaken action on all four perspectives. in the directors’ report, annexed to the annual audited financial statements. The SRO is effective from financialThe Framework provides many examples of good practice, year beginning on or after July 1, 2009. For areas ofso that professional accountants can easily seek more disclosure, please refer the SRO.detailed information on areas of particular interest. The Pakistan Accountant July-Sep 2010 Page 34
    • oTher ARTIClES4. Ranking of Pakistan Companies in Asian Sustainability Rating TOTAl NO. OF PAKISTANI 84 COMPANIES SIGNEDUNGC 74The Asian Sustainability Rating (ASR™) is a 65benchmarking tool for use by Asian companies, investors 57 57and other stakeholders. launched in October 2009, theASR™ initially covered the top 20 companies by marketcapitalization in 10 Asian markets. ASR™ 2010 will coverthe top 500 companies in the 10 markets of the MSCI Asiaex-Japan index, based on their free-float weighted market 6 8 1 2 2 4cap. In order to promote sustainability disclosure, the finalranking and some features of the methodology will be 00 01 02 03 04 05 06 07 08 09 10made available in press releases, at conferences and to YEARSthe media. 6. Environmental laws in PakistanRank in Rank in Company ScorePakistan total ASR 2009 (%) The environmental laws exist in Pakistan under the (among the authority of Ministry of Environment. Section 11 of Pakistan Asian Environmental Protection Act, 1997 prohibits discharges companies) and emissions (of wastes) in excess of the limits1 46 Engro Chemicals Pakistan limited 55.9 prescribed under the National Environmental Quality2 87 Unilever Pakistan 40.2 Standards, or NEQS (SRO 549(I)/2000 dated 8 August3 95 Pakistan State Oil 38.2 2000).4 123 Nestlé Pakistan 29.45 150 Fauji Fertilizers Company limited 22.5 7. Clean Development Mechanism (CDM)6 159 Oil and Gas Company limited 18.66 159 Pakistan Petroleum limited 18.6 Before me move on to discuss CDM, it is necessary to8 166 Standard Chartered Pakistan 16.7 highlight that emission of Green House Gases (GHGs) into8 166 Hub Power Company limited 16.7 the atmosphere is the cause of Global Warming of earth.8 166 lucky Cement limited 16.7 These emissions are causing increase in temperature, sea11 181 GlaxoSmithKline Pakistan 13.7 level rise and increased rate of extreme weather events.12 183 Pakistan Oil Fields limited 12.7 Reduction of GHG concentration in the environment, is13 186 National Bank of Pakistan 10.8 becoming a burning question for sustainable business.13 186 Kot Addu Power Company limited 10.813 186 Royal Bank of Scotland 10.8 Following are the GHGs:16 189 Allied Bank of Pakistan 9.817 191 Pakistan Telecommunication Company limited 7.8 l Carbon Dioxide18 193 United Bank limited 6.9 l Methane19 197 Muslim Commercial Bank limited 2.9 l Nitrous Oxide20 199 Habib Bank limited 1.0 l Hydroflourocarbons l PerflourocarbonsDisclosure by indicator area (%) Pakistan l Sulphur HexaflourideGovernance, Codes, and Policies 35.2CSR Strategy and Communication 10.2 CDM is one of the market mechanisms of Kyoto Protocol,Marketplace and Supply Chain 16.5 an international binding for the global reduction of GHGWorkplace and People 7.3 emission by 5.2% from the level of 1990’s. Kyoto ProtocolEnvironment 19.1 (KP) was enforced in 2005 by United Nations FrameworkCommunity and Development 15.5 Convention on Climate Change (UNFCCC). 35 countries Source: asiansr.com (western and eastern Europe, Canada and Japan etc) have ratified the protocol while a vast majority have5. United Nation Global Compact accepted and approved the protocol. Pakistan is one of the countries approving the protocol. Those countries whoThe United Nations Global Compact (UNGC) is a strategic have ratified the KP are the developed nations which arepolicy initiative for businesses that are committed to assigned the maximum cap for the emission of GHG intoaligning their operations and strategies with ten universally the atmosphere. Whereas, for the developing countriesaccepted principles in the areas of human rights, labor, (like Pakistan) there is a flexibility by putting no Cap on theenvironment and anti-corruption. All those companies who GHG emission level. Under the CDM methodology, ahave signed the UNGC are required to produce country that is emitting at its limit of carbon emission“Communication on Progress”. Many companies around (developed country) can acquire permission for additionalthe globe are producing CoP to disclose their sustainability carbon emission by investing in emission reductionaspects. The following chart shows the total number of projects in developing countries (e.g Pakistan). ThisPakistani companies in each year who have become the carbon trading takes place through the exchange ofsignatory to UNGC. Certified Emission Reduction (CER) units. Developed The Pakistan Accountant July-Sep 2010 Page 35
    • oTher ARTIClEScountries help developing countries in carrying emission Why sustainability reports require assurance??reduction / removal projects and in exchange, earn CERsfrom developing countries. Purchasing one unit of CER In order for companies to avoid their public disclosureallows developed countries to emit one tonne of carbon being perceived as “greenwash” or an attempt to influencedioxide in addition to its limit. people with regard to their sustainability credentials, there is a greater benefit for companies to provide anFor CDM projects in Pakistan, Ministry of Environment independent assurance report supporting their claims on(MoE), Government of Pakistan is the Designated National sustainability practices. Having an independentAuthority (DNA) while its National Operational Strategy professional assure the reported information increases thewas approved in 2006. Presently, there are four projects confidence that can be placed on the information, forregistered with UNFCCC and 23 approved projects by the decision making purposes. We must recognize that thereDNA, that is MoE. Many other projects are also in the are incentives to produce biased reports of sustainability;pipeline. Following are the advantages of CDM for the this bias is significantly reduced by requiring assurance bycorporate sector in Pakistan: an independent expert. Assurance by independent expert also aids in improving the quality of the information. Thus,l Additional financial resources an independent assurance of sustainability reports would (Revenue through sale of ensure: CER units)l Advanced technology Financial success is no longer l More trust transfer l More transparencyl Achieve sustainable the sole measure by which l More confidence development (reduction of GHG) corporations are judged by The assurance standards arel Increased rate of return promulgated by “IAASB” andl Identify internal inefficiencies, their stakeholders – primarily “AccountAbility”. cut waste and save money for the company investors, consumers, Conslusionl It is hereby proposed that carbon trading should be employees and the So does your company practice responsible leadership? actively and properly communities in which they regulated by the Shareholders expect your Government. operate. Companies are now company to generate profits but they also want you to assumeWhy Chartered Accountants expected to perform well in your responsibility to contribute to society while minimizing theAccountants’ professionalbackground and orientation non-financial areas, such as environmental impacts.equip them with the necessary human rights, business Globally, business leaders arequalities to support their striving to define the new rolecontribution - namely, wide ethics, environmental business will play in light of thebusiness understanding, financial crisis and in a worldnumeracy and knowledge of policies, corporate increasingly shaped bymeasurement, and objectivity sustainable development issues.and integrity. Applying these contributions, community Business-as-usual in a resource-competencies to sustainability constrained world with anissues can help organizations to development, corporate ever-increasing population andembrace sustainable demand for goods and services,development, and to incorporate governance and workplace not be sustainable without newit into strategic planning andexecution. This will allow issues. and innovative solutions.organizations to simultaneouslydeliver improved business let’s be united to spread theperformance and to contribute to a better world. awareness of sustainability and bring this issue on the CEO’s agenda. Remember! TheProfessional accountants are in a good position to help cost of doing something will be cheaper in the long runorganizations interpret sustainability issues in a relevant than doing nothing.way for their organizations, and to integrate those issuesinto the way they do business.Recommended readings:Professional Accountants in business-At the Heart of The author is aSustainability, published by IFAC Consultant at A.F. Ferguson & Co., Chartered Accountants The Pakistan Accountant July-Sep 2010 Page 36
    • oTher ARTIClESGOVERNANCE Prof. Dr. Khawaja Amjad Saeed, FCAABSTRACT Kingdom), Asia (Hong Kong, The fourth and the last part outlines Malaysia and Pakistan) and Africa five (5) Points Strategy as a Way (South Africa). Guidelines provided in Forward. This is the concluding partCorporate Governance various legislations (Sarbanes – of the paper which gives emphasis onThe paper has been divided into four Oxlay Act, 2002), guidelines provided seven (7) principles to Public life,parts. The first part addresses ten by various learned bodies / Role of stakeholders in Corporate(10) Central Concerns relating to committees e.g. Cadbury Committee, Governance, a plea for strictCorporate Governance. These Hempl Committee have been briefly implementation, continuous feedbackinclude; Role of Board of Directors, included. The experience of on Corporate Governance PracticesBasic Structure of Board of Directors Accountancy Profession of Hong and with a suggestion that Businessand its Composition, Remuneration Kong in terms of ten (10) Points Schools and Professional Institutes ofPattern, Ownership of Directors, Strategy has been shared. Two Accountants throughout the WorldAvailability of Freedom to an Codes of Ethics governing Board of must prepare a new breed ofEnterprise – BOD Role, Role of Directors and Company Secretaries executives to identify and accept theServices of Institutional Directors, have been mentioned relating to challenges facing CorporateAccountability of Members of BOD, Malaysia. Briefly, Pakistan’s Governance on global basis inFinancial Reporting, experience on Corporate Governance general and on each country’s needsInstitutionalization of Audit Functions, has been shared. Reference has with specific emphasis on soundlinkages with Stakeholders. been given to King’s Report on corporate management.Operational aspect of implementation Corporate Governance from Souththe spirit of the foregoing ten (10) Africa.The third part shares the World PRElUDECentral Concerns have been Bank experience in terms of tworeviewed with proper direction to indexes namely; World Governance The whole world is in economic andmeet the spirit of Good Governance. Index which has been briefly financial crisis. Struggle is going on toThe second part shares experiential reviewed but with greater details in come out of it. Several solutions havelearning from four continents of the respect of the second index namely; been suggested and are beingWorld namely; North America (United Corporate Governance Index. offered by scholars, economists,States of America), Europe (United government functionaries and other The Pakistan Accountant July-Sep 2010 Page 37
    • oTher ARTIClESstakeholders. This piece presents a them is: Are they well equipped and Corporate ownership ought to belucid analysis on Corporate bejeweled to perform their role? broad based so that there is a widerGovernance for developing sound application of participation in thecorporate management to add value 2) Basic Structure of Board of Corporate Entity and consequentlyand for enriching the results of Directors and Its Composition stakeholders across the board arecorporate entitles for society in beneficiaries.general and shareholders in The composition of the Board ofparticular to be the beneficiaries. Directors should be well balanced. 5) Availability of Freedom of an For successfully operating the affairs Enterprise – Governing BOD Role of the Corporate Entities diversified expertise should be possessed by Members of BOD should enjoy full PART-I them in the following areas namely, Personnel Management: degree of freedom and must exercise their initiative in terms of new (HRM/HRD), Production Operations harbinger and explore new frontiers ofCENTRAl CONCERNS OF Management (POM), Supply Chain expanding horizons of the business.CORPORATE GOVERNANCE Management (SCM), Finance, They must provide enlightened Marketing and Innovation backed up leadership and inspire the wholeBased on the past experience, failure by out of the box thinking. organization to swing into active workstories and experiential learning in the Accordingly, any director who either to earn high profits achieve, greaterarea of Corporate Governance, does not have a grip on account of productivity identify, new vistas offollowing Central Concerns are: foregoing six aspects or at least one leadership, ensure growth and tap out of six, failing which he / she will markets through various approaches1) Role of Board of Directors be a liability rather than a tangible including market penetration. AFor managing the affairs of a asset for the organization. success in this dimension can take acorporate entity basically three corporate entity to greater heights.functions are followed namely, 3) Remuneration PatternStrategic Planning, Tactical Controls 6) Role of Services of Institionalized The remuneration of BOD members Directorsand Actual Operations. These three will have several patterns. Ordinarilyroles are reflected in the following each BOD member is paid an Directors of BOD have to be naturalfigure: honorarium for attending the meeting. persons. However, if an institution is Figure No. 1: Fair amount may be determined in holding financial stake in a corporate this respect. Some of the Directors entity it needs to be represented on need to deliver services on full time the BOD through a nomination known basis including the Managing Director as Institutionalized Director. One / CEO. Their remuneration may be should be well equipped and well Strategic fixed by the Board of Directors and experienced person so that one can Planning approved in the Annual General make an enriched contribution on the Meeting as part of transparency. BOD to ensure its success. If the one Tactical There is a common practice in is lacking any knowledge and Controls Pakistan to determine the expertise, he/she will be a liability to remuneration package of the be carried as a baggage on the BOD Managing Director / CEO by the BOD rather than perform their role as an Actual Operations as a part of open door policy. This is productive and efficient member of communicated to all shareholders for the BOD Team. Pyramid of Management information so that they stand fully communicated about the 7) Accountability of Members ofBOD must understand that their basic remuneration aspects. BODrole is at Serial No. 1. Therefore, fordelivery system they need to be well- 4) Ownership of Directors It is very interesting that the rise ofequipped. They should be Joint Stock Companies in the worldprofessionally well qualified to deliver Ordinarily the minimum qualification presents a big problem namely,the goods. They must identify any shares to be possessed by a director owners are many in number but theirweaknesses or gaps in their role and to hold his office as director is governance is with very small inremove the deficiencies through prescribed in the Articles of number constituting BOD. The hopecontinuous training and management Association of a company. Over and is that BOD will follow the objectivesdevelopment so that they can above, the minimum qualification of serving the interest of the corporateperform their duties in a befitting shares, a ceiling may also be laid entity rather than their own personalmanner. Their leadership can open a down so that the spirit of broad interest. In this respect, the role ofgolden chapter in the history of basing the ownership continues to be their accountability becomes verysuccess of Corporate Enterprises practically implemented. In some meaningful. In the Western model thefailing which the fate of the Corporate countries e.g. Hong Kong, there is a accountability is enforced throughEnterprise, will be heading towards rider clause of restricting the total legislation and through the circulationdisaster and bankruptcies. Searching number of shares to 50% relating to of financial statements inquestion to be asked by each one of a Director and his family members. The Pakistan Accountant July-Sep 2010 Page 38
    • oTher ARTIClESthe Annual General Meeting. This following reporting systems: strengthening the logistics to soundtraditional approach unfortunately has Corporate Management Practices asnot succeeded as clever a) Quarterly Reports including foundation for accountability and highmanagement through BOD continue Quarterly Highlights of all performance.to show losses through manipulation operational results and financialrather than perform their duties in the position of a company. This is 9) Institutionalization of Auditvery basic interest of the corporate mandatory for listed companies Functionsentity. Several examples in the world in some countries includingcan be cited including downfall of Pakistan for circulation to External audit is governed byEnron in USA and Satyam Computer shareholders. legislation in several countries. It isServices limited, India to name a few. mandatory to be conducted byIn this respect, Islamic model needs b) Half Yearly Financial Reports: professionally qualified persons,to be comprehended for moral Through various legislative generally by Chartered Accountantsreformation and its true aspects it is mandatory in many and in the case of private companiesimplementation. The following two countries including Pakistan to falling below a specified paid upverses from the Holy Quran are release Half Yearly Financial capital of share capital by non-quoted below: Reports to shareholder for listed qualified accountants also. Efforts are companies. in the offing to strengthen this role for “So whoever does an atom’s* sound legislation and through c) Annual Financial Report: productive role of other stakeholders weight of good will see it, Several practices exist in the namely, Professional Institutes of And whoever does an atom’s* Accountants, Stock Exchanges, weight of evil will see it”. world including prescribing the formats of annual financial Securities and Exchange [ * “The weight of a small ant” ] Commissions and other Regulatory reports. However, the current (Al – Quran, 99 : 7 & 8) Bodies etc. trend is to prescribe minimum disclosure requirements inDivine message contained in Al- Internal Audit needs to be organized respect of the following:Quran is stressing an obvious. It lays on sound footing. Internal Auditorssound foundation for strengthening will, in future serve as the 5th Pillar of i) Balance Sheetmoral frontiers of self-accountability the State for sound Corporate ii) Income Statementand therefore suggests a firm grip Management. Every country must iii) Funds Flow Statementagainst manipulations in financial and address to enact the statutory supportnon-financial matters which ought to in terms of institutionalization and In Pakistan, we follow sunshinebe uprooted, failing which adverse make sure that on the pattern of USA legislation of prescribing disclosuresimpact will continue to be reflected in and UK institute of Internal Auditors of information governing the abovethe financial statements through get mandatory support and internal financial reports through Fourthmalpractices of all types. auditors are afforded an opportunity Schedule of the Companies Ordinance, 1984 for listed companies to play their productive role.The message of feed forward Management Audit is yet another and through Fifth Schedule governingemanates from the following divine area which needs to be properly non-listed companies. Continuousmessage contained in the Al-Quran to addressed for laying sound efforts are going on, with leadershipbe used as feed back to be provided foundation for excellent Corporate provided by International Federationon the Day of Judgment. This Management. Several models exist in of Accountants, New York andmessage from Al-Quran is quoted this respect and there is a need for International Accounting Standardsbelow: each corporate entity to voluntarily Board, london for adequate disclosure of information for the respond to these challenges with a “That Day, we will seal over their benefit of the stakeholders in general sense of urgency. In this respect, mouths, and their hands will and shareholders in particular. while several models exist in the speak to Us, and their feet will Enlightened Management led by world, the one followed by General testify about what they used good role of BOD continue to publish Electric Corporation (GEC) needs to to earn”. several other types of information be given proper attention by voluntarily through pictoral displays, Corporate Management. For ready (Al – Quran, 36 : 65 ) statistical charts, figures, ratios and reference this is reproduced below:The above message should provide a computer graphics. The rise of IT hasfeed forward to every member of been of great interest and a) ProfitabilityBOD to be self-accountable as God instrumental in display and b) Market Positionwill provide feed back on the Day of dissemination of voluntary and non- c) ProductivityJudgment. mandatory disclosure of information d) Product leadership for the benefit of users. In this respect e) Personnel Development8) Financial Reporting the role of Government, Regulatory f) Employees Attitude Bodies, Stock Exchanges, World oflegislative aspects make it g) Public Responsibility Academics, Financial Analysts,mandatory for a corporate entity to h) Balance between Short and long Financial Institutions etc. is laudable.give adequate disclosure through the This ought to continue for Terms Goals. The Pakistan Accountant July-Sep 2010 Page 39
    • oTher ARTIClESn GEC has highlighted the above Directors, Executive Directors and lay sound basis for Corporate eight areas for evaluation as part Reporting & Controls. Dominating Governance. of overall performance appraisal. emphasis was given on holding regular BOD meetings, effective and 3) HONG KONGn To achieve productive results due full control of the company by BOD, to foregoing efforts, system of monitoring of executives Accounting profession in Hong Kong sound internal controls needs to development and maintaining a has great impact from UK. Some be developed and balance between authority and Working Groups were set up. The operationalized. power. report of the first Working Group on Corporate Governance was released10) linkages with Stakeholders The guidance provided was that in 1995 and the report of the Second Directors must keep the control Working Group was released inThe Corporate Management ought to formally in their hands. An January 1998. The following ten (10)realize that they are not only independent professional advice is to points Code was issued foraccountable to shareholders but to be obtained from Non-Executive compliance:various other stakeholders e.g.Government for fiscal aspects,lending institutions for debt servicing, Ten Points Code of Corporate Governance in Hong Kongsocial awareness for CorporateSocial Responsibility (CSR), 1. Compliance Matters to be identified.Regulatory Bodies for compliance for 2. Board Same family members not to have more than 50%.its prescribed regulations etc. 3. CFO Mandatory for appointment.Therefore, the expectations of 4. AGM Attendance record was made mandatory.internal and external stakeholders 5. Board Meeting Frequency of four Compulsory every year. Six preferred.need to be properly visualized andaddressed. 6. Auditors Other Fees Separate disclosure. 7. Annual Report Separate Disclosure on: Corporate Governance. 8. Audit Committee Be established with Defined Functions. PART-II 9. Interim Report Be released. Scope: Balance Sheet, Income statement and Cash Flow statement. 10. Auditors To review No. 9 above.EXPERIENTIAl lEARNING -GlOBAl EXPERIENCES 4) MAlAYSIA Directors who should have caliber forSelected countries experiences are inclusion in BOD. The secretary of Two separate Codes of Ethics forsummed up below: the Board should stay independent Directors and Company secretaries and his removal should be by the were issued. The five point Code of1) USA (United States of America) Board as whole. The Non-Executive Ethics for Board of Directors Directors should focus their emphasized on introductory Aspects,Sound Corporate Governance contribution on strategy, performance, Principles, Objectives, Definition,models were developed in USA. key appointments and developing Code of Conduct for CorporateHowever, unfortunately in some standards of conduct. The Executive Governance. Four parts constitutedcorporate entities these were not Directors should have contract of Code of Ethics for Companyproperly implemented. Consequently, three years with formal approval from Secretaries namely, Introductorythe financial collapse of some giant BOD and their emoluments should be Aspects, Principles, Objectives andCorporations were seen in the world. five point Code of Conduct. transparently disclosed and AuditEnron is one of the examples. Yet Committee should be set up withanother example from USA is World 5) PAKISTAN clear terms of reference in black andCom. Consequently, the legislators in white and deal with the matters with The first Code of CorporateUSA take a lesson and legislated – clarity, authority and clear-cut duties. Governance was released bySarbanes Oxlay Act, 2002. The world Effective internal controls should be in Securities & Exchange Commissionis struggling to focus on operation to ensure business as a of Pakistan with the assistance fromimplementation aspects where good going concern. later in 1995 Hempel the Institute of Charteredmodels exist. However, the crying Committee was set in UK. This Accountants of Pakistan and otherneed is to implement the spirit of Committee was given two years to stakeholders with the mission thatsound Corporate Governance. complete their assignment with six sound Corporate Practices will be aspects as their scope of work developed and implemented.2) UK (United Kingdom) Currently it is applicable to listed namely, Principles of Corporate companies, banking companies,Cadbury Committee in the early part Governance, Application of the DFIs, NBFIs, Insurance Companies,of 1990’s was set up and addressed Principles, The Future Directors. Mutual Funds, Unit Trust, andfour issues on the frontier of Remuneration and Shareholders and Company Corporations held orCorporate Governance namely, Annual General Meeting. They gave controlled by the Government.Board of Directors, Non-Executive recommendations in January 1998 to Constituents of the Code of The Pakistan Accountant July-Sep 2010 Page 40
    • oTher ARTIClESCorporate Governance include the lowest performer at the bottom offered for implementation.Director, CFO and Secretary, was Bangladesh ( 24.3 % ). In thisCorporate and Financial Reporting respect, the following table shows the 1) Public life FocusFramework and Audit Committee. ranking of fourteen (14) countries.The crying need is to legislate There is a need to first reformthrough amendments to be OVERAll CORPORATE GOVERNANCE INDEX individuals or participants in theincorporated in the Companies process of Corporate Governance. InOrdinance, 1984 so that its Country CGI (out of 100) this respect, guidance can be soughtapplication can be made across the Germany 90.8 from the containing seven (7)board in a full-fledged manner for the United States 89.8 principles of Public life as suggestedbenefit of stakeholders. Singapore 80.9 in the first report of Committee of Hong Kong 69.2 Standards in Public life, published in6) SOUTH AFRICA Malaysia 66.7 UK in May 1995. India 55.4The King’s Report on Corporate South Korea 55.4 2) Role of GovernanceGovernance was published by the Thailand 49.7Institute of Directors in South Africa In several countries various models Philippines 48.9 exist relating to Corporateon November 19, 1994 and detailed Indonesia 44.7recommendations were released for Governance. In some countries Vietnam 38.1 corporate sector entities areimplementation. This produced China 35.3productive results. voluntarily following Code of Pakistan 31.3 Corporate Governance. In other Bangladesh 24.3 countries, these have been developed by Professional Source: Extracted from Dawn, lahore, Accounting Institutes and supported PART-III January 10, 2009. by Regulatory Framework, generally through Securities & ExchangeWORlD BANK INDICES Commissions, Central Banks, StockWhile globally efforts have been on to PART-IV Markets etc. These have been developed and released forprescribe procedures governing implementation. There is crying need FIVE (5) POINT STRATEGY AS WAYsound Corporate Management for incorporating all the Codes of FORWARDPractices, The World Bank has been Corporate Governance in the lawsdeveloping certain indices. Two There is an outcry for developing and governing Corporate Sector so thatsuccessful efforts were made by them later enforcing sound Code of these constitute a mandatoryin respect of developing CGI Corporate Governance. In this requirements for compliance.(Corporate Governance Index) and respect, the following suggestions areWGI (World Governance Index). The Seven Principles of Public lifeThe focus of this article is onCorporate Governance. However, it 1. Selflessness: Holders of public office should take decisions solely in termsmay be of interest to the readers to of the public interest. They should not do so in order to gainsee the productive work undertaken financial or other material benefits for themselves, theirby the World Bank for developing family, or their friends.World Governance Index. In this 2. Integrity: In carrying out public business, including making publicrespect, the World Bank used three appointments, awarding contracts, or recommendingelements to evaluate for developing individuals for rewards and benefits, holders of public officethe above index namely, should make choices on merit.Regulations, Corruption and Rule of 3. Objectivity: Holders of public office should not place themselves underlaw. Based on our research on the any financial or other obligation to outside individuals orregulatory front, the best rated organizations that might influence them in the performance of their official duties.country was Hong Kong ( 99% ) and 4. Accountability: Holders of public office are accountable for their decisionsthe worst was Myanamar ( 1.5% ). On and actions to the public and must submit themselves tothe corruption front the best rated whatever scrutiny is appropriate to their office.country with least corruption was 5. Openness: Holders of public office should be as open as possible aboutSingapore ( 96.1%) and the worst all the decisions and actions that they take. They should givewas again Myanamar (1.4%). In reasons for their decisions and restrict information only whenrespect of rule of law, the best rated the wider public interest clearly demands.country was Singapore (95.2% ) and 6. Honesty: Holders of public office have a duty to declare any privatethe worst was again Myanamar interests relating to their public duties and to take steps to(5.2% ). resolve any conflicts arising in a way that protects the public interest.Regarding overall Corporate 7. leadership: Holders of public office should promote and support these principles by leadership and example.Governance Index, the bestperformer was Germany (90.8%) and The Pakistan Accountant July-Sep 2010 Page 41
    • oTher ARTIClES3) Implementation the World Council of Corporate Governance. However, on January KEY TERMSTo reap real benefits emanating from 07, 2009, its Chairman himself, in his AGM: Annual General Meetingthe implementation of Codes of letter addressed to the Board of ANlP: Accounting & the New laborCorporate Governance, Directors, admitted various fraudsimplementation aspects should be Process and manipulations aggregating tostrengthened through institutional over one billion dollars. His BoD: Board of Directorsapproach which must also include confession came for inflating the past CEO: Chief Executive Officermonitoring and total compliance. In several years with fictitious assets CFO: Chief Financial Officerthis respect, in some countries and non-existing cash. Therefore, the CGI: Corporate Governanceexternal auditors are playing a useful message is to constantly review therole and a separate report on Index criteria of the procedure adopted forcompliance of Corporate Governance checking the compliance and revisit CSR: Corporate SocialCode is issued by them for release to periodically with some Responsibilitythe shareholders. These aspects reconnaissance over the affairs of the DFIs: Development Financialneed to be fully supported and Company. Institutionsstrengthened. GEC: General Electric Corporation 5) Curriculum Review4) Feedback ND: No Date The Business Schools and NBFIs: Non-Banking FinancialFeedback technique of management Professional Institutes of Accountantsshould be used on continuous basis Institutions throughout the world must includeso that basic Code of Corporate some courses on Corporate OECD Organization for EconomicGovernance together with its Governance so that a new breed is Cooperation & Developmentcompliance is properly addressed. It developed to pave the way for POM: Production Operationis interesting to know that Satyam implementation of sound Code of ManagementComputer Services limited, Corporate Governance and its totalHyderabad Deccan, India which SCM: Supply Chain Management compliance. A bold beginning shouldclaimed to have implemented be made in this respect to ensure that UK: United KingdomCorporate Governance in good spirit logistics are available for delivery USA: United State of Americaearned Golden Pea-Cock Award for system to achieve the foregoing WGI: World Governance IndexCorporate Governance in 2006 from objectives. SElECTED BIBlIOGRAPHY Draft, January 2006. 15. Overall Corporate Governance Index, “Dawn”, lahore, January 10, A: Reports of learned Bodies 2009. 1. Cadbury Report on the Financial Aspects of Corporate Governance, 16. Report of the Committee to Make Recommendation to Financial london: Gee Publication ltd, December 01, 1992, PP 91. Aspects of Corporate Governance, Colombo: The Institute of 2. The King’s Report on Corporate Governance, Johannesburg: The Chartered Accountants of Sri lanka, PP 43 n.d Institute of Directors in Southern Africa, November 29, 1994, PP 70. 17. The 21st Century Annual Report, Corporate Governance, london: 3. Committee of Standards in Public life, “The Seven Principles of The Institute of Chartered Accountants in England & Wales n.d., Public life”, UK, May 1995. PP12. 4. Report of the Working Group in Corporate Governance, Hong Kong: Hong Kong Society of Accountants, December 1995, (Reported in February 1996), PP 36. B: Books 5. The company Directors Code of Ethics, Malaysia: Pejahat 1. Monks, Robert A.G. Minow Nett,Corporate Governance, Cambridge Pendaaftar Syarikat (Registry of Companies), n.d (Procured on visit (Massachusetts, USA) Blackwell Publisher, 1995, PP 550. to Kula lumpur in October, 1996). 2. Dadiseth, K.B., Corporate Governance, Mumbai, Forum of Free 6. Corporate Governance: A Review of Disclosure Practices in Canada, Enterprise, November 1997, PP.16. Toronto, Ontario, Canada: The Canadian Institute of Chartered 3. Ghosh, Dr. T.P.Corporate Governance of Management Audit, Accountants, 1996, Annual Award, PP59. Calcutta, July 1998, pp 159. 7. Second Report of the Corporate Governance Working Group, Hong 4. Zhuang, Jashong, Elwards David, Capulong, Ma. Virginita A, Kong: Hong Kong Society of Accountants, January 1997, PP 20. Corporate Governance and Finance, In Cost Asia, Volume I & II 8. Hanpel Final Report Committee on Corporate Governance, london: (Case Studies), Mainal: Asian Development Bank 2001. Gee Publishing ltd, January 1998, PP 66. 9. State Bank of Pakistan, Handbook of Corporate Governance, Karachi, March 2002, PP 96. 10. United Nations Conference on Trade & Development, “Selected C: Articles Issues in Corporate Governance: Regional & Country Experiences, 1. Agrawal, Annup, Chadha, Shaiba, Corporate Governance and “Geneva”, 2003, PP 53. Accounting Scandals, available at: 11. International Conference on Corporate Governance Challenges in http://www.eba.ua.edu/personnel/annupagrawal.html Implementation, South Asian Federation of Accountants & The 2. Saeed, Khawaja Amjad, Corporate Governance: An Essential Institute of Chartered Accountants of Sri lanka, August 2004, PP Element, lahore: “The News International” May 05, 1997. 227. 3. Saeed, Khawaja Amjad,“Towards Corporate Governance in 12. OECD Principle of Corporate Governance, France: OECD 2004, PP Pakistan, The Institute of Cost & Management Accountant of 66. Pakistan, May-June 1997, PP-2. 13. The Institute of Chartered Accountants of Pakistan, “Instituting 4. Saeed, Khawaja Amjad, Good Governance: Issues, Indexes, and Corporate Governance in Developing, Emerging and Traditional Way Forward, “Business Recorder”,Karachi April 05, 2010. Economies,” Karachi: Members Information Series No 5, July 11, 5. Shil, Nkhil Chandra, Accounting for Good Corporate Governance, 2006. Dhaka: Department of Business Administration East West 14. International Federation of Accountants, “Guidance for the University, email: nikhilace@yahoo.com Development of a Code of Corporate Conduct”, New York, Exposure The Pakistan Accountant July-Sep 2010 Page 42
    • oTher ARTIClES Better OptiOn – KEEPING DOLLARS OR25% INvESTMENT? Mubeshir Ali Kazmi, ACA15% Memories are valuable in life. I still remember that day Why is rupee falling so fast? Most economists are of the5% when my uncle gave me a ten US dollar note on my tenth opinion that the main reasons behind the fall of the rupee birth day. I could not buy an ice cream from general store are an increased demand for dollars due to a spurt in against the currency but it did create interest and I started crude oil prices and the flight of foreign funds from the-5% collecting and saving foreign currency notes and coins. I local markets. Demand for rupees, simultaneously, has have extended family living broad hence my collection dipped because capital inflows are down. started growing steadily. At that time the rupee was trading about 29.40 to dollar (imagine now when Pak Our currency is staggering in a see-saw fashion and currency has fallen to the lowest level verses dollar on the declining trend in the value of Pak rupee is increasing day inter-bank market for buying and selling at almost 86.00.) by day. As a result people have started having foreign Graphical representation of Pak rupee value to dollar is as currencies at their homes and in bank lockers after shown in the diagram. purchasing it from the local market. This is another reason of escalating the value of dollar. They believe that keeping dollars and other demanding currencies in their pocket is good option rather than investing it some where else. I have asked number of my friends who are in the know of the matter as to why they are doing this? They simply reply that they do not see a better alternative to invest their money. Sadly, this perception is wrong. There are number of options available in the market at this time even when liquidity crunch has caught our economy in vice-like grip. There are alternative that would not only secure for our savings at very competitive rate but can also contribute to our national economy. I remember what Quaid-e-Azam The Pakistan Accountant July-Sep 2010 Page 43
    • oTher ARTIClES Normally retired people are interested to place their retirement funds in any one of the schemes offered by saving centers to make ensure their monthly returns. Some people including businessmen who have ability to judge the main risk, that is the cost of opportunity would reluctant to invest in these schemes. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities. However, still there is a margin of arbitrage gain that an investor had rightly said, “Thrift as can obtain through a national asset is going to play replacing their an important part in the building up of investment the state”. So save and invest in Pakistan in saving certificates. Government of Pakistan has issued number of certificates including Defense Saving Certificates, Special Saving Certificates, Regular Income Certificates and Bahbood Saving Certificates. Among all Bahbood dollars Saving Certificates for senior with citizens and widows are Behbood more lucrative than others scheme. In in terms of rate of return coming future that is 14.16% p.a. This current offering return is exempted from rates of return deduction of withholding against these schemes taxes and Zakat and is far would be decreased as better than the annualized rate market correction. of increase in dollar historically that is clearly shown in the diagram Where is the best place for our investment in today’s scenario considering all risk factors? I posed this question to my colleagues, peers and market experts. Most of them who continuously watch market 25% dimensions like Mr. Tahir Hussain Raza (Director Finance of Acro Group of Companies), 15% working in financial market for many years agree with this analysis and have suggested the same. This understanding can help anyone to 5% make an informed saving decision and not “putting all eggs in one basket.” On the other -5% hand, this would be a good step to reduce a little portion of the undocumented economy worth Rs.100-200 billion of our country. except for the year 2009. Further, volatility of exchange rate in favorable direction is quite uncertain, however profit against saving The author is certificates would remain definite as finalized at Chief Financial Officer & Company Secretary, the time of purchase. Acro Spinning & Weaving Mills, lahore. mobiali@gmail.com Most of the people are not very much aware of the pros and cons of these saving schemes.The Pakistan AccountantJuly-Sep 2010Page 44