IFAP Newsletter May 2015

www.ifap.org.pk
LETTERNEWS
The Forensic Accountant (FA)The Forensic Accountant (FA)
Monthly May 2015
The Founder/Pioneer Member of the International Federation of Forensic Accountants & Auditors (The IFFAA)The Founder/Pioneer Member of the International Federation of Forensic Accountants & Auditors (The IFFAA)
The Newsletter for Forensic Accounting Professionals
(Official Organ of the Institute of Forensic Accountants of Pakistan (IFAP)
President Communication
Dear Professional Colleagues,
“
I am not bound to win, but I am
bound to be true. I am not bound to
succeed, but I am bound to live by the
light that I have. I must stand with
anybody that stands right, and stand with
him while he is right, and part with him
when he goes wrong.” (Abraham
Lincoln).
Standing of a profession does not lie merely in technical
competency of its practitioners but also in their ethical
conduct. As forensic accounting and governance
professionals, we must serve the broader interest of the
stakeholders and contribute towards promoting a culture
of good governance. We must have a quest for holistic
professional growth, explore new horizon and aspire for a
higher degree of professionalism, which is beyond mere
fulfilment of the legal requirements. It is also pertinent to
consider that when upholding the values of righteousness,
one may even face setbacks and adversaries; however,
what is right should not be forgotten for what is
convenient.
The Institute of Forensic Accountants of Pakistan (IFAP) has
a great responsibility towards the development and
regulation of the profession; where members play a
crucial role by regulating their own actions. Being forensic
accounting and governance professionals, we must
essentially ensure self-governance so that we are able to
strike a right balance between conflicting demands and
rising expectations of the stakeholders.
Forensic accounting has risen to prominence because of
increased financial frauds popularly known as white collar
crimes. Forensic accounting can be described as a
specialized field of accountancy which investigates fraud
and analyze financial information to be used in legal
proceedings. Forensic accounting uses accounting,
auditing, and investigative skills to conduct investigations
into theft and fraud. It encompasses both Litigation
Support and Investigative Accounting. Forensic audit can
be defined as an examination of evidence regarding an
assertion to determine its correspondence to established
criteria carried out in a manner suitable to the court.
Objectives of Forensic Accounting and Forensic Auditing
 To use the Forensic Accountant's (FA's)
conclusions to facilitate a settlement, claim, or
jury award by reducing the financial component
as area of continuing debate.
 To avoid fraud and theft.
 To restore the downgraded public confidence.
 To formulate and establish a comprehensive
corporate governance policy.
 To create a positive work environment.
A Forensic Accountant (FA) can ensure the integrity and
transparency of financial statements by actively
investigating for fraud, identifying areas of risk and
associated fraud symptoms and a good fraud prevention
program can help to create a positive working
environment where employees do not indulge themselves
to abuse their responsibilities. So, by helping companies to
prevent and detect fraud the Forensic Accountants (FAs)
can help to establish a comprehensive corporate
governance policy. Forensic Accountants (FAs) can
support the propagation of the required information
about governance and ethics policies to interested
parties within and outside the organization. In this way they
can help to maintain a good image of their respective
companies to its stakeholders and also build up effective
communication process and transparency. The fraud
prevention strategy outlines a high level plan on how the
organization will go about implementing its fraud
prevention policy. An effective fraud risk management
approach encompasses controls that have three
objectives: (1) Prevent (2) Detect (3) Respond.
FA Barrister Sohail Nawaz
(President – IFAP)
May 31, 2015

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The Founder/Pioneer Member of the International Federation of Forensic Accountants & Auditors (The IFFAA) Newsletter
IFAP News (www.ifap.org.pk)
Members Meeting/Members Get Together (IFAP Members Lahore Based)
The First Meeting/Get Together of the members of the Northern Region/Lahore Region of the Institute
of Forensic Accountants of Pakistan (IFAP) was held on May 23, 2015 at 3.00 P. M. at Seminar Room
No.3, Level 3, Arfa Software Technology Park, 346-B, Ferozpur Road, Lahore. The quorum of the
meeting being present, the Chairman Mr. Irtaza Hashmat Shami on behalf of the Northern Regional
Committee (NRC) welcomed the members and declared the meeting to be in order to proceed with
the agenda. The President IFAP Barrister Sohail Nawaz in his opening remarks welcomed the
participants and appreciated the efforts of the IFAP Lahore Members, specially the Chairman of the
Northern Regional Committee Mr. Irtaza Hashmat Shami, for their contribution in organizing the
meeting/get together. The President IFAP specified that Members Meeting/Get Together was a
leading event of the Institute and provided an outstanding platform for sharing knowledge &
experience among the Forensic Accounting and Forensic Auditing Professionals.
The meeting was attended by the following members/participants.
1. Barrister Sohail Nawaz (FFA) (President – IFAP)
2. Dr. Tahir Iqbal (FFA) (Secretary – IFAP)
3. Mr. Irtaza Hashmat Shami (AFA) (Chairman Northern Committee – IFAP)
4. Syed Manzar Abbas Kazmi (AFA)
5. Mr. Aamir Amin Butt (AFA) (Regional Director Lahore – IFAP)
6. Mr. Tariq Parvaiz Khan (AFA)
7. Mirza Muhammad Zafar Baig (AFA)
8. Mr. Muhammad Masood Afzal (AFA)
9. Hira Maqsood (AFA)
10. Mr. Ilyas Ahmad Farooqi (AFA)
11. Mr. Muhammad Azam Shahzad (AFA)

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1&2. Role of IFAP and its Members
The President IFAP Barrister Sohail Nawaz in his opening remarks welcomed the
participants and appreciated the efforts of the IFAP Lahore Members, specially
the Chairman of the Northern Regional Committee Mr. Irtaza Hashmat Shami,
for their contribution in organizing the meeting/get together. The
President IFAP specified that Members Meeting was a leading event of the
Institute and provided an outstanding platform for sharing knowledge &
experience among the Forensic Accounting and Forensic Auditing
Professionals. The President IFAP highlighted the very affective role being
played by IFAP in the country and outside the country as a Professional Institute in the fields of Forensic
Accounting and Forensic Auditing. He further stated that IFAP members had become an integral part
and IFAP was firmed to support them in their endeavors. He further confirmed that the Members
Meeting/Get Together would now be an annual and semiannual event where forensic accounting
and forensic auditing professionals will explore and thrash out solutions to meet the challenges.
The Secretary IFAP Dr. Tahir Iqbal reviewed of appropriate skills required by
Forensic Accountants (FAs) empirical evidence from a developing economy
like Pakistan. Due to the growing complexities of business environment and the
growing number of Business related investigations, Forensic accounting
professionals are in a great demand now a days as they are increasingly asked
to assist in the investigation of financial and business related issues of fraud
cases. On account of global competition, the accounting profession must
convince the marketplace that it has the best equipped professionals to
perform such services. In the backdrop of increasing levels of frauds, the
demand for Forensic Accountants (FAs) is bound to substantially increase in the
future. So, it is beyond doubt that the role of Forensic Accountant (FA) is an immediate requirement
in Pakistani Scenario to prevent the further loss due to the hidden frauds in corporate world, public

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accounting and awareness of government in future. Hence, proper attention is required by the
regulators, Government and the educational Institutes to support Forensic accounting.
Mr. Irtaza Hashmat Shami – Chairman of the Northern Regional Committee shared the activities and
events in Lahore which are planned for the whole year to engage the forensic accounting and
forensic auditing professionals. He restated the importance for the Pakistani Forensic Accountants
(FAs) to network with other Professional Institutes and this meeting/get together was only the start for
other events in future. He highlighted that Forensic Accounting and Forensic Auditing is a dynamic,
challenging and rewarding profession. All the countries have their own forensic accounting and
Forensic Auditing Institutes/associations which regulates the quality and quantity of the professionals in
this field. A Forensic Accountant (FA) is one who is specialized in forensic accounting, forensic
auditing, fraud examination and forensic investigation. He also serves as a forensic accounting
management and corporate governance caretaker.
Mirza Muhammad Zafar Baig, an Esteemed Fellow Member and Business Development
Consultant explained the working of IFAP and his vision for Pakistan’s progress. A Forensic Accountant
(FA) plays an effective role in the development of economy and progress of the country. He
highlighted that poor Corporate Governance (CG) is a leading factor in poor performance,
manipulated financial reports, and unhappy stakeholders. Corporations and regulatory bodies are
now trying to analyze and correct any existing defects in their reporting system. In the current
reporting environment, Forensic Accountants (FAs) are in great demand for their accounting,
auditing, legal, and investigative skills. Forensic Accountants (FAs) are positioned to explore the design
of Corporate Governance (CG) systems, the role of the financial reporting system in Corporate
Governance (CG), the effect of the governance board on employee and managerial behavior, and
the efficacy of the internal control systems.

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Mr. Aamir Amin Butt, IFAP Regional Director has called upon the Forensic Accountants (FAs) to play a
proactive role in eradicating corruption at all levels. He spoke about the importance of Forensic
Accountants/Forensic Auditors (FAs) in a changing economic scenario. He advised the Forensic
Accountants FAs) to involve themselves in social audits at all levels, including forensic audit of the
political system and judiciary in order to ensure that wastage and pilferage is minimized. He reiterated
that corruption can only be minimized only if the forensic audit is made mandatory by the
Government for all the public sector organizations, corporate entities, private business corporations
and industries. Forensic Accountants (FAs) are currently in great demand with the public need for
honesty, fairness and transparency in reporting increasing exponentially.
Mr. Tariq Parvaiz Khan, an Esteemed Associate Member, explicated that
the Forensic accounting is the specialty practice area of accounting that
describes engagements that result from actual or anticipated dispute or
litigation. It provides an accounting analysis that is sustainable to the court
which will form the basis for discussion, debate and ultimately dispute
resolution. While certainly ideal for court testimony, in broad terms, 'forensic', is
about fact finding and interpretation. The increase in number of fraud and
fraudulent activities in Pakistan and around the world has emphasized the
need for forensic accounting. Engagements of Forensic Accountants (FAs) on criminal matters
typically arise as the aftermath of fraud. Fraud examination in forensic accounting is different from
that of 'traditional accounting' because the Forensic Accountant (FA) has the intuitive ability to
analyze fraud. The role of forensic accounting in fraud investigations and litigation support and proffer
suggestions that will, hopefully, bring to public awareness the importance of this area of accounting.
Mr. Muhammad Masood Afzal, an Esteemed Associate Member, illuminated
the role of a Forensic Accountants (FAs) in today’s business climate. With the
ever-changing business climate, we are seeing an evolving role for
the Forensic Accountant (FA). Going beyond investigative accounting,
our role is expanding into a broader, multidisciplinary profession that surpasses
a basic understanding of financial records, International Financial Reporting
Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP). Forensic Accountants (FAs) must investigate and analyze a situation
and may even be called as an expert witness during a trial. In addition, we are seeing the need for
proficiency in not only accounting and finance, but also expert valuation, statistics, computer
technology and legal processes. The role of a Forensic Accountant (FA) can be crucial in helping to
obtain a beneficial outcome in a settlement or in the courtroom.
Mr. Muhammad Azam Shahzad, an Esteemed Associate Member, emphasized
the role of a Forensic Accountants (FAs) in a Courtroom Environment. Forensic
Accountants (FAs) specialize in sniffing out financial crime, which means that
many of them spend a great deal of time in the courtroom. Depending on
whose side the accountant's on, that could change that courtroom role
significantly. Forensic Accountants (FAs) are trained to follow the money--going
through financial records to determine how the money came in, and where it
went.

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Mr. Ilyas Ahmad Farooqi, an Esteemed Associate Member, described the
role of Forensic Accountants FAs) in Prosecution and Defense. Forensic
Accountants (FAs) are not in on the investigation, they may be called
upon as expert witnesses to back up the prosecution's case against a
defendant charged with a financial crime. Forensic Accountants
(FAs) testifying on behalf of the prosecution may help explain to a jury
how certain financial crimes are carried out or interpret financial findings
to bolster the prosecution's case. Attorneys for defendants charged with
financial crimes or fraud need to refute the prosecution's evidence, and
that can mean fighting fire with fire. Defense teams may then call their
own expert witnesses to offer alternate theories or interpretations of the evidence presented.
Hira Maqsood, an Esteemed Associate Member, described the role of Forensic Accountants (FAs) in
Litigation. Attorneys can use Forensic Accountants (FAs) to assist in translating complex financial issues
into a more understandable manner. Frequently, these financial issues are a key factor in the ultimate
outcome of the lawsuit. In today’s computerized society, the attorney’s deployment of Forensic
Accountants (FAs) to inquire, identify, investigate, test, examine, analyze and interpret financial
documents and data is required more than ever before. The Forensic Accountant (FA) is proficient at
investigating, identifying and analyzing financial information, in conjunction with determining the
people associated with the case, in an effort to follow the money. Ultimately, the financial forensic
results could uncover hidden assets, identify unreported income, determine lost profits, or aid the
attorney in whatever specific financial issues the case requires.

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Syed Manzar Abbas Kazmi, an Esteemed Associate Member, defined the
relevance of forensic accounting education in financial reporting. The relevance
of Forensic Education in the field of Accounting Services via: Litigation support,
Expert witnessing and Fraud examination. Data was analyzed using the Liken
scale and secondary data through the use of text books, journal articles and
internet materials were heavily relied upon. The most important course
objectives in Forensic education which include-fraud detection, investigation
and prevention, fraud prevention and identification of Internal control of firms
and providing education on pervasiveness of and the causes of fraud and
while-collar crime were reviewed.
3&4. IFAP Syllabus & Exemption Policy
The Members discussed about the current/existing syllabus/course outlines and exemption
policy/criteria with the IFAP’s Executive Council for academic and professional qualification holders.
After discussion, the members unanimously decided and advised the IFAP’s Executive Council to
follow and implement the current syllabus and exemption Policy for the next one year (Year 2016).
Currently, the Forensic Accountant (FA) program is divided into four stages with 21 subjects of study or
Awarding of membership of Forensic Accountant (FA) Program requires completion of Twenty One
(21) compulsory subjects/papers. The Forensic Accountant (FA) Program is divided into four stages
comprised 21 papers: Foundation Stage comprised 5 papers, Certificate Stage comprised 5 papers,
Professional Stage Group I comprised 5 papers and Professional Stage Group II comprised 6
papers. Exemptions are available for professional qualifications holders as well as for graduates and
masters in commerce and business administration and other disciplines with related subjects.
Candidates with prior academic and professional qualifications are eligible to get
waivers/exemptions from certain subjects of the Forensic Accountant (FA) Program on case to case
basis.

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5&6. CPD/CPE
The members discussed about CPD/CPE requirements for IFAP’s members. IFAP must takes care of
their needs of professional development and interest. IFAP arranges seminars, workshops,
conferences, corporate trainings, short courses and other activities as part of Continuing Professional
Development/Continuing Professional Education (CPD/CPE) to constantly update the professional add
value to their professional information and knowledge of its members and add value to their
professional standing and capabilities. Members also have opportunities for inter-action with the elite
community of Forensic Accountants (FAs) at national level, access to special studies and information,
participation in branch committees/chapters meetings and other avenues of professional
development. IFAP is in the process of further expanding its services to members. All members of the
Institute are required to engage in a program of CPD/CPE in accordance with the provisions of
the CPD/CPE Regulations set by the IFAP’s Executive Council. The members unanimously proposed
and recommended the names of Mr. Aamir Amin Butt and Mr. irtaza Hashmant Shami as
trainers/facilitators for arranging and conducting CPD/CPE seminars, workshops and corporate
trainings in Lahore. Both Members shown their keen interest and offered consent for the same. The
formal appointment letters shall be notified and issued to both members later on. Approved.
7. Board of Studies
The Members discussed and shared their views about formation of IFAP’ Board of Studies. The
members unanimously decided and advised to the IFAP’s Executive Council to establish the Board of
Studies, nominate its members, and define their roles and duties for the same. The Board of studies
shall be consisted 6 members, 3 from Lahore region and 3 from IFAP’s Executive Council. The names
and designations of Members of Board of Studies shall be notified and circulated later on. Approved.
8. IFAP’s Members Directory
It was discussed and decided unanimously in the meeting to compose, design and publish
updated IFAP’s members directory annually basis including complete requisites of all members.
Approved.
9&10. IFAP’s Liaison/Branch Office
It was discussed and decided in the meeting to set up/open a IFAP’s Liaison/Branch Office in Lahore
(Northern Region) for career counselling, coaching, training and providing necessary information to
prospective students and members about Forensic Accountant (FA) Program. IFAP’s Liaison/Branch
Office is being established for the convenience of local residents and the people of
Lahore region. The office is located on Main Feroze Road to facilitate FA aspirants, parents, members
and educational institutions and will serve to nurture young talent by providing information about the
premier forensic accounting qualification of Pakistan. The IFAP President, Barrister Sohail Nawaz said
that the Institute decided to explore this opportunity for the privilege of its valued members, students
and the profession of Forensic Accounting, and to broaden IFAP’s existing network of members and
students. The members unanimously proposed and recommended the name of Mirza Muhammad
Zafar Baig as Executive Director/Liaison Officer for running and administrating the day to day business
affairs of Lahore Office. Mirza Muhammad Zafar Baig shown his keen interest and offered consent for
the same. The formal appointment letter shall be notified and issued to him later on. Approved.

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11. Statutory Recognition
It was discussed and decided in IFAP’s members meeting to follow up applications already filed for
recognition process and approach to SECP, FBR, NAB and HEC for getting statutory recognition.
Approved.
12. Publish Newsletter/ Journal
It was discussed and decided in the Members meeting that The Institute of Forensic Accountants of
Pakistan (IFAP) encourages the students to adopt a continuous learning process by providing Forensic
Accountant (FA), a monthly Newsletter already published by Institute covering contemporary articles
and latest developments in the
area of Forensic Accounting,
Forensic Auditing, Forensic
Investigation, Fraud Examination
and its allied subjects. It was
further discussed and decided in
the meeting that a quarterly
Journal under the same name
and title should be issued
by IFAP for enhance/disseminate
members’ knowledge and
education. Approved.
13. MOUs/MRAs
It was discussed and decided in
the members meeting
that IFAP contacts regularly and
maintains synergy relationships
with the existing professional
partners/associates. It was further discussed and decided to contact with national/local professional
Institute/Bodies for attaining statutory recognition and to make and sign MOUs/MRAs for the same.
Approved.
14. Others Matters
The others matters discussed in the members meeting with permission of Chair are as follows:-
a. To appoint Mr. Irtaza Hashmat Shami as IFAP’s Executive Director Punjab instead of Mr. Saqib Aziz.
b. To appoint IFAP’s regional directors under the supervision of new IFAP’s Executive Director Punjab.
c. To open and set up IFAP’s chapter/Regional Offices in Karachi, Multan, Faisalabad, Quetta,
Peshawar and Muzaffarabad.
d. To arrange recommended syllabus books/study notes and provide to the IFAP’s students and
members on actual price.
e. To contact and visit different public and private Universities recognized by HEC for promotion and
development of IFAP.
f. To arrange and conduct get together/meeting with Technocrats, Professionals, Bankers, Judges
and Lawyers for promotion and development of IFAP.

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g. To introduce, launch and implement of IFAP’s Group Exemption and Membership Scheme for
professionals and working Executives.
h. To contact and visit different Chambers, Stock Exchanges and Business Houses for promotion and
development of IFAP.
i. To arrange and conduct get together/meeting of IFAP’s members based at
Islamabad/Rawalpindi in month of Ramzan or after Eid-ul-Fiter.
j. To design and frame rules & regulations for fellow membership and criteria for issuance of COPs.
k. To contact and visit Chartered Accountants Firms/Cost & Management Accountants Firms for
promotion and development of IFAP.
l. To set up/establish IFAP’s Board of Directors and to appoint Members for the same.
m. To form/establish Forensic Accounting Research Foundation (FARF) for promotion and
development of forensic accounting education.
The Members/participants discussed potential opportunities which may possibly be materialized and
how the current challenges can be mitigated with the constrained resources available and further
support of IFAP. They also discussed other important matters including coordination with local
professional bodies, funding strategy and budget, members’ profiling, Institute’s website and other
profession related matters. The IFAP’s Lahore Members thanked Barrister Sohail Nawaz and Dr. Tahir
Iqbal for the opportunity to discuss matters of mutual interest and for the continued support extended
by IFAP. The meeting was followed by Lunch hosted by Mr. Irtaza Hashmat Shami the Chairman of the
Northern Regional Committee.
Budget Proposal for 2015-2016
By Sheikh Jamal Yousuf AFA
Income tax
1. The taxation for services rendered by individuals and AOP is very much complex as the tax deducted
is minimum tax either reduce the rate of income tax deduction on services or change the tax
deducted from minimum tax to final tax regime at the existing rate.
2. Introduce a system of reporting and reconciliation of data by tax payer of all his expenses against
with he will be given a rebate against his tax liability. Bound all retailers to issue receipt on dot matrix
paper and not the thermal paper on which the writing evaporates. This will help to generate revenue
for the government. The invoice issued by the retailers should mention his NTN and STRN against which
a tax payer can report and upload his purchasing.
3. Amend Section 122 Amendment of assessment and allow opening the last two years of tax return filed
by the tax payer, and that also within 120 days of filing of the return but before the end of financial
year in which the return is filed. The sword for opening the assessment for the last five year us very
painful and causes harassment to a tax payer and haunts him to get registered in income tax. The
government needs to win the hearts of tax payer by creating win environment and not discourage
them. Facilitate tax payer to earn their trust.
4. Penalties for not filing of withholding statement are very much on the higher side. Exemption should be
given to neither tax payers who do not have any business nor any payments on which tax has to be
deducted.

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5. Upload income tax return within time and preferably after the end of financial year to facilitate tax
payers return are upload late overloading the server and problem for tax payer to file the return as
number of times due to login in of number of filers the server hang or times out.
6. A person filing his return should instantly be updated on the Active Tax payer list and all other
departments of the government as recent instance shows that a person filing his return on time is not
updated on the excise and taxation department when he applies for car registration.
7. A very genuine problem when two new people form a private limited company NTN of the company
is not granted to them because they do not have NTN themselves they cannot apply for NTN as
salary employees because the company does not have any NTN. How to deal with this issue calling
PRAL you never get a solution as they are unaware of the situation. Now if the director does not have
NTN company does not get NTN. Representatives at PRAL suggest applying for NTN of director in
other category and when company gets the NTN apply for change in particulars of the director.
8. The request for revision of income tax return is required to be approved by the Commissioner of
Income tax introduced vide Finance Act 2013 having prospective impact but if a person wants to
revise his return for tax year before 2013 that is also not being approved. The amendment is being
used against a tax payer and he is dependent on the Commissioner for any change even if he falls
under final tax regime where tax paid is treated as full and final settlement. Please withdraw the
amendment.
9. Introduce a system of allowing extension to taxpayer by charging a fee from the taxpayer introducing
slab rate system for extension sought by tax payer.
10. Provide immunity from audit to tax payer whose pay 25% more income tax from last year tax liability.
11. Allow rebate to individuals against tax liability who invest in any mode of Islamic Financing to promote
Islamic Financing facilities in the country.
12. Allow rebate to individuals purchasing locally assembled cars against their income tax liability to
promote local industry.
Sales Tax
1. Biggest problem is getting sales tax registration as the system is centralized and all handling is done
from CRO Islamabad with PRAL acting as intermediary between the applicant and CRO.
2. The online system of registration is designed in such a way that an applicant cannot upload
documents as using and setting for active X is not easy and user friendly.
3. It has become very much hard for people to obtain registration especially for STRN. The system of
online attaching documents is designed in such a way so that applicant is dependent on PRAL
officers at RTO to submit their documents.
4. In the past Securities and Exchange Commission of Pakistan (SECP) introduced the online filing facility
and complete registration process is done online. SECP allows to attached PDF files which is very
much convenient and user friendly. In case of any objection or observation are directly sent to the
applicant and he is allowed to attach the documents himself instead of going to SECP for uploading
the document.

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5. In case of PRAL the applicant gets objections through email he has to give the documents at PRAL
office for uploading the documents without any acknowledgement by the PRAL officer. Now if the
officer does not upload the documents what can the applicant do as he has no acknowledgement
for submission of the documents?
Problems that an applicant normally face
1. In case of commercial importer other than a place owned by a tax payer or rented place the CRO
ask for ownership documents of the person whose premises is being used if a tax payer provides
evidence of ownership in the form of property tax paid or CVT challan the application is rejected. If
you sent an email to the esupport@pral.com.pk they reject your application and the reason they give
is that it is cancelled by the system. There is no audit trail for the applicant to check what the status of
the application is. Applicant should be allowed to upload document themselves instead of going to
PRAL. In case of objections a window should open and applicant can resolve the query himself
directly.
2. In case of manufacturing units applying for sales tax registration In Karachi K-electric provides only
one electricity meter on one sub-lease. If person has one acre plot in any industrial area and he gives
it on rent to four tenants only one of the tenant will get sales tax registration and the others will be
rejected as they do not own an electricity meter now what can a tax payer do as it is inherent
problem as only one meter is allowed on one sub lease and sub meter is not accepted by CRO for
sales tax registration.
The suggestions for government to enhance its revenue are
1. Grant immediate sales tax registration to Commercial Importer as commercial importer pay complete
sales tax at the import stage along with value addition tax. They are not allowed any refund so what’s
the loss to the government.
2. Grant immediate registration to all sales tax applicants who are not allowed any refund or input
against their input like CNG station.
3. Charge fee for registration in sales tax category wise.
4. For manufacturing dis allow the input whose evidence is not produced at the time of registration like
electricity , telephone etc. (Manufacturing units may run on alternative energy) at least grant
registration to move forward with revenue generation rejecting applications only discourages a tax
payer and promotes the culture of corruption in FBR.
5. The revision of sales tax return for a tax period is very cumbersome exercise and all depends on the
approval by Commissioner of Inland Revenue services. If a taxpayer applies for revision charges a
nominal fee and allow him revision of the return.
Corporate Law (Companies Ordinance 1984)
1. Make the SECP e-services website compatible will all latest browsers and operating system and do not
restrict it to Internet explorer only.
2. Please amend the COMPANIES (APPOINTMENT OF LEGAL ADVISERS) ACT, 1974 and allow advocates
to represent more than 3 companies delete the limit of 3 companies and also increase the
remuneration from Rs.1,200 to at least Rs.2,500/- per month.

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Covering Articles
Forensic Accounting—Past, Present, & Future
By Michael Brown CPA, CFE
The field of Forensic Accounting continues to grow rapidly from its origins in ancient Greek, Egyptian,
and Roman times as the gatekeepers over asset (e.g., gold, grain, and livestock) control and fraud
detection. Modern era forensic accounting has its roots in an 1817 Canadian court case Meyer v
Sefton, which is the earliest cited example of an accountant acting as an expert witness in North
America. Forensic Accountants (FAs) also owe a special thanks to Sherlock Holmes, the fictional
detective of the late 19th and early 20th century who helped put “deductive reasoning” on the map.
It wasn’t until 1946 that the term Forensic Accounting was coined by Maurice Peloubet, a leading 20th
century accountant in his article “Forensic Accounting—It’s Place in Today’s Economy.”
There is a great misconception today of what Forensic Accountants (FAs) actually do. Let’s first clarify
some things: we do not dig up dead people’s tax returns, and we do not make great lovers just
because we are good with figures. Though accountants have long been the butt of bean-counter
jokes, Forensic Accountants (FAs) get a lot of respect because of their perceived roles in the
numerous publicized financial scandals of the last forty years. In fact, the modern day Forensic
Accountant (FA) is part accountant, part lawyer, and part investigator (if not also part psychologist).
History of Forensic Accounting
A little more history: the word forensic is a derivative of the Latin word forensic, meaning belonging to
the forum, which was ancient Rome’s site for public debate. Forensic means relating to the use of
science or technology in the investigation and establishment of facts or evidence in a court of law.
Thus, forensic testimony or forensic medicine is used to assist the court or the attorneys in resolution of
legal issues, including assistance at trial. The integration of accounting, auditing, and investigative skills
yields the specialty known as Forensic Accounting. Modern day Forensic Accounting can be defined
as using financial knowledge and skill in conjunction with investigative techniques to resolve a matter
in a legally defensible manner exacting to the specifications of the law.
Forensic Accountants (FAs) are hired to investigate, analyze, interpret, summarize, and present
complex financial information. Normally, accountants, especially Chartered Certified Forensic
Accountants (CCFAs) act like watchdogs; a forensic accountant is trained to act more like an FBI
Special Agent with a FA designation. We are taught to look beyond the numbers and to assist with the
protection and/or recovery of assets. Personal attributes of a Forensic Accountant (FA) include
curiosity, persistence, creativity, organizational skills, self-confidence, and sound professional
judgment.
Modern Day Scandals
As the business world has grown and become more complex, including the prevalence of accrual
basis accounting, financial reporting issues became a top priority and interest in determining true
financial results has become even more paramount. The 1970s witnessed massive financial disclosure
problems at companies such as Lockheed and Penn Central, which created a furor that blamed
financial accounting irregularities on cozy relationships between corporate boards and independent

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auditors. The 1980s gave us massive problems with, among others, the savings and loan industry, E.F.
Hutton, and Drexel Burnham Lambert, Inc. The 1990s saw an increase in the speed of financial
communications, putting significant pressure on companies and individuals for the content and timing
of financial information. The 1990’s also brought about a tremendous increase in the availability of
twenty-four hour news, bringing the courtroom (including the bizarre low speed car chase of O.J.
Simpson) to the viewing public. Recently, major scandals in such companies as Enron, WorldCom,
HealthSouth, and Adelphia reminded us that fraudsters have not quit and gone home.
Some of the scandals cited above involved issues such as, by way of example and not exhaustion,
insider trading, overstating restructuring charges (creating a buffer with which to meet future Wall
Street earnings estimates), using acquisition accounting to overstate future earnings, over-accruing
charges such as loan losses or sales returns in good times (to use to smooth earnings in bad times),
recognizing sales before completion, and deferring expenses to improve reported results. The
watchdogs responsible for this governance failed, and the Forensic Accountants (FAs) were called in.
The U.S. House and Senate passed the Sarbanes-Oxley Act in 2002, which required public companies
to have a financially literate Audit Committee composed from their Board of Directors, and
established enhanced auditing, quality control, and independence standards.
M&K Forensic Services
Forensic work is not only practiced on Wall Street and comprised of scandals screaming through
headlined national news articles. Investigative accounting performed by M&K encompass services
such as shareholder and partner disputes, asset tracing and recovery, damage and lost profit
analyses, reconstruction of books and records, bankruptcy proceedings, professional liability claims,
matrimonial disputes, tax investigation and dispute resolution, and other types of litigation consulting.
The objectives of a forensic assignment take the form of preparing findings regarding the truthfulness
of representations, the analysis of specific financial transactions or account balances, and analyzing
disclosure issues against accounting and auditing standards and principles. The engagements are
often non-recurring, the scope is specific, and the objective is to affix responsibility. Frequently, the
context of the relationship is adversarial. In the course of performing this type of work, Forensic
Accountants (FAs) may gain access to documentary evidence through subpoenas, search warrants,
and consent of the parties.
Documentary Evidence
Sometimes it is difficult to immediately ascertain the relevance of documents, so it is essential for
documents to be controlled, organized, and updated (much like maintaining a database system).
Documentary evidence has always been the cornerstone in litigation matters. When collecting
evidence, we obtain original documents when feasible, make working copies for review, and store
the originals in a segregated and protected manner. We do not touch originals any more than
necessary. Initially, it is important to avoid getting bogged down in details so as not to lose sight of the
big picture: Documents do not make cases, but they provide significant corroborative evidence for
testifying witnesses, as well as serve to impeach the credibility of witnesses, if required.

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Organizational Techniques
Sound organizational techniques for managing documents include classifying evidence by witness,
transaction, chronological order, and/or key document files. If feasible, the database should be
implemented early in the case. We suggest you commence chronologies as soon as possible to
establish a chain of events leading to the ultimate findings of liability and damages, as well as
identifying the proof required to make the case. It should be noted that making chronologies too
comprehensive may defeat the purpose and hinder the efficiency and progress of the investigation.
Update To Do lists frequently, maintain a cumulative record of actions performed, and document
short and long-term objectives. The ability to summarize significant items and events in a succinct
manner will aid in the overall efficiency of the examination, as well as enhance communication and
persuasion. It is imperative to master these core competencies in order to provide a complete and
comprehensive analysis.
Electronic Detection
Electronic detection has broadened the potential for legal discovery and has become a popular
mechanism to locate, secure and search for documentary evidence. Most documents today are
created using electronic media encompassing word processing, electronic spreadsheets, emails, and
proprietary computer applications. The nature of digital data makes it well-suited to investigation. The
legal community has caught on quickly to the advantages of electronic discovery. It is now common
to have lawyers seek the production of entire computer drives where necessary, as well as cell
phones, personal digital devices, etc. Once data is collected, you will likely require the use of
electronic evidence data discovery software to aid in, among other tasks, classifying, analyzing,
reviewing, and presenting the documentation and data obtained. No matter how big or small the
matter, electronic evidence may often be organized and presented in a lead/summary spreadsheet
for ease of communication and forcefulness of persuasion. There are a number of excellent products
on the market to assist in reviewing documents, annotating, redacting, integrating, bates numbering,
and producing the data for other relevant parties.
Conclusion
As you can readily see, over time the definition of Forensic Accounting has gradually changed from
merely preventing theft, to testifying in court, to the creation of the modern day investigative
accountant. History tends to repeat itself and the need to effectively and efficiently respond to
scandals and disputes will continue to surely grow in the 21st century. Have fun in your quest for truth,
justice, and the forensic way! Though the truth may not set you or your client free, it may set back your
adversary for a tidy sum.
Forensic Accountant (FA) Knowledge, Skills and Abilities
By Majid Latif Bhatti-AFA
Forensic Accountant (FA) is different from Fraud examiner and Financial/traditional auditors. Timing,
Scope, opinion and methodology of conducting audit are different. The Traditional Accountant looks
at the number and Forensic Accountant (FA) is looks behind the numbers. The Forensic Accountant’s

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(FA’s) professional goal is to whether the allegation are responsible based on the financial evidence
and, if so, the financial impact of the allegation. Many of the aspects of Forensic Accountant (FA) fall
outside the traditional education, training, and experience of auditors and accountant. The following
skills, abilities, and/or knowledge are necessary to serve as an effective Forensic Accountant (FA).
a. Ability to identify fraud with minimal initial information.
Many times, the fraud investigation begins with minimal knowledge of the specific of a potential
fraud.
b. Interviewing
Throughout the course of seeking evidence and information, the Forensic accountant (FA) becomes
involved in interviewing.
c. Mindset
One of the critical success factors of Forensic Accountant (FA), and one of the hardest to define of
measure, is mid set. A successful Forensic Accountant (FA) has certain mind-set that includes several
abilities. He or she is able to think like crook. This attribute is basically counter to the average auditor
who has lived a life with integrity and believes strongly in honesty.
d. Knowledge of evidence
The Forensic Accountant (FA) must understand what constitutes evidence, the meaning of the “best”
and “primary” evidence, and form that various accounting summaries can take to consolidate the
financial evidence in a way that acceptable to the court. It is imperative that a Forensic Accountant
(FA) understand the rules of evidence in the court and how to conduct the investigation from the
beginning as if all evidence will make it to a court of law. If these rules are ignored, evidence could be
compromised and found inadmissible if it does get to court.
e. Presentation of Finding
The Forensic Accountant (FA) must have the ability to clearly communicate the finding resulting from
the investigation in a fashion understandable to the layperson. The presentation can be oral or written
and include the appropriate demonstrative aids. The role of Forensic Accountant (FA) in witness box is
the final test of finding in public forum. By its nature, however, accounting and financial information is
difficult for the averages person to comprehend. Therefore, the Forensic Accountant (FA) as an expert
witness must have above-average communication skill in distilling financial information in a manner
that the average citizen can understand, comprehend, and assess to reach a sound conclusion.
f. Knowledge of Investigative techniques
When the issues have been identified, it is imperative that further information and documentation be
acquired to obtain further evidence to assist in either supporting or refuting the allegation or claim. It is
a question of knowing not only where the relevant financial documentation exist but also the
intricacies of GAAP, financial statement disclosure, and system of internal control, and being aware of
the human element involved in fraud.

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g. Investigative Skills
Forensic Accountant (FA) usually apply investigative skills at the appropriate time during the course of
their investigation. For example, in dealing with criminals matters, the primary concern is to develop
evidence around motive, opportunities, and benefits. Of equal concern is that the benefit of doubt is
given to the other side to ensure that proper interpretations are given to the transactions. Other
concerns, such as the question of method of operation and the issue of economic risk, must also be
addressed. Similarly, investigative skills are needed in litigation support. The Forensic Accountant (FA)
must ensure that: a proper foundation exists for the calculation of the future lost profits; all assumptions
incorporated in to work product are recognized and identified; he understands his limitations as an
expert; and the issue of mitigation of damages is considered.
h. Investigating mentality
Along with their accounting knowledge, Forensic Accountant (FA) develop and investigative
mentality that allow them to go beyond the bounds set out in either GAAP or GAAS. The following
three tenets in Forensic Accounting driven by the necessity to prove intent in court in order to prove
there was a fraud. The investigative mentality develop in the search for the best evidence, for
competent and sufficient evidence, for forensic evidence, for example:
 Scope in not restricted as result of materiality, often especially in the early stage of a
management/employee fraud, the transactions are small and accordingly are most easily conveyed
to the court to show a pattern of conduct that is deceitful. As a dollar value of the transactions and
their complexity increase, the ability to convey the essence of the transaction is hampered, and the
Forensic Accountant’s (FA’s) task is made more difficult.
 For the most part, the use of sampling is not acceptable in establishing evidence.
 A critical element of corporate investigations in particular is the assumption of integrity by the
management, both personal statements and its documentation of financial transaction and events.
The investigative mentality is best develop by continue experience as a forensic witness. It is through
this process that the Forensic Accountant’s (FA’s) eye are opened, because counsel for the opposing
side raises and possibilities the accountant may not have considered up to that point. Repeated
experience as a forensic witness creates a grate awareness of what is relevant and must be
considered, so the expert witness can present financial evidence independently and objectively to
reflect the reality of the situation.
i. Identification of financial issues
When Forensic Accountants (FAs) are presented with a situation generated by the complaint,
allegation, rumor, inquiry, or statement of claim, it is important that clearly identify the financial issued
significant to the matter quickly. They base their decision on experience and knowledge, and any
resulting recommendation must reflect both common sense and business reality. For example, if
documents are needed from a foreign jurisdiction, although the most obvious recommendation
would be to obtain these records, it is usually not practical to do so. Other alternatives must be
considered.

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j. Interpretation of financial information
It is usual for a transaction or a series of event to have only one interpretation .The Forensic
Accountant (FA) must be extremely conscious of a natural bias that can exist in the interpretation
process. It is important that transactions be viewed form all aspects to ensure that the ultimate
interpretation of the available information fits with common sense and the test of business reality. A
proper interpretation of information can be assured only when one has looked behind and beyond
the transaction in question without any scope limitations. In particulars, a Forensic Accountant (FA)
who is called as an expert witness must be aware of alternative accounting or financial formulas,
rules, and interpretations.
Importance of Forensic Accounting in Countries of Business
Opacity: A Means to End Fraud
By Barrister Umer Abdullah–FFA, Member Executive Council IFAP
Introduction
When hearing аbουt Enron, Conrad Black, Kimberly Rogers οr WorldCom, one wіll dеfіnіtеlу thіnk
аbουt theft, bribery аnd fraud. The key word here іѕ “fraud”; whеrе many studies hаνе bееn
conducted аbουt thіѕ subject. What іѕ fraud аnd hοw іѕ іt detected аnd dealt wіth, аnd hοw іѕ іt
possible tο bе protected frοm іt? Such qυеѕtіοnѕ аnd thеіr аnѕwеrѕ аrе key terms іn thе domain οf
forensic accounting, ѕіnсе fraud hаѕ played a major role іn thе existence οf accounting, hence
forensic accounting. Understanding fraud іѕ nесеѕѕаrу fοr those whο want tο understand whаt
Forensic Accounting іѕ, hοw іt hаѕ come іntο thе system, hοw іt exactly deals wіth thе issues wе face,
аnd tο whаt degree іt hаѕ hеlреd іn сеrtаіn issues οf fraud, οr even іn strengthening thе accounting
system іn general.
Research hаѕ bееn conducted οn fraud аnd hаѕ bееn given different definitions, аll whісh come іn
line wіth one another. Other researches wеrе done tο highlight thе job οf internal controls іn
minimizing thе chance οf theft οr misappropriation. Hοwеνеr, little research wаѕ done οn forensic
accounting diffusion аnd proper implementation.
Fraud activities hаνе bееn manipulating, stealing, аnd destroying many businesses аnd industries. Tο
face such harmful trends, fraud examination hаѕ bееn сrеаtеd; аnd grеаt efforts hаνе bееn exerted
tο detect, investigate, аnd prevent similar acts frοm encountering. Thеѕе preventions hаνе shed lights
οn an nеw concept аnd practice known аѕ “Forensic Accounting”, whісh hаѕ become a common
notion tο fight against fraud аnd similar unethical acts. No matter hοw much fraud activities increase,
thеrе mυѕt always bе аn anti-fraud scheme tο shield against іt. Tο provide availability οf balance аnd
protection іѕ thе main reason whу Forensic Accounting existed.
Nonetheless, thе legal, supervisory, аnd regulatory systems οf financially corrupted countries сrеаtе
significant opportunities аnd tools fοr thе laundering аnd protection οf thе proceeds οf crime, аnd
allow criminals whο mаkе υѕе οf those systems tο significantly increase thеіr chances tο evade
effective investigation οr punishment. A country’s commitment tο bank secrecy аnd thе absence οf
сеrtаіn key supervisory аnd enforcement mechanisms aimed аt preventing аnd detecting money-

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laundering increase thе possibility that transactions involving thе country’s entities аnd accounts wіll
bе used fοr illegal purposes.
Sіnсе one οf thе mοѕt powerful tools used today іѕ forensic accounting, іt іѕ advantageous tο study іtѕ
possible implementation іn countries wіth business opacity, аnd tο probe thе essential methods
needed tο establish thе implementation οf thіѕ procedure іn different sectors аnd аt many levels.
Therefore, іn order tο achieve thеѕе objectives, thеrе іѕ a need tο investigate thе following research
qυеѕtіοn: “Whаt аrе thе conditions οf possibility fοr implementing Forensic Accounting іn a country
characterized by аn opaque financial sector?” More specifically, thіѕ research hаѕ two objectives:-
i. Tο identify thе best way tο highlight thе importance οf using forensic accounting activity іn order tο
clear thе roads οf thе future οf business activities; bу learning frοm past mistakes such аѕ Enron аnd
WorldCom аnd bу using οthеr cases οf financial fraud similar tο thе international ones.
ii. Tο identify thе way tο diffuse аnd implement forensic accounting аѕ a vital tool thаt, whеn used
professionally, саn greatly hеlр fight against fraud activity.
Moreover, thе gap іѕ that forensic accounting іѕ nοt known іn many countries. Forensic Accounting іѕ
nοt ѕο much spread іn thе world, іt іѕ οnlу known іn USA аnd ѕοmе developed nations. Thе study іѕ
contributed іn finding thе best way tο implement Forensic Accounting especially wіth thе existing
gap, wіth thе objective οf covering іt mainly bесаυѕе іt іѕ ѕο hard tο implement forensic accounting
especially thаt іt іѕ nοt diffused worldwide. Thе objective іѕ tο arrive аt аn аnѕwеr tο thе research
qυеѕtіοn аnd tο ѕhοw hοw forensic accounting саn bе implemented іn thе countries characterized
bу аn opaque financial sector; thе overall aim іѕ tο achieve thіѕ goal.
Literature Review
Different research hаѕ bееn conducted tο define fraud including thе types οf fraud such аѕ thаt οf
Gilbert whο defined “fraud” аѕ: “аn act using deceit such аѕ intentional distortion οf thе truth οf
misrepresentation οr concealment οf a material fact tο gain аn unfair advantage over another іn
order tο secure something οf value οr deprive another οf a right. Fraud іѕ grounds fοr setting aside a
transaction аt thе option οf thе party prejudiced bу іt οr fοr recovery οf dаmаgеѕ.”
Farrell & Healy revealed аbουt fraud thаt іѕ increasing worldwide аnd іѕ becoming more costly tο
businesses еνеrу year аѕ fraudster’s υѕе intricate methods tο commit аnd cover thеіr criminal acts.
Consequences οf fraud саn vary frοm public morality corrosion, weakened faith іn thе organization,
tο loss іn market valuation аnd confidence οf stakeholders.
Wіth thе various definitions attributed tο fraud, οthеr research done highlighted thе importance οf
having internal control thаt wουld limit thе continuous fraudulent behaviors. External audits аrе аlѕο
undertaken tο ensure thаt internally instituted fraud control mechanisms аrе adequate іn scope,
effective іn application аnd complied wіth. Hοwеνеr, іt іѕ quite unfortunate tο note thаt thе
complexity οf thе human brain аnd іtѕ dynamic method οf reasoning hаνе tremendously diversified
present-day scams away frοm thе hitherto known modes οf fraudulent activities thаt now render trυе
corporate governance ideals аlmοѕt unworkable.
It іѕ thus worth mentioning thаt іn аn attempt tο prevent fraud, thе Auditing Standard Board (ASB) іn
2002 issued thе Statements οf Auditing Standard 99 (SAS 99) whісh introduced a “Fraud Triangle”.
Fraud Triangle indicates thаt thе probability οf committing fraud іѕ high іn situations when

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managements οr οthеr employees hаνе incentive οr аrе under financial pressure, thе conditions thаt
provide opportunities fοr management οr employees tο commit fraud exists, οr thе ethical values οr
characteristics thаt cause management οr employees tο rationalize thе fraudulent act exists.
Fraud саn bе detected аnd investigated tο prevent thе possible dаmаgеѕ thе activity саn cause. Sο
whаt advice wουld a Forensic Accountant give tο a company suffering frοm fraud activity? A
professional саn list four things thаt саn bе done tο mitigate thе occurrence οf fraud аnd thеу
include fraud prevention, fraud detection, fraud investigation аnd follow-up legal action οr resolution.
Thе anti-fraud program οf аnу company ѕhουld focus οn аll four.
Thе past two decades hаνе witnessed significant changes іn thе business environment including
globalization, technological advances аnd now wіth reported high-profile financial scandals, ways tο
improve public trust аnd investor confidence іn financial reports. Emerging regulatory, social,
economic, ethical, аnd legal challenges facing thе world οf businesses contribute tο аn increasing
demand fοr Forensic Accounting thаt encourages accounting.
A study done assures thаt thе demand fοr аn interest іn Forensic Accounting wіll continue tο increase
іn thе future аnd more accounting programs аrе being рlаnnеd tο provide Forensic Accounting
education, Thе business community аnd thе accounting profession аrе deeply concerned wіth
reported financial аnd accounting scandals. Hοwеνеr, few tο none research wеrе conducted tο
study thе proper diffusion аnd implementation οf forensic accounting іn thе countries οf opaque
business practices.
Research Framework
Many factors іn a country’s business mechanism contribute tο thе fraudulent behavior іn thе financial
sectors. Fοr instance, being considered аѕ a tax haven country wіth banking secrecy regulations,
money laundry activities аnd low corporate governance, fraudulent activities become easy tο
commit. All οf thіѕ results іn a national wide corruption triggering thе need tο introduce Forensic
Accounting. Hοwеνеr, due tο thе opaque financial nature οf thе country аnd prior tο thе introduction
οf Forensic Accounting, major changes hаѕ tο bе done tο prepare thе country fοr thе diffusion аnd
implementation οf Forensic Accounting οn both thе macro аnd micro levels discussed earlier.
Thе causes fοr corruption οf whісh several exist іn mοѕt corrupted countries аѕ іt wаѕ previously noted,
аrе attributed tο thе absence οf dysfunctional key anti-corruption institutions, thе lack οf awareness
οn corruption, іtѕ causes, consequences аnd thе weak legal framework аnd thе absence οf proper
legal implementation mechanisms. Adding tο thеѕе аrе thе confessional аnd feudal mentalities,
inefficiency οf supervisory bodies, low salaries οf public sector employees, political influences οn thе
judiciary, thе absence οf civic education, foreign interference іn domestic affairs, selective οr lenient
enforcement οf thе law, аnd thе inefficient media. In οthеr words, thе factors contributing tο thе
fraudulent business practices саn bе categorized under four notion; culture, education,
management аnd government аnd legislation. Whether іt іѕ thе lack οf awareness regarding Forensic
Accounting (culture аnd education) аnd thе advantages іt саn bring, corrupt practices οf
management аnd thе inefficiency οf supervisory board οr absence οf a law thаt enforces Forensic
Accounting (government аnd legislation), thе four categories ѕhουld bе tackled tο рυt аn еnd tο thе
continuous fraudulent acts.
Fοr instance, thе lack οf whistle-blower protection laws prevented citizens frοm reporting οn political
corruption іn thе legislature οr οthеr sections οf government. In thе private аnd public sectors, thе lack

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οf аn access tο information law, a whistle-blowers’ protection law, conflict οf interest law аnd οthеr
disclosure аnd transparency mechanisms іѕ a major obstacle tο integrity.
Results аnd Discussion
Thе literature review ехрlаіnеd thе different meaning οf fraud, forensic accounting, аnd thе
characteristics οf аn opaque business country аnd hοw саn Forensic Accounting hеlр іn limiting
fraudulent behavior thаt іѕ mаkіng іt easy fοr money launderers tο continue thеіr illegitimate practices.
Furthermore, Forensic Accounting саn serve аѕ a liberator fοr countries wіth opaque business
practices such Luxembourg, Austria, Lebanon аnd many others, putting аn еnd tο аll thе business
corruption taking рlасе аt thе different sectors οf thе country, bе іt government οr аnу οthеr private
οr public sector. Hοwеνеr, tο reap thе best results οf Forensic Accounting a proper diffusion аnd
implementation process mυѕt take рlасе thаt requires thе work οf thе parties іn a country, bе іt
government itself, people’s view аnd awareness οf Forensic Accounting οn thе cultural basis, thе
companies thаt mυѕt require frοm іtѕ employees tο bе aware οf FA аnd tο еmрlοу Forensic
Accountants (FAs) аѕ well аnd universities аnd οthеr academic institutions thаt bear οn іtѕ ability tο
teach Forensic Accounting.
Countries wіth opaque business practices tend tο share similar characteristics thаt justify thе
prevalence οf fraudulent activities. Aѕ іt wаѕ mentioned earlier, thе factors thаt contribute tο thе
fraudulent behavior іn thе financial sector саn bе categorized under four categories; culture,
government аnd legislation (macro-level), management, аnd education (micro-level).
Thе importance οf adopting forensic accounting іѕ thus highlighted, hοwеνеr, thе process οf
introduction іѕ nοt аn οn thе spot process. On thе contrary, іt requires time аnd effort іn terms οf
shifting cultural awareness tο realize thе importance οf Forensic Accounting. Thаt being ѕаіd, thе
government аѕ a primary facilitator аnd thе educational systems ѕhουld take раrt іn сrеаtіng
awareness аnd shifting cultural mentality towards Forensic Accounting. Managements mυѕt аlѕο
educate employees οn Forensic Accounting аnd tο adopt іt аѕ раrt οf іtѕ system.
Forensic Accounting іn Culture
The Institute of Forensic Accountants of Pakistan (IFAP) conducted a study tο examine thе
acceptance level οf thе public іn Pakistan regarding forensic accounting. Thе study revealed thаt
problems arise frοm thе fact thаt Forensic Accounting service іѕ still nеw tο mοѕt οf thе businesses аnd
even tο thе public іn Pakistan. Thіѕ leads tο confusion аmοng thе public аnd ѕοmе mау even bе
unaware οf thе existence οf thе system. Therefore, thе importance οf thе service іѕ disregarded (goes
unnoticed).
Two variables affect thе acceptance levels οf thе public fοr thе practice οf forensic accounting аѕ
thе main tool іn investigating a company’s account tο detect fraud. Thе variables include thе public’s
understanding level οn forensic accounting functions аnd thе perception regarding thе
implementation οf forensic accounting іn thе investigation. Thе understanding level οf thе public аnd
thе functioning οf forensic accounting wіll determine whether thе public іn Pakistan wіll accept іt аѕ
thе main tool іn investigating a company’s account іn case οf fraud. Thе perception οf thе public οn
thе implementation οf forensic accounting іn thе investigation οf a company’s financial statement
аlѕο determines thе acceptance level οf forensic accounting іn thе country.

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Thіѕ study shows thе importance οf two basic components thаt ѕhουld bе available tο сrеаtе a
ground fοr forensic accounting implementation; thеѕе elements аrе awareness аnd knowledge οf
forensic accounting аѕ аn anti-fraud tool аnd thе perception οf implementing forensic accounting,
whereby thеѕе two elements аrе considered аѕ major factors fοr thе level οf acceptance οf such
tool.
In οthеr words, іf a change іѕ mаdе іn cultures οf financially corrupted аnd opaque business
practices, іt wіll result іn changes іn thе people’s practices, norms, аnd values, hence thеіr behaviors;
аt thе еnd, іt wіll сrеаtе аn awareness аnd knowledge аbουt fraud аnd hοw tο fight іt аnd thе tools
thаt сουld bе used tο inhibit іt. In addition, thіѕ process similarly applies tο forensic accounting.
Forensic Accounting іn Education:
Although thеrе іѕ a growing demand fοr fraud аnd forensic accounting globally, much οf іtѕ
advancement аnd adoption іn thе accounting curriculum іn thе universities аrе taking рlасе іn thе
developed economies. Thе adoption οf forensic accounting іntο thе universities accounting
curriculum hаѕ an hυgе potential tο enhance students’ skills аnd competencies аnd сουld bе used аѕ
a veritable resource frοm whісh fraud сουld bе mitigated.
Many cases reveal thаt those who commit fraud аrе nοt necessarily geniuses οr hаνе a creative
mind. Thеу аrе typical accountants’ whο copy fraud schemes frοm thе past. Therefore, thе
importance οf thе programs fοr fraud prevention/detection education аnd training іѕ emphasized,
аnd thе qυеѕtіοn іѕ raised аbουt whether thе business school аt universities offers enough programs tο
educate accounting аnd auditing professionals fοr fraud prevention/detection.
Forensic Accounting іѕ nοt οnlу restricted tο university programs, thеrе іѕ аlѕο a specialized certificate
thаt іѕ concerned wіth forensic accounting, whісh іѕ thе Diploma іn Investigative & Forensic
Accounting (DIFA) Program offered by the Institute of Forensic Accountants of Pakistan (IFAP). DIFA іѕ
designed tο provide a broad range οf knowledge аnd skills tο carry out financial investigations. Thіѕ
range includes accounting, audit, income tax knowledge, fraud knowledge, knowledge οf law аnd
rules οf evidence, аn investigative mentality аnd critical skepticism, understanding οf psychology аnd
motivation, аnd strong communication skills.
Thе DIFA Program focuses οn knowledge аnd skills thаt саn bе best taught аnd examined іn person:
such аѕ handling a face-tο-face meeting wіth a client, interviewing skills, аnd testifying іn court аѕ аn
expert witness.
In conclusion, thе base οf forensic accounting іѕ a knowledge іn accounting, auditing, internal
controls, risk assessment аnd fraud detection, a basic understanding οf thе legal environment ѕіnсе
thе legal environment іѕ essential іn order tο support thе litigation, acknowledging thеіr competence,
obtaining a diploma specialized іn forensic accounting whісh сουld bе given bу educational
institutions thаt grant certifications such аѕ DIFA. Thеѕе formal certificates саn deepen thе students’
knowledge аnd sharpen thеіr skills іn forensic accounting.
Forensic Accounting іn Management
Poor corporate governance wіll lead a сеrtаіn individual οr a group οf people wіth thе same interest
tο act upon іt tο commit fraudulent activities іn thе company. Thіѕ саn bе reinforced bу thе fact thаt
top-level management ѕhουld follow thе policies οf thе firm, whісh wіll hеlр thе company tο perform
better.

May 2015
23
Even іf a company applies gοοd internal control systems, thе management wіll still bе thе major
factor influencing thе implementation. Companies ѕhουld look towards nеw аррrοасhеѕ rаthеr thаn
follow thе traditional аррrοасh, аѕ forensic accounting mау bе thе next best alternative іn resolving
problems.
Loebbecke аnd Willingham conclude thаt thе probability οf material financial misstatements due tο
fraud іѕ a function οf three factors. Thе factors include thе degree tο whісh those іn authority іn аn
entity hаνе reason tο commit management fraud, thе degree tο whісh conditions allow managerial
fraud tο bе committed, аnd thе extent tο whісh those іn authority hаνе comply tο ethical values thаt
wουld facilitate fraud commitment. Thеѕе three factors ѕhοw thаt thе management сουld simply
commit fraudulent activities ѕіnсе thе public including shareholders аrе unaware οf thе
countermeasure tο bе taken tο prevent financial crimes. It argues thаt thеrе ѕhουld bе a set οf
guidelines сrеаtеd fοr thе public аnd management tο ensure thаt actions ѕhουld bе taken whеn
financial fraudulent activities occur.
Thе main problem οr issue іѕ thе constant misunderstanding οf thе role аnd responsibility οf thе auditor
аѕ thе public expects auditors’ tο detect financial asset misstatement οr even fraudulent activities
frοm thе financial statements. Thіѕ hаѕ bееn thе long perception οf whаt аn auditor’s responsibilities
аrе. Therefore, thіѕ perception ѕhουld bе regenerated аnd corrected. Auditors’ wіth forensic
accounting background wουld bе allotted аѕ Forensic Accountants (FAs) specifically tο investigate
thе company’s financial statement. Thеѕе people wουld bе responsible fοr detecting financial
misstatements. Wіth thе proper education given tο thе public, thіѕ perception οf auditors’ сουld bе
enhanced.
Forensic Accounting іn Government аnd Legislation:
Forensic accounting hаѕ played a major role іn thе improvement οf detection, investigation, аnd
representation οf аll cases аt hand іn law courts іn judicial formalities. If companies wish tο utilize
information regarding a fraudulent activity іn a court of law, thеу mау асqυіrе thе skills οf Forensic
Accountant (FA) bесаυѕе thеу саn handle investigations іn a way thаt іѕ completely acceptable іn a
court οf law.
Forensic accounting іѕ thе specialty practice area οf accountancy thаt dеѕсrіbеѕ engagements
resulting frοm actual οr anticipated disputes οr litigation. “Forensic” means “suitable fοr υѕе іn a court
οf law,” аnd іt іѕ tο thаt standard аnd potential outcome thаt Forensic Accountants (FAs) generally
hаνе tο work. Forensic Accountants (FAs) οftеn hаνе tο give expert evidence аt thе eventual trial.
Forensic accounting ѕhουld bе раrt οf criminal investigation, fοr thе matters relating tο financial
implications whеrе thе report οf Forensic Accountants (FAs) mυѕt bе considered аѕ evidence аnd
proof tο bе presented іn court trials.
Countries thаt established forensic accounting іn thеіr legal system, hаνе Forensic Accountants (FAs)
whο work wіth law enforcement аnd thе district attorney’s office. Jυѕt аѕ wіth οthеr types οf evidence,
thе prosecution obtains search warrants tο locate financial information аnd compel knowledgeable
people tο conduct οr hold interviews аbουt thе situation іn qυеѕtіοn.
Forensic Accountants (FAs) саn аlѕο provide litigation support. Attorneys engage thе services οf
Forensic Accountants (FAs) tο review existing documentation аnd testimony аnd ехрlаіn thеіr
financial significance. A Forensic Accountant (FA) саn tеll thе attorney аbουt thе additional

May 2015
24
information needed tο prove thе case аnd qυеѕtіοnѕ tο аѕk thе witnesses. Thе Forensic Accountant
(FA) mау аlѕο review dаmаgеd reports аnd state whether thе report wаѕ рυt together accurately
аnd supports thе case.
Government agencies lіkе thе NAB, FIA, IB and thе FBR, Internal Revenue Service hаνе Forensic
Accountants (FAs) tο investigate everything frοm money laundering аnd identity-theft-related fraud tο
arson fοr profit аnd tax evasion. Law firms’ οftеn υѕе Forensic Accountants (FAs) tο hеlр divorcees
uncover thеіr exes’ hidden assets.
Conclusion
Thіѕ study/article deals wіth thе importance οf having аn investigative system thаt wουld limit thе
frequent financial frauds аnd business opacity taking рlасе worldwide. In thіѕ context, forensic
accounting hаѕ bееn presented аѕ a tool tο inhibit thе prevailing frauds, money laundry аnd theft.
Hοwеνеr, tο thе reap better results forensic accounting mυѕt bе properly diffused аnd implemented
wіth a grеаt emphasis οn enhancing public (cultural) awareness, attributing a major role tο
managements, education аnd governments/legislation.
Fοr instance, thе public mау bе unaware οf thе significance οf forensic accounting аnd mау lack thе
needed knowledge fοr implementing іt іn investigative matters. Thus, thе need tο incorporate forensic
accounting іn thе culture οf financially corrupted countries іn order tο сrеаtе awareness οf forensic
accounting аѕ аn anti-fraud tool аnd thе means οf implementing іt іn thе investigation οf financial
statements. Thіѕ step саn bе handled bу government аnd legislation аѕ primary facilitators.
Furthermore, thе importance οf adopting forensic accounting іn thе universities’ accounting
curriculum іѕ highlighted especially thаt thе demand fοr іt іѕ increasing gradually. Such adoption hаѕ a
hυgе potential tο enhance students’ skills аnd competencies аnd сουld bе used аѕ a veritable
resource frοm whісh fraud сουld bе mitigated. Fresh graduates’ саn аѕ well attain a Diploma іn
Investigative & Forensic Accounting (DIFA) Program thаt provides a broad range οf knowledge аnd
skills tο carry out financial investigations.
Aѕ fοr managements, thеrе іѕ a need tο develop a proper corporate governance аnd internal control
systems іn whісh those οf high authority аrе held liable аnd responsible fοr аnу fraudulent аnd
unethical misbehavior.
In sum, іt іѕ somehow a long process tο ѕtаrt incorporating forensic accounting іn academic curricula.
A first step thаt needs tο bе established іѕ сrеаtіng awareness οn ethical issues. Aѕ іt wаѕ discussed,
cultural shifts towards thе importance οf Forensic Accounting іѕ mυѕt bе maintained, governments,
legislation, educational systems аѕ well аѕ managements ѕhουld share thеіr раrt іn thе diffusion аnd
implementation οf forensic accounting.

May 2015
25
Recommendations of Prevention Committee on Tax Evasion
(Part-II)
Point – 7 ELIMINATION OF EXEMPTION PROVIDED THROUGH SROS
Recommendations
The FBR is currently evaluating the impact of SRO’s on the revenue collection and their repercussions
of overall economy. The committee of the view there are numbers of SRO’s which are of beneficial
and provide benefit and promote local manufacturing by allowing concessionary Customs duty on
raw material and bringing new FDI in Pakistan. However there are large of number of SRO’s which are
being misused and duties/taxes are being avoided through them. We therefore, recommend that
those positive SROs should be made part of law, i.e. annual budget, and SRO culture should be
terminated w.e.f 1st July 2015.
Point – 8 INTRODUCTION OF FOOLPROOF SYSTEM TO COLLECT TAX FROM PROFESSIONALS AND
OTHERS
RECOMMENDATIONS
a. A very encouraging step in this direction was taken by the Government through the Finance Act, 2013
by insertion of Clause (ix) in Section 114 of the IT Ordinance for mandatory filing of returns by the
professionals. There is a big group of artists, dress designers, models, event managers, sales and
marketing people running different businesses from their homes or offices in the back streets or just
through the cell system, etc. are generating significant untaxed revenues. However, it is a bitter truth
that FBR has failed to make any significant progress in this direction to bring them into the tax net. All
professionals like Doctors, Lawyers, Engineers, Attorneys, Architects, Chartered Accountants, and
Consultants etc. misreporting their income be treated as criminal offenders which should constitute
criminal penalty. Amendments be made in respective law. All professionals be required to receive
their fee through banking channels i.e. cheques, pay orders, demand drafts etc.
b. It is therefore recommended that a separate zone in each city with required strength be created
responsible for the following:-
i. Ensure members of various professional bodies and known potential prospective taxpayers are
registered with tax department;
ii. Work in co-ordination with FBR IT team to generate profiles of such professionals and Others
Assets, Revenue and Expenditure information and match with information available through
filing of Return of Income and Wealth Statement; and
iii. To carry out sting operation by the officials of FBR or/and any other agency (3rd party) at
specialist clinics, big hotels, Expo centers, Building Control Authorities for Architects, Courts for
lawyers or at their business premises in the big cities to check their receipts. Obtain data of
foreign bank accounts of professionals to investigate whether any fee related to services in
extended in Pakistan are received/deposited in such accounts. This action will create a great
deterrence for huge evasion of taxes in this area.

May 2015
26
Point – 9: Admissibility of Input Sales Tax
RECOMMENDATIONS
a. Introduction of rational GST at all stages and elimination of refunds. It has been advocated that single
stage sales tax at a lower rate may be imposed without any claim of refund in place of present GST in
value added mode. There are reservations against proposal of Single stage Sales tax (SSST) at a lower
rate of GST at every stage; Nowadays the VAT model is implemented in 8 of the 10 major economies
and in 140 of the approximately 170 countries around the world working well for large economies
(such as Germany) and in small countries (like Mauritius) and not a single country ever tried to convert
from VAT to a single stage sales tax system (SSST).
b. Clause 8(1)(ca) of the Sales Tax Act 1990 states that input tax may not be claimed by a registered
person on the goods in respect of which sales tax has not been deposited in the Government treasury
by the respective supplier. In the current environment of payment of taxes in time, it is difficult for a
buyer to ensure the deposit of the sales tax into Government Treasury by the seller, as the buyer does
not have any enforcement power over the seller. FBR is trying to transfer its own burden to taxpayers
and trying to hide its inefficiencies. This provision should be withdrawn as the court has also declared
this section as ultra vires.
c. To eliminate culture of fake invoices, PCT Code identification shall be incorporated in Sales Tax Return
Form STR -7.
d. Cellular Companies tax Collection.
i. Income tax @ 14% under section 236 of Income Tax Ordinance 2001 is deducted at source of
the amount of bill price of prepaid telephone card which is adjustable. Federal Excise duty @
18.5% of the charges is collected only in Islamabad and Baluchistan by FBR. Whereas,
Provincial authorities of Sindh, Punjab and KPK are charging sales tax @ 19.5% on telecom
services due to 18th amendment.
ii. A combined audit of all telecom companies on behalf of all revenue agencies i.e.; FBR,
Provincial Revenue authorities (SRB, PRA and KPRA) and PTA to plug loopholes and revenue
leakages (Income tax, FED and Sales Tax) may be conducted.
iii. Payment through Pre Paid Cards shall be the only mode (even if dealers get such cards from
companies, it should be the responsibility of the Service Provider to collect and deposit tax).
iv. The Pre-Paid Cards shall be printed only at the Pakistan Security Printing Corporation or under
secure / controlled environment.
v. Top up shall also be made through pre-paid card, sold to cell company’s agents,
shopkeepers.
vi. Cellular Phone Companies and Internet Provider Companies shall place orders, (with payment
of the PSPC charges) of printing with PSPC for provide/print/supply of pre-paid cards of various
denominators, with printed matter to be provided by the respective companies.
vii. Pakistan Security Printing Corporation PVT Ltd will print the Pre-Paid Cards, with “15% WHT and
19.5% GST Paid" on each card.

May 2015
27
viii. Cellular Phone Companies and Internet Provider Companies will deposit the total amount of
GST and WTH in FBR account at NBP, and provide the paid voucher, certified by FBR through
PRAL System, to PSPC and collect the pre-paid cards.
ix. As GST on services is a provincial tax, Cards will be printed separately with name of
province/federal territory for sale in Punjab, Sindh, KPK, Baluchistan and Federal territory. This
will enable transferring GST to the respective provinces collected by FBR.
x. The printing of Pre-Paid Cards suggested only at the Pakistan Security Printing Corporation PVT
Ltd, due to security reasons, to eliminate fraudulent duplication of Pre-Paid Cards. In fact
security level provided for Currency notes printing is required to eliminate possibility of
duplicate cards.
xi. On line access to the system of telecom companies should be given to FBR.
xii. Similarly, tax collection mechanism (forensic audit) for other sectors of economy i.e. Textile,
Manufacturing etc be reviewed and improved
Point – 10: CUSTOMS CONTROL TO BE IMPROVED FOR TRANSPARENCY AND FAIRNESS
RECOMMENDATIONS
a. The menace of unauthorized and under invoiced imports is impacting negatively on the growth of
organized sector and it is impediment to provide level playing field to all the business houses.
Therefore, in order to improve Custom controls following recommendations are made:-
i. The fixation of value is measure through which the mis-declaration or under declaration by
importers can be check and discouraged. In order to institutionalize the valuation system, we
recommend that it should be outsourced to third party to ensure proper and realistic
determination of value for levy of Custom Duty and other taxes. It will help the appraisement
department of Customs in assessing the fair value of goods imported;
ii. Duty and tax structure should be reviewed in order to rationalize its impact on legal imports;
iii. The enforcement arm of customs should be strengthened with appropriate legal powers to
stop the sale of unauthorized imported goods;
iv. Counterfeit imported products should be effectively checked;
v. Penalties for mis-declaration and under-invoicing to be made more stringent;
vi. Re-Export or temporarily imported goods shall be cleared against a security in the form of a
postdated cheque for the differential amount between the statutory rate of customs duty and
sales tax and the amount payable under the notifications, along with an undertaking to pay
the customs duty and sales tax at the statutory rates in case such goods are not re-exported
on conclusion of the project; and
vii. Afghan Transit Trade shall be regulated for Tracking. No monopoly shall be allowed by FBR for
a single tracking company, and Tracking Company shall be the bailee of the cargo.

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b. Following recommendations made by the Sub-Committee of the Revenue Advisory Council in the
matters of Custom Valuation vide report dated 18th Jan, 2010 be adopted:-
i. That high level Government effort should be made to ensure proper implementation of
agreements executed with Governments of the Republic of China and United Arab Emirates
for cooperation and mutual assistance in Customs matters;
ii. The FBR should make further effort to execute similar agreements with such exporting countries
from where the value of goods declared by the importers are unreliable and inaccurate;
iii. A proper study should be made to analyze the viability and effectiveness of posting Customs
Valuation Counselors at Commercial mission in such trading partner countries; where risk of
underreporting and mis-declaration is high and rampant;
iv. It should be made mandatory for the Authorized Dealers to put condition in the LC or Contract
that the Exporter of the goods will manually sign commercial invoice (in quadruplicate)
indicating LC/Contract number, importer’s National Tax Number, Description of goods, H.S.
Code, Country of Origin, actual amount paid or payable and submit the same along with
other original documents for approval of the designated bank in Pakistan;
v. Paragraphs (23) and (24) of the Chapter XIII of the Foreign Exchange Manual be amended;
whereby it should be made mandatory for the Authorized Dealers to send the copies of Form
‘I’ along with copy of manually signed invoice to the Customs Valuation Department on real
time basis;
vi. It should be made mandatory for the importer to instruct exporters of the goods to keep one
copy each of the commercial invoice, packing list and certificate of origin duly signed
manually in the Container;
vii. The FBR should emphasize on strengthening Post Clearance Audit (PCA) as it is in line with the
best international practices;
viii. Skilled and fully dedicated team of auditors also having expertise in the financial accounting
and are well conversant with audit techniques may be posted/hired/recruited for the PCA;
ix. Registration process (ID issuance) in Custom’s automation system may be made more stringent
to ensure that fake importers/exporters do not enter in the system. This will help in their post
clearance audit;
x. The services of external auditors having sector specializations for example chemical, textile
etc. be acquired for PCA;
xi. There should be more emphasis on entity and product based audit instead of transaction
based audit.
xii. That an experienced and dedicated team of present and former Custom Officers should be
formed to study the following and keeping in view the best practices in the world and local
demands; make appropriate recommendations in this regard:-
1. Items currently listed on the exemption list and persons registered under the DTRE;
2. Importance for allow ability of exemptions and granting registration under the DTRE
Scheme;

May 2015
29
3. Benefits achieved by the stack-holders and GOP;
4. Study of Cost benefits versus Revenue losses suffered by the GOP;
5. Alternative available;
6. Monitoring and auditing of the transactions; and
7. Recommendations for establishment of appropriate mechanism for allow ability of
exemptions and granting registration under the DTRE Scheme.
xiii. That keeping in view the global commitment tariff reforms with respect to Customs Duty have
already been carried out; however in order to de-incentivize under and mis-declaration;
reasonable reforms should also be made in other taxes viz. income tax, sales tax and federal
excise duty;
xiv. Capacity building of Customs Officers should be enhanced for detection of under declaration
and mis-declaration of goods; and
xv. That keeping in view the international obligations and guidelines provided by the WTO and
WCO; Customs Duty should be levied on the Transaction Value, except in the identified
circumstances.
Point – 11: RECONCILIATION AND STREAMLINING OF FEDERAL AND PROVINCIAL TAX LAWS
RECOMMENDATIONS
Conflicting issues related to chargeability of taxes on services emanated due to legislation after the
18th Constitutional amendment, must be resolved without any further delay. This has resulted in
undesired litigation and disappointment to lot of large and bonafide taxpayers.
Point – 12: DEVELOP CAPACITY TO FORMULATE AND IMPLEMENT TRANSFER PRICING
RECOMMENDATIONS
a. The globalization of economic activity and the increasing volume of international transactions of
multinational enterprises (MNEs) imply that transfer pricing for tax purposes already is and–in the near
future–will remain one of the most important tax issues. Coupled with the growing type and number of
cross-border transfers of intangible assets, concerns arise about the adequacy of transfer pricing rules
as they are currently provided by many national tax authorities including Pakistan.
b. The key question of transfer pricing is how prices for goods, services and intangibles that are
transferred across borders, but within multinational networks should be established. Thus, the success
of the local operation is the only interest of national taxing authorities. The arm’s length rule, which has
formed a core value in international taxation for most of the twentieth century, serves two functions in
this context. Firstly, it provides national taxing authorities with a mechanism for fair allocation of profits
as between local operations of a multinational group and other parts of the group. Secondly, as
nation states compete with each other for tax revenues, it provides a mechanism for fair allocation of
taxing jurisdiction among nation states.

May 2015
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c. Section 108 of the IT Ordinance, deals with the powers of the Commissioner Inland Revenue with
regards to the determination of the arm’s length value of any transaction between associates. In order
to determine the arm’s length result of any such transaction, the Income Tax Rules, 2002 state that the
following methods may be applied by the Commissioner. These methods are identical to the methods
available under the OECD Guidelines:-
i. The Comparable Uncontrolled Price Method (CUP)
The price quoted for a transaction between uncontrolled parties on similar terms and
conditions will be considered.
ii. The Resale Price Method
Difference in the resale gross margin of the two transactions would be considered and
compared for determining whether the transaction between controlled parties is on arm’s
length basis or not.
iii. The Cost plus Method
The cost plus markup realized in an uncontrolled transaction will be considered as a
basis to determine whether a similar transaction between controlled parties is on arm’s length
basis or not.
iv. The Profit Split Method
Where group of associates is formed and the transactions are so interrelated that a separate
basis is not possible to identify the arm’s length results for a similar transaction between
uncontrolled persons, the profit sharing basis agreed between independent persons forming
an association would be considered.
It should be noted that between clauses (a), (b) and (c), the method that, having regard to all
the facts and circumstances, provides the most reliable measure of arm’s length result as in
the opinion of the Commissioner shall be applied. The method in clause (d) shall apply only
where the methods in clauses (a), (b) and (c) cannot reliably be applied.
d. Pakistan has concluded around 63 income tax treaties which contain an article which resembles
Article 9 OECD Model Tax Convention on “Associated Enterprises.” Over 60 governments have
adopted transfer pricing rules. Transfer pricing rules in most countries are based on the “arm’s length
principle”–that is to establish transfer prices based on analysis of pricing in comparable transactions
between two or more unrelated parties dealing at arm’s length. The OECD has published guidelines
based on the arm's length principle, which are followed, in whole or in part, by many of its member
countries in adopting rules.
e. However, in Pakistan it is observed that the above provisions of income tax law and Custom’s
valuation method have not provided significant results in this regard. The committee therefore
recommend that trained team of Revenue Officer should be deployed at income tax and custom
offices to carefully examine and ensure that MNEs to value cross-border transfers between related
party firms by applying the arm’s length standard (ALS), on tangible products and intangible assets
resulting in the universally recognized method for the fair allocation of profits across borders between
related parties, in respect of manufacturer, distributor and service provider.

May 2015
31
f. The discretionary powers extended to tax authorities in Income Tax Ordinance, 2001 through
continuous amendments in the Ordinance should be removed to bring the Ordinance in its original
form and objectivity when introduced in 2002;
g. IT system of PARAL should be enabled to capture all purchase and business transaction by taxpayers,
we should honestly and carefully examine whether the existing system or the system in its refined form
is providing the desired results or would be capable to provide the desired results;
h. Collect data of stock exchange transactions and enquire the source of investment, without fear of fall
of market;
i. Develop capacity of FBR to check under invoicing while improving this capacity, 3rd party may be
used.
j. Denomination of highest money bill (note) be reduced to Rs.1,000 instead of Rs.5,000.
k. FBR be given powers to perform forensic audit of taxpayers where fraud in payment of government
revenue is detected and proved.
Pakistan National News (Fraud & Corruption News)
Money-laundering case: Ayyan probe speeded up amid fresh proof
Upon acquiring concrete evidence, the Intelligence and Investigation Inland Revenue (I&IIR) has
accelerated the investigation process against model Ayyan Ali in a money laundering case. “The I&IIR
has managed to gather a good number of evidences in the case which will lead to nabbing of the
real culprits behind this money laundering case,” sources in the I&IIR told The Express Tribune on
Monday. They said the investigation body has been able to successfully unearth various facts in the
case and the links which were patronizing the supermodel. “During the course of the investigations it
has been found that Ayyan, who actually belongs to Gujar Khan, owns an expensive luxury apartment
in a high-end housing society of Karachi, despite failing to disclose her sources of income,” the
sources maintained. During the course of investigations, it was found that the model also got Rs.22
million in the form of 11 bank drafts which were delivered to her by a woman, who is living in
Mirpurkhas, they said, adding that the details of the woman who gave the drafts to Ayyan Ali are also
available with the I&IIR but her name is not being shared now because she will also be investigated.
The sources said the I&IIR has also sought details from all those airlines on which the supermodel has
travelled. The airlines have been asked to provide details of her visits abroad with detailed information
regarding the payment of tickets. The I&IIR has the record of her 34 visits abroad, but so far it failed to
get Ayyan Ali to tell the source of her income and the purpose behind her visits, they added. The
Special Customs judge Rawalpindi expressed dismay during the hearing on Monday as the customs
authorities had failed to submit a full challan against the supermodel and directed them to submit the
challan at the next date of hearing.
Minister appreciates, endorses NAB’s proposal
Saira Afzal Tarar, the minister of state for national health services, regulations and coordination, has
appreciated the NAB’s proposal to print “say no to corruption” on cigarette packets. She also directed
the concerned officials to discuss ways and means for implementing this initiative. This was stated in a

IFAP Newsletter May 2015

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