This document provides an overview of the presentation of financial statements under relevant accounting standards and regulations. It discusses the purpose and components of financial statements, including the balance sheet, income statement, statement of changes in equity, and cash flow statement. It also outlines the responsibilities of management and auditors in preparing and reviewing financial statements. Key requirements for listed companies, non-listed companies, and industries are summarized.

1. Presentation of
financial
statements
The auditor’s review
Presented by:
Tahmeen Ahmad (ACA)

2. Purpose of Financial
Statements
• Financial statements are:
“Structured representation of the financial position
and financial performance of an entity.”
• Objective:
To provide information about:
– the financial position,
– financial performance, and
– cash flows
of an entity that is useful to a wide range of users in
making economic decisions.

3. The Framework
• The International Financial Reporting
Standards (IFRS), in particular guidance
on presentation and disclosure
• Local statutory requirements
– The Companies’ Ordinance, 1984, in particular the
Fourth/ Fifth Schedule for presentation purposes
– Directives of the regulatory bodies
– Industry specific legislation
– Generally accepted accounting principles

4. Amendments of the
Finance Bill 2007-2008
• The AGM must now be held after three months of the end
of the accounting year. (previously 4 months)
• Power of FG to require additional matters in the auditors’
report now vested in Commission
• NBFCs to comply with minimum equity requirements
rather than minimum capital requirement for incorporation
• Penalty for failure to comply with NBFC laws enhanced
from Rs 5 m to Rs 50 m
• Mandatory for listed Co to have independent share
registrar
• Substantial share holder (12.5%) can apply for re election
of directors in the case of a listed company

5. Amendments of the Finance
Bill 2007-2008 (Contd.)
• Power of FG to specify business of banking companies
now vests in the SBP
• Perpetual non cumulative preference shares included in
definition of share capital of Banking Company
• Additional conditions for eligibility to pay dividends by
banking company
• Additional provisions for auditors: all significant matters
to be reported to SBP, SBP may revoke the appointment of
auditors
• New Act ‘Payment System for Electronic Fund Transfer
2007’ introduced
• Contract worker now entitled to benefits under the
Companies Profits (worker Participation) Act 1968, and
amount of profit no longer subject to audit adjustments

6. Responsibility for
Financial Statements
• Final responsibility for fair presentation
of financial statements rests with the
BoD.
• Companies’ Ordinance 1984: directors
to present in the AGM annual accounts
that give a true and fair view of state of
affairs and Profit and loss of the
Company (u/s 233 & 234)

7. The Auditor’s Responsibility
“To express an opinion on financial statements
based on their audit”
• Audit is a statutory requirement for all
companies.
• Auditor to be Chartered Accountant for the
following:
– Public Cos.,
– Private Co that is a subsidiary of a public company, and
– Private Co having paid up share capital of Rs 3m or
more
• Auditors also issue reports on:
– Review of interim f/s (listed Cos.)
– Report on consolidated financial statements
– Report on changes in accounting policies (listed Cos.)

8. The Auditor’s
Responsibility (contd.)
– Review of compliance with Best Practices of
Code of Corporate Governance (Listed Cos.)
– Assets, liabilities, profits and losses, share
capital and its breakup value for prospectus
(Schedule II)
– Certification of financial information in
statutory report (for Co limited by shares etc)
– Significant issues identified during audits
(listed Cos)
– Industry specific reports (basel II, profit rate
verification, credit review reports etc)

9. Components of Financial
Statements
• General purpose financial
statements comprise of:
– Balance Sheet
– Profit and loss account
– Statement of changes in equity
– Cash flow statement
– Notes to the financial statements

10. Components of Financial
Statements (contd.)
Listed Cos .
– Balance sheet
– Profit and loss
– Statement of changes
in equity
– Cash flow
– Notes
• 4th
schedule applies
• This includes private
companies and public
non-listed companies
that are subsidiaries
of listed companies
Non Listed Cos.
– Balance sheet
– Profit and loss
– Notes
• 5th
schedule applies

11. The Annual Report –
other information
TYPE OF REPORT REQUIREMENT OF:
Director’s report Companies’ Ordinance 1984
Statement of Compliance
with Code of corporate
governance
Listing regulations
Company information
including financial progress
reports, management
structure etc
– Other information includes the following:
– The auditor may review the information in relation to the
accounts under audit

12. Review of the Financial
Statements
• Variation in presentation may arise
from difference in:
– Nature of business of the entity
– Type of Company (listed, non-listed public, private)
– Consolidated or unconsolidated accounts
– Management judgement on matters not specified
by statute / standards

13. Review of the Financial
Statements (Contd.)
• Identification of each f/s component
• Name of reporting entity
• Specified if accounts related to group entity
• Balance sheet date/period of account
• Presentation currency
• Level of rounding used in presenting amounts
• Comparatives
• F/s amounts supported by adequate notes
• Each F/s component signed by director and chief
executive.

14. Review of Balance Sheet
Presentation
• Please review the sample balance sheet:
• Our discussion will follow the line items:
ASSETS
• Fixed Assets
• Long term investments
• Long term loans and advances
• Long term deposits and prepayments
• Current assets
– Stores and spares
– Stock in trade
– Trade debts
– Loans and advances
– Trade deposits, prepayments
– Interest accrued
– Other receivables
– Financial assets
– Tax refunds
– Cash and bank balances

15. Balance Sheet (Contd.)
SHARE CAPITAL & RESERVES
● Share capital
● Capital reserves
● Revenue reserves
● Surplus on revaluation of fixed assets
NON CURRENT LIABILITIES
● Long term financing
● Debentures
● Liabilities against assets subject to finance lease
● Long term Murabaha
● Long term Deposits
● Deferred Liabilities

16. Balance Sheet (Contd.)
CURRENT LIABILITIES
• Trade and other payables
• Interest, profit, markup accrued
• Short term borrowings
• Current portion of long term borrowings
• Current portion of long term murabaha
• Provisions for taxation
CONTINGENCIES AND COMMITMENTS

17. Review of Income
Statement Presentation
• Please review the sample profit and loss account
• Line wise discussion follows:
TURNOVER
EXPENSES
• Cost of sales
• Distribution cost
• Administrative expenses
• Other operating expenses
• Finance cost
OTHER OPERATING INCOME
• Income from financial assets
• Income from investments/debts of related parties
• Income from assets other than financial assets

18. Review of Cash Flow
Presentation
• Please review sample cash flow statements
• Cash flows may be prepared under the indirect or direct
method.
• These methods affect the method of arriving at operating
cash flows only
• Discussion will follow the line items of the sample cash
flow:
– from operating activities
– from investing activities
– from financing activities
– cash& equivalents
• Cash flows are prepared in accordance with the
requirements of IAS 7

19. Review of Statement of
Changes in Equity
• Please review sample statements of
changes in equity
• Statement may either show:
– All changes in equity
– Changes other than transactions with equity
holders

20. Variations for Industries
• Variations can be seen in presentation &
disclosures of f/s for different industries,
eg:
– Banking Companies
– Manufacturing companies
– Telecom industry
– Petroleum exploration and production
– Funds
– Insurance companies
– Leasing Companies and other NBFCs