Spe - Audit of PR Financials 20-18-19

Audit Report
On Financials of Pakistan
Railways for FY 2018-19
Department of the Auditor General of Pakistan

Contents
Abbreviation and Acronyms ........................................................................................................... ii
Glossary of Technical Terms ......................................................................................................... iv
Executive Summary ....................................................................................................................... vi
Chapter-1 Introduction ............................................................................................................... 1
Chapter-2 Analysis of Financial Statements of Pakistan Railways and their disclosures ......... 5
Chapter-3 Assessing the reporting adequacies in terms of IFRS ............................................. 20
Chapter-4 Assessment of Control Environment ...................................................................... 23
Annexures ..................................................................................................................................... 27
Audit Report on Financials of PR for FY 2018-19 Page i

Abbreviation and Acronyms
AGP Auditor General of Pakistan
AGPR Accountant General Pakistan Revenues
CIA Chief Internal Auditor
CEO Chief Executive Officer
CGA Controller General of Accounts
CoA Chart of Accounts
COSO Committee of Sponsoring Organizations
CPO Chief Personnel Officer
CSF Concrete Sleeper Factory
CWIP Capital Work in Progress
DAC Departmental Accounts Committee
DAO Divisional Accounts Officer
DRF Depreciation Reserve Fund
DS Divisional Superintendent
EFF Extended Fund Facility
FA&CAO Financial Advisor and Chief Accounts Officer
FD Finance Division
FG Federal Government
FIFO First In First Out
FS Financial Statements
FY Financial Year
GAAP Generally Accepted Accounting Principles
GDP Gross Domestic Product
GFR General Financial Rules
GM General Manager
GPF General Provident Fund
HRM Human Resource Management
HSD High Speed Diesel
HQ Headquarter
IAS International Accounting Standards
IASB International Accounting Standard Board
IASC International Accounting Standard Committee
IF Improvement Fund
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IT Information Technology
KCR Karachi Circular Railway
Km Kilometers
KUTC Karachi Urban Transport Company
Audit Report on Financials of PR for FY 2018-19 Page ii

LC Letter of Credit
MCS Management Control System
M&S Manufacturing and Services
MD Managing Director
MEFP Memorandum of Economic and Financial Policies
ML Main Line
MOR Ministry of Railways
NAM New Accounting Model
OAGP Office of the Auditor General of Pakistan
PAC Public Accounts Committee
PAO Principal Accounting Officer
PPP Public Private Partnership
PPRA Public Procurement Regulatory Authority
PR Pakistan Railways
PRACS Pakistan Railway Advisory and Consultancy Services
PRFTC Pakistan Railway Freight Transportation Company
PSDP Public Sector Development Programme
RAILCOP Railway Constructions Pakistan Limited
RPGCC Royal Palm Golf & Country Club
SAO Senior Accounts Officer
SAI Supreme Audit Institution
SBF Staff Benevolent Fund
SIC Standard Interpretations Committee
SOP Standard Operating Procedure
WAPDA Water and Power Development Authority
Audit Report on Financials of PR for FY 2018-19 Page iii

Glossary of Technical Terms
Appropriation Accounts
The statements which are prepared for presentation to the Public Accounts Committee,
comparing the amount of actual expenditure with the amount of grants voted by the National
Assembly and appropriations sanctioned by Prime Minister, are called Appropriation Accounts.
Commercial Accounts
The commercial accounts of the Railways are known as its “Financial Statements”. The
Financial Statements of Pakistan Railways are compiled periodically and comprise statement of
financial position and statement of financial performance.
Depreciation
Depreciation is the sum set aside from Railway Revenue to meet the cost of Renewals and
replacements of assets.
Depreciation Reserve Fund

The Depreciation Reserve Fund, started, with effect from the 1st April 1924, to provide for the
cost of renewals and replacements of assets, as and when they become necessary. The Fund, as
originally constituted, was designed to provide the amount of the original cost of the work
replaced, and its scope was restricted to the replacement of complete units of certain classes of
wasting assets1.
Grant-in-Aid
A grant-in-aid is any money coming from Federal Government for meeting operational shortfall.
This kind of funding is usually used to fund reasonably independent entities through public
exchequer as per decision of and by the government and parliament.
Improvement Fund
The fund aims at meeting the expenditure on (i) un-remunerative works mainly intended for
improving operational efficiency of Railways (ii) all works whether original and additional or
alteration to existing works pertaining to staff welfare or provision of amenities to lower class
passengers (iii) other expenditure connected with modernization of accounting system etc.
Non Voted (Charged)

The expenditure charged upon the Federal Consolidated Fund which may be discussed in but
cannot be voted upon in the National Assembly.
Revenue and Capital Expenditure

The Budget Orders are accompanied by the final issues of “Pakistan Railways (Revenue
Expenditure)” and “Capital Outlay on Pakistan Railways (Development Expenditure)”
containing the detailed distribution of the budget allotment made to the railway administrations
for working expenses and development expenditure. The revenue expenditure is distributed over
1
Rule 331 of State Railway General Code
Audit Report on Financials of PR for FY 2018-19 Page iv

the various detailed object wise by the Ministry of Railways (Railway Board) while project /
scheme wise allotment of development expenditure (Public Sector Development Programme) is
made by the competent authority (Planning and Development Division)
Railway Reserve Fund

This Fund was started in pursuance of the “Separation Convention” with effect from 1st April,
1924. The receipts in the Fund consist of the surplus which may remain out of net receipts of
Railway after payment to general revenues of the contribution fixed under the convention. Any
surplus, remaining after this payment to general revenues, has to be transferred to a railway
reserve; provided that if the amount available for transfer to the railway reserve exceeded in any
year three crores of rupees, only two third of the excess over three crores be transferred to the
railway reserve and the remaining one-third accrued to general revenues2.
Suspense under Capital

Suspense under capital is an account head to which transactions relating to stores, workshop
manufacturers, recoverable advances and other items which cannot once be charged to final head
of account are booked temporarily pending final adjustment under this head.
Suspense under Revenue

Suspense under revenue is an account head which is used for recording items of expenditure
chargeable to revenue but kept in suspense pending adjustments against final heads and also
advances awaiting recovery.
Voted (Other than Charged)

The voted (Other than Charged) expenditure is submitted to the National Assembly in the form
of demands for grants. Unlike the charged expenditure, the National Assembly has the power to
assent to, or to refuse to assent to, any demand, or to assent to any demand subject to a reduction
of the amount specified therein.
2
Rule 337 of State Railway General Code
Audit Report on Financials of PR for FY 2018-19 Page v

Executive Summary
The audit was carried out by the Directorate General Audit Railways under mandate of
Auditor General of Pakistan (AGP). The prelude to the instant assignment was a request from
Finance Division, vide letter no F.1 (9)-EF (IFR)/2019-RI-237, dated 15th July 2019, to meet
structural benchmarks agreed with International Monetary Fund (IMF). The Memorandum of
Economic and Financial Policies (MEFP) Para No 23 (c) required an audit of Pakistan Railroads,
for the FY 2019, by AGP office. The audit included the audit of both receipts and expenditure of
Pakistan Railways.
Scope of Audit
The scope of audit was limited to the audit of financials of Pakistan Railways for the
financial year 2018-19 alone. The audit of the financials and an evaluation of internal control
environment were carried out in view of the following Terms of Reference (TORs):
1. Analyzing Financial Statements of Pakistan Railways and their disclosure.
2. Assessing the reporting adequacies in terms of International Financial Reporting
Standards (IFRS)
3. Evaluating the internal control environment.
Audit methodology
The audit was conducted in accordance with the auditing standards issued by the
International Organization of Supreme Audit Institutions (SAI). The Audit examined
appropriation accounts and commercial accounts of Pakistan Railways and their disclosures. A
ratio analysis was carried out to gauge the performance of Pakistan Railways in succeeding
years. Moreover, in light of IFRS, the audit assessed accounting principles, their presentation
and significant deviations in the financial statements of Pakistan Railways. Furthermore, types of
internal controls, with special reference to their effectiveness were evaluated to highlight
weaknesses.
Key findings of the report

1. Analysis of Financial Statements of Pakistan Railways
(a) Appropriation Accounts

An analysis of appropriation accounts revealed multiple issues like:
(i) Non-adoption of various components of New Accounting Model (NAM) i.e. chart of
accounts and accounting code for self accounting entities
(ii) Non-adjustment of expenditure held under various suspense heads amounting to
Rs 1,752.15 million
(iii)Deliberate deferment of expenses to next financial year resulting in understatement of
expenditure for the FY 2018-19 amounting to Rs 1,714.34 million
(iv) Unauthorized expenditure without budget allotment amounting to Rs 408.68 million
Audit Report on Financials of PR for FY 2018-19 Page vi
(v) Misclassification of expenditure under different heads of accounts amounting to
Rs 684.53 million
(vi) Non-accountal of capital expenditure resulting in an understatement amounting to
Rs 304.40 million
(vii) Unauthorized booking of expenditure from Revenue to Capital Grant and vice versa
amounting to Rs 76.19 million
Owing to these issues, the Audit furnished “Qualified Opinion” on the appropriation
accounts of Pakistan Railways.
(b) Commercial Accounts

The commercial accounts of PR comprise profit and loss account and balance sheet.
Analysis of the commercial accounts revealed myriad issues like:
(i) Overstatement of gross earnings, amounting to Rs 730.55 million, by booking
irrelevant revenue i.e. receipts of securities and deposits, amounting to Rs 660 million
and withholding tax, amounting to Rs 70.55 million, were booked as revenue to
inflate earnings.
(ii) Non depiction of pension liability in balance sheet i.e. an amount of Rs 31,858
million, for the financial year 2018-19, was directly paid from revenue grant and
grant-in-aid.
(iii) Misrepresentation in statement of financial position due to non-clearance of suspense
balances, amounting to Rs 9,111.98 million and deferment of expenditure amounting
to Rs 1,714.34 million to next financial year.
(iv) Violation of matching principle as PR recognized a significant portion of its earning
on accrual basis while recognizing expenditure on cash basis.
(v) Inappropriate accounting treatment of grant-in-aid amounting to Rs 37,000 million,
which was used to set off loss of Rs 32,769 million and the remaining amount of Rs
4,231 million was transferred to railway reserve fund.
(vi) Cumulative losses have a static and incorrect balance, amounting to Rs 36,924.39
million as the progressive losses of previous years were not recorded under this head.
(vii) Double booking in heads of “investment by government” and “depreciation reserve
fund” amounting to Rs 37,698.69 million.
(viii) Non-disclosure of accrued liabilities on account of interest and exchange risk
premium on foreign loans.
(ix) Non adherence to disclosure principle in case of fixed assets i.e. value of tangible
assets has not been adjusted for factors like depreciation and impairment.
(x) Non adhesion to multiple provisions of IFRS like valuation and classification of
inventories, related party disclosures, employee benefits etc.
(xi) Non provision for bad debts in relation to aging accounts receivables, amounting at
Rs 9,818 million.
Audit Report on Financials of PR for FY 2018-19 Page vii

(xii) Non-adjustment of railway remittances (transfer divisional), amounting to Rs 4,475
million, in financial statements resulting in an understatement of expenditure.
(xiii) Overstatement of current assets by adding amounts not accepted by Finance Division
amounting to Rs 14,298.21 million on account of General Provident Fund (GPF)
interest.
Owing to these issues, the Audit furnished “Adverse Opinion” on the commercial
accounts of Pakistan Railways.
2. Financial Reporting inadequacies

While juxtaposing reporting standard with IFRS, multiple inadequacies were observed as
appended below:
(i) Non-preparation of cash flow and statement of changes in equity

(ii) Incorrect measurement and classification of all tangible assets
(iii) Non-preparation of consolidated Financial Statements of PR as a group including its
subsidiaries
(iv) Non-disclosure of intangible assets in financial statements
(v) Non-disclosure of post-retirement benefits in Balance Sheet as liability
(vi) Non-conversion of foreign loans in Pak rupees on closing date of balance sheet
(vii) Non-recognition of unearned revenue
3. Internal control environment

The Audit observed serious lapses in the control environment. Some of the findings are:
(i) Non-existence of Strategic plan

(ii) Poor Management Controls
(iii) Non-updating of Rules and Regulations
(iv) Non Segregation of Functions
(v) Ineffective Internal Audit
(vi) Closure of Directorate of Vigilance
(vii) Poor compliance of Departmental Accounts Committee (DAC) and Public Accounts
Committee (PAC) directives
(viii) Partial automation of core business processes
Management Response
As part of financial attest and compliance with authority audit of Pakistan Railways, for
financial year 2018-19, the Directorate has by and large discussed comments, analysis, opinion
and observations subsumed in this report with management at different levels i.e. during exit
conference meetings, DAC meetings and Clearing House Meeting. The management response
was included in each observation and paras of relevant reports.
Audit Report on Financials of PR for FY 2018-19 Page viii

Conclusion:
Audit for the financial year 2019 reveals that performance of Pakistan Railways as a
going concern is in doldrums. Based on audit findings, it can safely be inferred that unless a
strategic turnaround is planned and executed, sustainability of future operations of Pakistan
Railways will depend on a continuous material support from the government.
Recommendations:
1. The management internal controls as defined in Pakistan Railways Codes/manuals are
required to be revamped and redefined
2. The International Financial Reporting Standards be adhered to have clear accounting
policies, presentation and disclosure of Financial Statements
3. Rationalization of accounts receivables appearing in the Financial Statements
4. A separate pension fund be created in order to reduce burden from revenue expenditure
5. The balances appearing under different revenue and capital suspense accounts be
adjusted/cleared and booked to final heads of accounts on monthly basis and a periodic
review be carried out
6. The accounting treatment of depreciation reserve fund be set right to avoid double
booking of federal government investment
7. The matter regarding accounting treatment of grant-in-aid be referred to Finance Division
(FD) through Controller General of Accounts (CGA) for prescribing appropriate
accounting policy
8. Pakistan Railways needs to take turn around initiatives under 3Rs‟ strategy comprising
retrenchment, repositioning and reorganization. Ways through each component of the
strategy can be catered for are:
(a) Retrench is overhead reduction through activities like:
(i) Introduction of Information Technology (IT) based solutions for E-
governance
(ii) Modernization of infrastructure
(iii)Adoption of modern accountal and measurement system of operational fuel
(b) Reposition its revenue through activities like:
(i) Focusing on unit cost instead of tariff
(ii) Optimizing yield-per-train
(iii)Outsourcing non-core activities
(iv) Streamlining of freight structure
(v) Simplifying freight traffic book
(vi) Developing connectivity with neighboring countries
(c) Reorganize through activities like:
(i) Overhauling internal structure
(ii) Preventing leakages in revenue
(iii)Bifurcating concurrence and pre-audit assignment of railway accounts
department
Audit Report on Financials of PR for FY 2018-19 Page ix

Chapter-1 Introduction
Pakistan Railways is a Federal Government Department with the aim to provide a
competitive, safe, reliable, market oriented, efficient and environment-friendly mode of
transport3.
1.1 Organizational Structure of Pakistan Railways
The Ministry of Railways is responsible for the overall control of Pakistan Railways. It
guides and formulates overall policy for the PR. Ministry of Railways (MoR) comprises four
directorates i.e. Administrative Directorate, Technical Directorate, Planning Directorate, and
Budget &Finance Directorate. Railway Board is the decision making organ and the Chairman of
the Ministry of Railways serves as its secretary in ex officio position. Organogram for the
ministry is given below:
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Year Book of Pakistan Railways 2018-19
Audit Report on Financials of PR for FY 2018-19 Page 1

The affairs of Pakistan Railways are administered by the following authorities.
(i) Chief Executive Officer (CEO) /Senior General Manager
(ii) General Manager (GM) /Manufacturing and Services (M&S)
(iii) (GM) /Welfare and Special Initiatives
The core operations of Pakistan Railway are administered by the Chief Executive
Officer/Senior General Manager. He is assisted by three Additional General Managers for
infrastructure, mechanical and traffic besides the Principal Officers of respective departments.
Pakistan Railways has seven operational divisions at Peshawar, Rawalpindi, Lahore, Multan,
Sukkur, Karachi, Quetta and one workshops division at Mughalpura Lahore. Each Division is
administered by a Divisional Superintendent (DS). The Divisional Superintendent is assisted by
Divisional Officers in their respective fields. The fields include Civil, Mechanical, Electrical,
Signal, Telecom Engineering, Traffic, Commercial, Accounts, Medical, Police and Personnel.
Manufacturing unit is headed by the General Manager/ M&S who is assisted by
Managing Director (MD) /Locomotive Factory, Risalpur, MD/Carriage Factory Islamabad and
MD/Concrete Sleeper Factories Lahore.
Welfare activities of Pakistan Railways are administered by the GM/Welfare and Special
Initiatives (W & SI), who is assisted by Director General/Pakistan Railway Academy Walton,
Director General Education and Chief Health & Medical Officer.
The administrative head of the Railway Accounts Department is Member Finance in the
Railway Board who is assisted by three Financial Advisors & Chief Accounts Officers.
Moreover, there is a Chief Internal Auditor who heads the Internal Audit Wing and reports
directly to the Principal Accounting Officer.
1.2 Statutory framework of Pakistan Railway:
The basic law enacted in the Sub-Continent for regulating the Railways affairs in the
undivided India was the Indian Railway Act, 1890. After inception of Pakistan, this Act was
adopted and renamed as the Railway Act, 1890. Over the period, Railway Act 1890 became
outdated and no effort was made for updating it. However, a series of ordinances was issued as a
stopgap arrangement. This clearly depicts that, PR has never remained a priority for the policy
makers in the Parliament.
1.3. Rules and Regulations governing the organization:
Ministry of Railways by invoking the provision vested in it, under Section 47 of the
Railway Act 1890, made the detailed public safety rules and working rules of train operations
known as General & Subsidiary Rules of Pakistan Railways. These rules are presented in the
form of following Railway codes.
(i) PR Code for the Accounts Department (Part I&II)
(ii) PR Code for the Engineering Department
(iii) PR Establishment codes (Vol-I & II)

(iv) PR code for the Mechanical Department
(v) PR code for the Traffic Department
(vi) PR code for the Stores Department
(vii) PR General Codes (Vol-I & II)
The aforementioned codes were originally framed before partition and were adopted and
updated in the decade of sixties. However, since 1970, no modifications have been made in these
codes rendering them obsolete or outdated. Similarly, Railway manuals, entailing various
departmental procedures, barring Commercial Manual, have also not been updated after 1970.
1.4. Layout of internal control system of the organization:
Strategic level management of Pakistan Railways including Principal Accounting Officer,
Chief Executive Officer, Financial Advisor & Chief Accounts Officers and Principal Officers are
responsible for achievement of ultimate objectives of the organization as stated in the mission
statement. In pursuance of these objectives the Chief Internal Auditor plays a vital role and
highlights issues identifies control weaknesses and control deviations beside risk assessment
through Internal Audit Reports. Moreover, in align to the CIA working; the department of
Vigilance Directorate is also a watch dog and act as ear and eyes of the organization. However,
vigilance directorate has since been wound up.
The management has developed various internal controls for aligning its operations with
overall goals of the entity. However, unfortunately, the controls over operations, inventory,
suspense balances, revenue, Depreciation Reserve Fund (DRF) and HRM etc. are ineffective and
inefficient which have been discussed in detail under chapter-4.
1.5. Infrastructure:
(i) Pakistan Railways remained the primary mode of transportation in the country till
late sixties. Afterwards, as the road sector flourished and emerged as a quicker
mode of transportation, Railways‟ share of inland traffic reduced from 41 percent
to 10 percent for passenger traffic and 73 percent to 4 percent for freight traffic4.
(ii) By 30.06.2019, the total track length of PR was recorded as 11,881 Kilometers
with 7,791 route kilometers along with 468 Railway stations whereas rolling stock
consisted of 468 locomotives, 1,647 Coaching vehicles and 14,327 Freight
Wagons5.
1.6. Human Resources/ Personnel
(i) Pakistan Railways has its centralized Human Resource (Personnel) Department
headed by a Chief Personnel Officer (CPO). He is assisted by Deputy Chief
Personnel Officers, Senior Personnel Officers and Divisional Personnel Officers.
Historically, there was an independent hierarchy of this department. However,
4
Economic Survey of Pakistan 2018-19
5
Year Book of PR 2018-19

over the years this independent cadre has become defunct and non-professionals
have infringed the cadre.
(ii) Pakistan Railways has 68,727 employees and 121,000 pensioners. In 2018-19, the
expenditure on pay and pension was 67.5% of the total working expenses6.
(iii) As on 30.12.2019, 693 cases of litigation are pending in different courts/
tribunals. Owing to mismanagement and inefficiency of Human Resource
Department, Pakistan Railways is sustaining continuous losses due to pending
issues of litigation7.
1.7. Financials (2018-19)
(i) The total budget of PR was Rs 90,000 million and corresponding expenditure was
87,664.13 million for the year 2018-19. It had an unspent budgetary allocation of
2.6% under voted & charged portion of revenue grant.
(ii) The revenue expenditure of Pakistan Railways during the financial year was
Rs 86,867.69 million under voted expenditure.
(iii) Government of Pakistan further allocated funds through Public Sector
Development Program in order to rehabilitate and improve Railway infrastructure,
rolling stock, equipment and operational systems during the financial year. An
expenditure of Rs 21,126.87 million was incurred on the execution of twenty
eight projects.
(iv) In order to bridge the operational loss, PR has had been subsidized, at an average
per year amount of Rs 37,000 million, by the Government of Pakistan.
(v) The net loss of PR for the year 2018-19 stood at Rs 32,769.28 million which was
covered through government assistance and State Bank of Pakistan (SBP)
Overdraft. The balance of overdraft with SBP as on 30.06.2019 stood at
Rs 37,264.36 million and PR paid Rs 496.43 million as interest on overdraft for
the year 2018-19.
(vi) PR had a liability of Foreign Loans/Credits worth Rs 29,348.32 million against
which it paid Rs 300 million as interest. Audit found that foreign loans have
neither been revaluated in the light of current exchange rates nor segregated by
type of liability in the financial statements of Pakistan Railways.
In addition to aforementioned factors, there are some chronic internal issues which
hampered the growth of organization over the years. These include legacy accounting and
financial reporting system, poor personnel strength management.; inadequate capacity to
implement guidelines of Public Procurement Regulatory Authority (PPRA); contract
mismanagement; extravagant utility expenses; theft of material; parasitic mode of business by
PR‟s ancillary corporations and failure of Public Private Partnerships (PPPs).
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Year Book of PR 2018-19
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Directorate of Legal PR

Chapter-2 Analysis of Financial Statements of Pakistan Railways and their
disclosures
The financial statements of Pakistan Railways are comprised of Appropriation Accounts
and Commercial Accounts. The Financial Adviser and Chief Accounts Officer is responsible for
preparation of appropriation accounts and commercial accounts on behalf of the Controller
General of Accounts, under section 7 of the Controller General of Accounts (Appointment,
Functions and Powers) Ordinance, 2001 on the format prescribed by Auditor General of
Pakistan. Audit of appropriation and commercial accounts of Pakistan Railways, for the FY
2018-19, was carried out by the Director General Audit Railways. The audit was carried out
under the mandate of Auditor General of Pakistan and in conformity with the applicable set of
rules and regulations.
2.1 Appropriation Accounts for the FY 2018-19
Appropriation Accounts were prepared by the FA&CAO/ Pakistan Railways in respect of

budgetary provisions and expenditure charged to revenue / non-development and capital /
development for the FY 2018-19 keeping in view the requirements of government accounting. A
systematic record of all incomings (receipts) and outgoings (expenditure) classified under certain
appropriate headings has been maintained. The summary of grants and expenditure is given
hereunder;
2.1.1 Revenue Grants No. 94 of PR for the year 2018-19

(Rs in millions)
Variation
Original Supplementary Final Actual
Items Excess/
Allocation Allocation Allocation Expenditure %
(Saving)
Voted
86,500.00 2,500.00 89,000.00 86,867.69 (2,132.31) (2.40)
Charged 1,000.00 0 1,000.00 796.43 (203.57) (20.36)
Total
87,500.00 2,500.00 90,000.00 87,664.13 (2,335.88) (2.60)
Table-1
Source: Appropriation Account of PR 2018-19
The revenue grant of PR consisted of two components i.e. the revenue targets fixed by
the Parliament and the financial assistance granted by the Government of Pakistan. The
parliament, initially, approved estimates of Rs 87,500 million for the year 2018-19 however a
supplementary grant of Rs 2,500 million was provided later on. The revenue target of Rs 50,500
million was initially fixed with no subsequent change. In order to bridge the gap between
revenue and expenditure, financial assistance worth Rs 37,000 million was granted to PR during
the year. Details for the estimates, actuals and variations for the revenue are given below:

(Amount in Rs)
Revenue 2018-19 Variation
Description %
Estimates Actual Excess/ (Shortfall)
Passenger earnings 24,000,000,000 29,189,457,721 5,189,457,721 21.62
Freight earnings 19,850,000,000 18,853,163,057 (996,836,943) (5.02)
Other coaching earnings 1,750,000,000 1,995,348,494 245,348,494 14.02
Sundry earnings 4,900,000,000 4,469,961,765 (430,038,235) (8.78)
Gross Earnings 50,500,000,000 54,507,931,037 4,007,931,037 7.94
Table-2
Source: Statement of cumulative revenue up-to the period ending 30.06.2019 (Final Accounts) of FA & CAO /
Revenue & Appropriation Account of PR 2018-19
The comparison of estimates and actual expenditure under voted portion of revenue grant
for the year 2018-19 is appended below:
(Amount in Rs)
Summary of Budgeted and Actual Expenditure

Actual Variation
Description Estimates %
Expenditure Excess/ (Saving)
General Administration 10,453,167,000 10,142,036,000 (311,131,000) (2.98)
Repair and Maintenance 19,877,594,000 17,779,699,000 (2,097,895,000) (10.55)

Operating Expenses 26,094,429,000 26,255,239,000 160,810,000 0.62
Other Revenue Expenditure 32,386,811,000 32,445,412,000 58,601,000 0.18
Improvement and Welfare
188,000,000 190,897,000 2,897,000 1.54
Expenditure
Misc Advance - 54,409,000 54,409,000
Total 89,000,001,000 86,867,692,000 2,132,309,000 2.40
Table-3
Source: Financial Review of PR for the year 2018-19
Audit observed that during the year 2018-19, financial management of resources was not
up to the mark in the PR. Comparison between allocated budget and actual expenditure revealed
that the actual expenditure incurred under “voted and charged” portions of Revenue Grant was
less than the final allocation and there was unspent amount of Rs 2,335.87 million (2.60%). The
unspent amount under repair and maintenance was due to non-adjustment of value of stores
supplied by store department to the consuming departments i.e. mechanical and civil. Although
supplementary grant of Rs 2,500 million was provided, the earnings target was not revised
accordingly.

2.1.2. Capital Grant No. 151 of PR for the year 2018-19
(Rs in millions)
Supplementary
Original Final Actual Variation
Items Allocation
Allocation Allocation Expenditure
(Surrender) Excess/ (Saving) %
Voted
28,065.05 (5,272.18) 22,792.87 21,126.87 (1,666.00) (7.31)
(Capital)
Table-4
Source: Appropriation Account of PR 2018-19
The actual expenditure of capital grant was Rs 21,127 million against final allocation of
Rs 22,793 million resultantly there was unspent amount of Rs 1,666 million (7.31%). A trend
analysis of last one decade shows that there were persistent unspent amounts under capital grant
which indicates inappropriate/poor budgetary controls and weak financial management.
Financial year 2019 is not an exception to this trend.
During the FY 2018-19, twenty eight PSDP projects were planned; Out of these nine
projects have been completed and remaining nineteen projects are in progress.
2.1.3. Analysis of Appropriation Accounts
Analysis of appropriation account of Pakistan Railways, for the FY 2018-19, revealed

several qualifications mentioned underneath:
(i) Non-adoption of New Accounting Model: On 1st of July, 2005 The Auditor
General of Pakistan prescribed a Chart of Accounts for classification of
Government receipt and expenses by all the Federal, Provincial and self-
accounting entities. PR, being a self-accounting entity, was required to implement
the new Chart of Account (COA). However, the new chart of account, as well as
accounting code, for self accounting entities has not so far been adopted by PR.
(ii) Non-adjustment of expenditure held under suspense heads: As on 30th June
2019, an amount of Rs 1,752.15 million appeared outstanding in the head of
capital suspense. The amount has accumulated over the years and represents
expenditure incurred by Concrete Sleeper Factories (CSF) for manufacturing of
sleepers. However, the amount has not been adjusted to the final head of account.
This resulted in understatement of expenditure.
(iii) Deliberate deferment of expenses to next financial year: Expenditure under the
head operational fuel for the month of June, 2019, amounting to Rs 1,714.34
million, was initially booked in the accounts for the FY 2018-19. However, the
same amount was subsequently reversed and transferred to the next financial year
2019-20. This resulted in understatement of expenditure and material
misstatement amounting to Rs 1,714.34 million for the FY 2018-19.

(iv) Misclassification of expenditure under different heads of accounts:
Expenditure of Rs 684.54 million was booked under irrelevant heads of accounts
in violation to codal provisions.
(v) Wrong booking of expenditure pertaining to previous years: Certain expenses
relating to heads of operating, repair & maintenance etc. incurred in previous
years were adjusted and booked in the FY 2018-19. Therefore, the working
expenses were overstated by Rs 643.90 million.
(vi) Unauthorized expenditure without budget allotment: An expenditure of Rs
408.687 million pertained to different heads of account was incurred without
budget allotment for the Financial Year 2018-19. This resulted in unauthorized
expenditure. (Detailed in Annexure-A)
(vii) Wrong booking of capital expenditure: An expenditure of Rs 304.40 million
pertaining to the accounting unit of Mechanical Projects, Mughalpura was booked
by Accounts Officer Project, Headquarters (HQ) in the accumulated figures
without taking into accounts the expenditure of current month. This resulted in
understatement of expenditure on capital accounts.
(viii) Misclassification of expenditure from Revenue to Capital Grant and vice
versa: An expenditure of Rs 76.19 million was misclassified in violation to codal
provisions. The booking of revenue expenditure to capital was Rs 52.78 million
and booking of capital expenditure to revenue was Rs 23.40 million. (Detailed in
Annexure-B)
(ix) Non-recording of head wise budget and expenditure of capital grant: Instead
of detailed head-wise allotment of funds, a lump sum capital grant of Rs 22,793
million was allocated to different public sector development projects for the FY
2018-19. Accordingly lump sum expenditure was recorded against each project
without head wise detail. There are ample chances of wrong utilization of funds
due to non-allocation of funds in appropriate heads and non recording of detailed
head wise expenditure.
2.2. Commercial Accounts for the FY 2018-19
Pakistan Railways is as much a Government concern as a commercial enterprise. Its

accounts should, therefore, not only follow the essential formalities of Government accounting
but also conform to the requirements of commercial accounting. The commercial accounts of the
Pakistan Railways are known as “Financial Statements”. Financial Statements of Pakistan
Railways comprised Profit and Loss account, Balance Sheet and notes to the accounts.
2.2.1 Profit and Loss Account

Profit and Loss Account of Pakistan Railways shows financial information in respect of
gross earnings, costs, and expenses incurred during the financial year 2018-19. The profit and
loss account is given below. Moreover, head wise detail of expenditure is given in Annexure-C.

(Amount in Rs)
Description 2018-19 2017-18 Variation %
Gross Earning 54,507,931,037 49,569,679,092 4,938,251,945 9.96
Operating Expenses
i. Ordinary Working
Expenses 53,850,468,126 52,152,040,021 1,698,428,105 3.26
ii. Other Expenditure 32,445,412,030 33,193,208,137 (747,796,107) (2.25)
iii. Improvement &
Welfare Expenditure 190,896,914 169,136,011 21,760,903 12.87
Total Working
Expenses 86,486,777,070 85,514,384,169 972,392,901 1.14
Operating
Surplus/(Loss) (31,978,846,033) (35,944,705,077) (3,965,859,044) (11.03)
Interest on Debt 796,433,359 683,335,044 113,098,315 16.55
Profit/(Loss) (32,775,279,392) (36,628,040,121) (3,852,760,729) (10.52)
Misc. Receipts 5,994,700 5,990,642 4,058 0.07
Net Profit/(Loss) (32,769,284,692) (36,622,049,479) (3,852,764,787) (11.75)

Table-5
Source: Commercial Accounts of PR 2018-19
2.2.1.1 Analysis of Profit & Loss Account
The analysis of Profit & Loss Account revealed the following facts:
(i) Gross earnings: Earnings of PR comprised of passenger, other coaching, goods

and sundry earnings. There was an increase of 10% in earnings as compared to
previous year. Passenger sector was the major contributor towards the increase in
earnings of PR. However, advance sales of tickets were not recorded on accrual
basis. Audit has reservations on accrual basis of recognition of revenue and
crediting of unrelated items to the earnings. For instance, booking of receipts on
account of securities and deposits, amounting to Rs 660 million, and withholding
tax, amounting to Rs 70.55 million, to gross earnings resulted in overstatement of
earnings for the year 2018-19. Audit has expressed adverse opinion on these
aspects of gross earnings.
(ii) Ordinary working expenses: Expenses on account of administrative, repair &
maintenance and operating heads witnessed an increase of 3% during the year.
This increase did not depict a true picture due to deferment of expenses on

account of operational fuel and non-adjustment of suspense balance and
inventories.
(iii) Pension payments: PR has 121,000 pensioners and the expenditure on account of
pension of Rs 31,858 million was charged to working expenses under the head
other revenue expenditure, which was 37% of working expenses. The payments
were made out of revenue grant and grant-in-aid by the Federal Government.
However, the obligation regarding post-employment benefits i.e. commutation,
pension payments, medical and travelling facility were not booked in the accounts
on the balance sheet date in contravention of IAS-19. This requires an entity to
recognize a liability when an employee has provided service in exchange for
employee benefits to be paid in the future and valuation should be conducted in
order to assess the entity's obligation at the balance sheet date. This was not done
by PR and the entire expenditure was charged to working expenses of each
financial year. This created an extra burden on working expenses of PR and
resulted in operational loss of Rs 31,979 million for the year 2018-19.
(iv) Improvement and welfare: The expenditure against this fund comprised
provision of passenger amenities, execution of staff welfare works and other un-
remunerative works which registered an increase of 13%. This was due to
increase in expenditure on public passenger amenities. But this needs to be further
improved due to dilapidated facilities provided to passengers and its expenditure
is much lesser in comparison of passenger earnings.
(v) Operating loss: There was a huge gap between the working expenses and the
gross earnings of PR. The working expenses were Rs 86,486.77 million whereas
the gross earnings were Rs 54,507.93 million during the year 2018-19. The gap
between working expenses and gross earnings resulted in operational loss of
Rs 31,978.84 million. Needless to say, the operational loss would have further
increased if the deferred expenditure and adjustment of suspense balances were
made in the accounts.
(vi) Interest on debt: Interest on foreign loans and overdraft had marked an increase
of 16% which was due to increase in interest on account of overdraft with SBP.
(vii) Net loss: PR suffered a net loss of Rs 32,769.28 million during the year. Net loss
decreased by 11.75% as compared to previous year but PR still requires a huge
contribution margin to turn the organization into profit making enterprise.
(viii) Matching principle and revenue/ expenses recognition: PR recognises it‟s
earning on accrual basis and expenses on cash basis of accounting. This
contradictory policy was against the matching principle. It resulted in
overstatement of earnings and understatement of expenses.
(ix) Grant-in-aid: Federal Government provided Grant-in-aid amounting to Rs
37,000 million to PR for meeting operational expenses and to cover the deficit.
The entire amount was transferred to Railway reserve fund as receipts during the

year. This was used to offset the net loss of PR of Rs 32,769 million during the
year 2018-19. The remaining amount of Rs 4,230.72 million resulted in increase
in Railway Reserve Fund. This policy was not in accordance with International
Accounting Standard (IAS-20) which requires that it should be booked either as
revenue or in reduction of expenditure. Further, the Finance Division has not so
far prescribed any accounting treatment for grant-in-aid whether it would be
booked as investment of FG or considered as subsidy to PR.
2.2.2 Balance Sheet of Pakistan Railways as on 30th June 2019
Balance Sheet of Pakistan Railways as on 30th June 2019 and its comparison with
previous year is tabulated below:
(Rupees in millions)
Variation
Variance
Particulars 2018-19 2017-18 Increase
in %
/(Decrease)
1. Capital & Net Worth
(a) Investment by Government 258,018.75 235,645.38 22,373.37 9.49
(b) Cumulative Surplus/ (Deficit) (36,924.39) (36,924.39) - -
Total Capital & Net Worth 221,094.35 198,720.98 22,373.37 11.26
2. Revenue Reserves
(a) Depreciation Reserve Fund 37,698.69 37,062.41 636.28 1.72
(b) Improvement Fund 529.39 529.39 - -
(c) Railway Reserve Fund 25,899.47 21,668.76 4,230.72 19.52
Total Revenue Reserves 64,127.56 59,260.56 4,867.00 8.21
3. Long Term Liabilities
(a) Provident Fund 6,886.96 6,594.50 292.46 4.43
(b) Staff Benefit Fund 38.60 36.12 2.47 6.85
(c) Foreign Loans/ Credits:
(i) On Capital Account 26,174.99 26,174.99 - -
(ii) On Replacement Account 3,173.33 3,173.33 - -
(d) Overdraft with State Bank of
37,264.36 37,651.25 (386.89) (1.03)
Pakistan
Total Long Term Liabilities 73,538.23 73,630.19 (91.96) (0.12)
4. Current Liabilities
(a) Sundry Creditors 3,700.33 1,724.30 1,976.03 114.60
(b) Security & Deposits 14,932.21 14,690.57 241.65 1.64

(c) Accrued Liabilities 91.51 91.51 - -
Total Current Liabilities 18,724.05 16,506.38 2,217.68 13.44
Total Liabilities & Capital 377,484.20 348,118.12 29,366.08 8.44

1. Fixed Assets
(a) Tangible Assets:
(i) Land 904.47 904.47 - -
(ii) Structural & Engineering
35,150.77 33,377.35 1,773.41 5.31
Works
(iii) Equipment 22,216.94 21,174.67 1,042.26 4.92
(iv) Rolling Stock 94,452.48 85,404.42 9,048.06 10.59
(b) Investments 191.80 191.80 - -
(c) Preliminary Expenses,
12,214.03 9,466.12 2,747.90 29.03
Miscellaneous and General Charges
Total Fixed Assets 165,130.47 150,518.84 14,611.64 9.71
2. Deferred Assets 135,996.79 128,891.16 7,105.63 5.51
3. Current Assets
(a) Inventories 20,694.59 17,320.62 3,373.97 19.48
(b) Accounts Receivable 9,818.00 9,105.14 712.86 7.83
(c) Pre-payments and Advances 16,219.62 13,327.26 2,892.35 21.70
(d) Sundry Debtors - - - -
(e) Cash in hand and in Bank 15,330.39 15,616.73 (286.35) (1.83)
(f) Balance of amount in account
14,294.34 13,338.37 955.97 7.17
current with Government
Total Current Assets 76,356.93 68,708.12 7,648.81 11.13
Total Assets 377,484.20 348,118.12 29,366.08 8.44
Table-6
Source: Commercial Accounts of PR 2018-19
2.2.2.1 Analysis of Balance sheet
The analysis of Balance Sheet reveals the following facts:
1. Capital and Net worth

(a) Investments by Government: The investment increased by Rs 22,373 million
(9.49%) over the preceding year. This increase was due to injection of funds by the
Federal Government through cash release for public sector development programs

(PSDP). The amount was utilized to carry out different development projects by
PR.
(b) Cumulative losses: Losses of Rs 36,924 million remained unchanged due to the
provision of Federal Government assistance of Rs 37,000 million. The grant was
used to offset the amount of net loss for the year 2018-19. The amount under this
head represents net adjusted balance of cumulative losses and no impact of
progressive losses of previous years was recorded under the head. Therefore, the
disclosure of cumulative losses was not appropriate.
2. Revenue Reserves
There are three types of funds maintained by PR under revenue reserves are given below:
(a) Depreciation reserve fund (DRF): This fund was created for replacement and
renewal of existing assets of PR through contribution from revenue. However, the
practice stopped due to weak financial health of PR. In the financial year 2018-19,
Federal Government investment on Replacement Account of Rs 7,105.63 million
was booked to DRF. This amount was first booked under the head “Investment by
Government” and at the same time, it was booked to DRF. Audit has reservations
on this practice of double booking and expressed adverse opinion in this regard.
The balance of Rs 37,698 million represents notional amount and no cash backup
was available with PR.
(b) Improvement fund: This fund was created for providing facilities to passengers
and staff of PR on the basis of levy on tickets. However, the practice stopped due
to continuous losses and the expenditure was met out of revenue grant and charged
to working expenses under the head improvement and welfare expenditure.
(c) Railway reserve fund: Railways reserve fund increased by Rs 4,231 million
(19%) over the preceding year. Grant-in-aid by FG was booked to this head and
net loss of PR was adjusted against this account. The increase represents remaining
amount of Grant-in-aid as explained vide point (ix) under analysis of profit and
loss account. The balance of Rs 25,899 million appearing under this head is a
notional amount and no cash backup was available with PR.
3. Long term liabilities
(a) Provident Fund; The fund increased by Rs 292.46 million (4.43%) over the
preceding year. The fund was built-up with the subscription deducted from regular
salaries of employees which was being paid at the retirement of employees.
Separate bank account with SBP is now being maintained by PR for the purpose,
although the bank balance does not commensurate with the actual liability payable
to the employees.
(b) Staff benefit fund: This fund was created to provide certain amenities to
distressed employees of PR. The fund was contributed from fines levied to

employees and contributions from revenue. The contribution from revenue has
been stopped due to continuous losses. The amount under this head has increased
by Rs 2.47 million (6.85%) during the year.
(c) Foreign loans/ credits: On capital account foreign loans were Rs 26,174.99
million and on replacement account they were Rs 3,173.33 million. This amount
remained unchanged due to non-retirement of foreign loans during the period.
However, interest of Rs 300 million was paid during the period. Accrued liability
on account of interest and exchange risk premium on foreign loans was not booked
and disclosure was not made in the financial Statements. Audit expressed adverse
opinion on this aspect.
(d) Overdraft with State Bank of Pakistan: Overdraft has decreased by Rs 386.89
million (1.03%) during the period and the liability of this account was
Rs 37,264.36 million as on 30th June 2019. This credit line was also provided to
temporarily bridge the gap between the earnings and working expenses of PR.
However, PR was not being able to pay back the amount due to continuous cash
shortfall over the years. This was capped at Rs 40,000 million and an interest of
Rs 496.43 million was paid during the period.
4. Current Liabilities
(a) Sundry creditors increased by Rs 1,976.03 million (114%) due to increase under
the head miscellaneous creditors during the period and total liability under this
head as on 30th June 2019 was Rs 3,700.33 million.
(b) Securities and deposits increased by Rs 241.65 million (1.64%) and total liability
under this head as on 30th June 2019 was Rs 14,932 million. It primarily consisted
of deposits from contractors, public bodies and private parties for execution of
works.
(c) Accrued liabilities were static at Rs 91.51 million for the last three years due to
non-booking of accrued expenses at the closing date of balance sheet. Further, the
balance was not reconciled and cleared although payments have been made in
subsequent years.
1. Fixed Assets
(a) Tangible Assets: Depreciation on account of all tangible wasting assets was not
booked in the accounts and all tangible assets were presented at their original/
historic cost. Audit expressed adverse opinion on this aspect. Further asset
registers were not being maintained and disclosed in financial statements.
Therefore, the actual number of assets and their relative value could not be
ascertained. Furthermore, classification of tangible assets among structural
engineering works, equipment and rolling stock was inappropriate for example
locomotives were classified under equipment and buildings were classified under

structural engineering works. The tangible assets were categorized in the
following four sub-heads:
(i) Land: The value of land is being presented at the historic cost and PR has not
revaluated land and buildings to their fair value. Furthermore, value of land
acquired by PR for expansion of Railway network, during the last three
decades, has not been reflected in the financial statements. For example recent
acquiring of land for establishing Gwadar Railway station and Dry Port,
valuing Rs 1,300 million approximately, was not disclosed in the Financial
Statements.
(ii) Structural Engineering works: There was an increase of Rs 1,773.41 million
(5.31%) due to booking of expenditure incurred on various projects relating to
construction of structural and engineering works but no segregation or detail
is available either in the Financial Statements or in the physical asset register
regarding acquisition of new assets or addition to the existing assets.
(iii)Equipment: Value of equipment increased by Rs 1,042.26 million (4.92%)
due to booking of expenditure incurred on various projects related to
procurement of equipments.
(iv) Rolling stock: Value increased by Rs 9,048.06 million (10.59%) due to
booking of expenditure incurred on various projects related to procurement
and manufacturing of rolling stock i.e. locomotives, carriage and wagons.
However, losses of rolling stock due to accidents were not being disclosed in
the books of accounts. PR management suffered huge losses on account of
accidents having worth more than Rs 1,000 million during last five years8 but
these losses were not disclosed in the books of accounts.
(b) Investments: PR had a total investment of Rs 191.80 million in its subsidiaries i.e.
Railway Constructions Pakistan Limited (RAILCOP), Pakistan Railway Advisory
and Consultancy Services (PRACS), Pakistan Railway Freight Transportation
Company (PRFTC) and in Karachi Circular Railway (KCR). Out of the total
investment the major chunk, amounting to Rs 180.00 million, was made in KCR.
The project of KCR was not completed and therefore no financial benefits could be
reaped by PR.
(c) Preliminary expenses miscellaneous and general charges: There was an
increase of Rs 2,748 million (29%) during the year. The increase was due to
incurrence of expenditure on various feasibility studies for projects relating to rail
links between different locations. Major expenditure under this head was incurred
on preliminary design & drawings for up-gradation of Main Line-I (ML-I) and
8
Special study on accidental losses 2017-18

Establishment of Dry port at Havelian. However, these preliminary expenses were
never classified into the relevant class of asset after completion of the projects.
2. Deferred Assets: Deferred Assets increased by Rs 7,105.64 million (5.51%) over
the preceding year. The increase was due to wrong accounting treatment relating to
the booking of Federal Government Investment on Replacement Account under
the head DRF and to give its effect on the assets side of Balance Sheet, the same
amount was charged to Deferred Assets. Further, the disclosure of deferred assets
in balance sheet does not conform to IFRS. Audit has expressed adverse opinion
on this incorrect accounting treatment.
3. Current Assets
(a) Inventories increased by Rs 3,373.97 million (19.48%) over the preceding year.
Inventory consisted of stores, scrap and suspense heads valuing Rs 20,695.59
million as on 30th June, 2019. The description of each class of inventory is as
follows:
(i) Sales represent realizable value of different items of scraps material and
rolling stock which was either obsolete or unserviceable. This constitutes 21%
of inventories and the amount has been increased from last one decade but no
detail of sale of scrap is disclosed in the Financial Statements.
(ii) Stores represent amount incurred from revenue grant for the procurement of
spare parts to be utilized for repair and maintenance of rolling stock and
structural engineering works. But the same has not been utilized and were
lying pending for adjustment in the books of accounts. This constitutes 56%
of inventories and the amount is increasing since last one decade. This did not
represent actual balance of stores as detail of actual inventory was not
available with PR.
(iii)Workshops Manufacturing Suspense represents expenditure incurred for
manufacturing of different items of spares required for periodical overhauling
and nominated repair of rolling stock out of revenue grant. It comprised 22%
of inventories but the expenditure is not being adjusted efficiently in the books
of accounts.
The disclosure of inventories was not in accordance with IAS-2 as the utilization of stores
during the year could not be ascertained. If the amount of suspense balances would have charged
to the final heads of account the amount of loss would increase.
(b) Accounts receivable increased by Rs 712.86 million (7.8%) during the period due
to increase in unrealized traffic earnings and bills receivables. Total accounts
receivables as on 30th June 2019 were Rs 9,817.99 million. The amount had
increased over the years and department wise aging of accounts receivables was
not available with PR. No provision for bad debts exists in the financial statements

to write off the un-realizable bad debts and unrealistic and unrealizable amounts
were also included i.e. irregular/ unauthorized adjustment of bills receivable on
account of illegal overhead crossings by Water and Power Development Authority
(WAPDA), amounting to Rs 456 million, and undeclared dividend from
RAILCOP amounting to Rs 298 million of (subsidiary of PR) were shown as bills
receivables. Audit has expressed adverse opinion on these inadequate and incorrect
disclosures.
(c) Prepayments and advances increased by Rs 2,892.35 million (21.7%) during the
year due to non-adjustment of railway remittances transactions (transfer
divisional). The amount under this head was Rs 16,219.62 million as on 30th June
2019 and comprised Misc. advances, Railway remittances, loans to employees, and
advances for purchases. The description of these items is given below:
(i) Misc. Advances revenue represents advances given to officers for meeting
contingent expenses and unadjusted amounts of utility bills which were
pended for adjustment in the accounts. An amount of Rs 1,556 million was
shown against this head and audit has reservations due to non adjustment of
advances under this head, and expressed adverse opinion. (Detailed in
Annexure-D/1)
(ii) Railway remittances (Transfer Divisional) represent net balance of
remittance transactions between different accounting units of PR. The amount
under this head has increased by Rs 4,475 million (102%) during the year.
This amount also required adjustments in the account of PR but was pending
due to multiple issue like late origination of Transfer Certificates by the
originating units, non-acceptance by the responding units for want of
verification of vouchers by the consumers, insufficiency of vouchers and
inadequacy of budget under the relevant heads etc. Audit is of the view that if
PR had adjusted this amount in books of accounts the amount of loss would
have increased by Rs 4,475 million.
(iii)Advances for purchases represent advances granted to contractors for the
procurement of spare parts, tools, machinery & equipment, rails fittings etc for
executing various development projects. It also includes the amount of Letter
of Credit (LC) opened for imports. Although the amount has reduced during
the year, PR still requires to adjust Rs 4,826 million. Audit has reservations
due to continuous non-adjustment of advances over the years. (Detailed in
Annexure-D/2)
(d) Cash in hand and Bank decreased by Rs 286 million (2%) during the year,
however reasons for the variance couldn‟t be ascertained due to non preparation of
cash flow statement. PR maintains cash accounts with Divisional Paymasters and
Chief Cashier and Treasurer of PR and maintains one consolidated fund account

and different accounts with SBP for different purposes, like pay and pension,
capital works and provident fund etc.
(e) Balance of amount in account current with Government increased by
Rs 955.97 million (7.17%) during the period. This comprised interest levied on
funds of Rs 14,298.21 million shown as receivable but the Finance Division did
not recognize this liability. The PR management agreed to write off this amount by
amortizing 1,500 million every year but this could not be done during the
preceding financial years due to financial crunch. Audit has expressed adverse
opinion on receivables from Federal Government.
2.3 Ratio Analysis
Railway Reform Toolkit (World Bank 2017) was used to ascertain revenue, operational,
financial and investment efficiency and sustainability. Data for the toolkit was extracted from
Year Book, Financial Review, Appropriation Accounts and Commercial Accounts of Pakistan
Railways for the FY 2018-19. Calculations for various measures and their values used for the
tool kit are appended in Annexure-E. Based on Railway Reform Toolkit (World Bank 2017),
following ratios and interpretations came to fore:
(i) Revenue ratios:
Sr. # Revenue ratio Units 2018-19 2017-18

1 Revenue to traffic unit Rs per KM travelled 1.32:1 1.37:1
2 Collection Ratio No of Days 66 67
Subsidy to total traffic
3 Rs per KM Travelled 0.98:1 1.16:1
Unit
4 Subsidy as % of GDP Percentage 0.10% 0.12%
Table-7
Revenue to traffic unit and collection ratio slightly decreased which is not a good sign.
On the other hand, there is good sign with a decrease in subsidy to total traffic unit. The subsidy
given to Pakistan Railways was 0.10% of Gross Domestic Product (GDP) for the year 2018-19.
(ii) Operating ratios:
Sr. # Operating ratio Units 2018-19 2017-18

Total Operating cost to
1 Rs per Km 2.28:1 2.59:1
traffic unit
2 Labor cost to traffic unit Rs per Km 0.19 0.20
3 Traffic density Km travelled per Km 3,189,869.20 2,776,208.32
4 Average payment period No of Days 16 7
Table-8
In financial year 2018-19, PR‟s total operating cost to traffic unit and labor to traffic unit
decreased which is a good sign. Traffic density shows that trains in Pakistan Railways travelled
3,189.87 times on whole track during the FY 2018-19 which is 15% higher than the FY 2017-18.
On the other hand, average payment increased by 9 days which is not a good sign.
(iii) Debt Servicing
Sr. # Debt Service ratio Units 2018-19 2017-18
1 Gearing Ratio Percentage 25.78% 28.54%
Table-9
Gearing ratios measure financial leverage and demonstrates the degree to operations
funded by equity/capital versus debt financing. In Pakistan Railways‟ scenario, operations were
funded by 25.78% of debt which decreased by 2.76 % from last year due to decrease in
overdraft.
(iv) Operational Sustainability
Operational
Sr. # Units 2018-19 2017-18
Sustainability
Total Operating Expense
1 Percentage 158.67% 172.51%
ratio
Table-10
The operating expenses ratio is a measurement that how profitable a piece of income is.
In every going concern organization, a lower operating ratio is desired as it means that expenses
are minimized relative to revenue. Although the total operating expense ratio decreased by
13.84% with reference to FY 2017-18, but it is still on high side.
Vertical analysis of different ratios reveals that PR spends Rs 2.28 per KM for earning
Rs 1.32 per KM. The deficit is primarily met through subsidy received from the Federal
Government.

Chapter-3 Assessing the reporting adequacies in terms of IFRS
3.1 Introduction of IFRS
International Accounting Standard Board (IASB) was established in 2001 to harmonize
global financial reporting standards. Accordingly IASB started to develop new Standards and
Interpretations. IFRS standards comprise the IAS Standards, IFRS standards and interpretation
developed by the IFRS interpretations committee. The list of IFRS is appended at Annexure-F.
3.2 Reporting inadequacies in terms of IFRS
The objective of general purpose financial reporting is to provide financial information

about the reporting entity that is useful to existing and potential investors, lenders and other
creditors in making decisions relating to providing resources to the entity. Those decisions
include buying, selling or holding equity and debt instruments, providing or settling loans and
other forms of credit, exercising rights to vote on, or otherwise influence management.
Furthermore, general purpose financial reports also provide information about the resources of,
and claims against, an entity and the effects of transactions and other events on those resources
and claims. IFRS Standards bring integrity by enhancing the international comparability and
quality of financial information, enabling investors and other market participants to make
informed economic decisions.
Since 1989, Pakistan Railways is producing financial Statements on the format of

Generally Accepted Accounting Principles (GAAP). These statements do not adhere to IFRS
which resulted in inadequate financial reporting and presents skeptical information. The
inadequacies observed in the Financial Statements of Pakistan Railways are given below:-
Sr. Standard Description Deviations
No. No.
1 IAS 1 Presentation of The statement of cash flows and changes in equity was not
Financial Statements being prepared by PR which is in contravention to the
pristine objectives of general purpose financial reporting.
2 IAS 2 Inventories (i) PR reflected inventories worth, Rs 20,694 million,
under the suspense head without charging to the
concerned final heads of accounts in the balance sheet.
(ii) Complete disclosure of the inventories in line with
IAS-2 was not provided in the Financial Statements.
(iii) Purchase and consumption of inventories were
recorded at standard prices. When standard prices
were revised, all balance items of inventory were
revaluated at revised standard price (last purchase
price). This practice resulted in overvaluation of
inventory in excess of its actual cost. Instead of using
the first-in first-out (FIFO) or weighted average cost
formula, PR management used standard cost method

to determine assets.
3 IAS 8 Accounting Policies, (i) Revenues were recognized on accrual basis whereas;
Changes in expenses were recognized on cash basis of
Accounting accounting.
Estimates and Errors
(ii) Advance sale of tickets was not recognized as per
matching principle.
(iii) PR provide services in its operations for
transportation of fuel, materials stores/ spare parts
and ballast for use in its own projects, factories,
workshops and other Railway departments. Freight
on these services was charged by forwarding and
recipient station in clear violation of IAS 8.
4 IAS 16 Property, Plant and (i) All tangible fixed assets were carried forward at their
Equipment original cost instead of presenting them at cost less
(Cost or revaluation accumulated depreciation and accumulated
model) impairment losses, if any.
(ii) Pakistan Railways did not revaluate the value of
Land periodically; therefore its book value cannot be
considered reliable in terms of Revaluation model.
(iii) Non-recording of expenditure on additions and
replacements of tangible fixed assets made from
DRF.
(iv) Tangible fixed assets were either wrongly classified
or classified in more than one class of tangible fixed
assets.
5 IAS 19 Employee Benefits Obligations regarding post-employment benefits i.e.

pension payments, medical facility and traveling facility,
were not disclosed in the financial statements.
6 IAS 20 Accounting for Federal Government assistance of Rs 37,000 million was

Government Grants received to meet the operational short fall. The assistance
and Disclosure of was neither disclosed as a revenue nor subsidy and was
Government wrongly credited in Railway Reserve Fund account and
Assistance then an amount of Rs 32,769 million was adjusted against
losses leaving the remaining balance as RRF.
7 IAS 21 The Effects of Foreign loans/ credits on account of capital and

Changes in Foreign replacement worth Rs 26,175 million and 3,173 million
Exchange Rates respectively are not translated into the exchange rate
prevailing at the date of balance sheet.
8 IAS 24 Related Party Pakistan Railways did not present and disclose information
Disclosures pertaining to related parties, i.e. Railway Sports Board,
Clubs and Housing Societies in its Financial Statements.

9 IAS 38 Intangible Assets Pakistan Railways did not develop any policy for
recognizing its intangible assets such as Oracle/SAP/
Software /payroll system/ E-ticketing system etc. in the
Financial Statements.
10 IFRS 10 Consolidated Consolidated Financial Statements of PR were not

Financial Statements prepared despite the fact the PR has the following wholly
owned subsidiaries:
(i) Pakistan Railways Advisory and Consultancy
Services (Private) Limited (PRACS),
(ii) Railway Constructions Pakistan Limited
(RAILCOP), and
(iii) Pakistan Railways Freight Transportation Company
(PRFTC)
Table-11
Pakistan Railways is as much a Government concern as a commercial enterprise. Its

accounts should, therefore, not only follow the essential formalities of commercial accounting
but also conform to the requirements of Government accounting. One of the foremost
requirements to operate as a successful business entity is to have a good financial reporting
system in place. Pakistan Railways need to adhere to these international standards.

Chapter-4 Assessment of Control Environment
An internal control environment refers to the overall attitude, awareness and actions of
the top echelons of the entity with regards to existence, importance and effectiveness of internal
control system. Multiple factors like management style, corporate culture, values, philosophy,
operating style, organizational structure, etc define the control environment in the entity.
Committee Of Sponsoring Organization (COSO) defines internal control as „a process,
effected by an entity‟s board of directors, management, and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives relating to operations, reporting
and compliance.‟ Control environment, being an integral component of internal controls, is
strongly connected to objectives of Pakistan Railways. An internal audit and compliance
function is critical to assessing and maintaining control environment. The types and means for
assessing control environment vary from one organization to another and from one industry to
another.
4.1 Types of controls in Pakistan Railways
4.1.1 Management controls
Management controls are the mechanism that allows the top management to direct the
resources of the organization for achieving productivity, efficiency and consistency.
Management Control System (MCS) ensures that resources are used effectively and efficiently in
achieving the corporate goals within the policy guidelines.
The existing Railway law, rules and procedure, as contained in enactments, codes &
manuals, were well defined during the British era. However, PR management could not update
these controls and is still using the aged old legacy. Resultantly, management controls by and
large have now become totally obsolete and ineffective. Currently following Railway Books,
Codes and Manual are being used as British Legacy in the Pakistan Railways:
I. The Railway Act, 1890 (as adopted by Government of Pakistan)
II. The Railway Board Ordinances
III. The General and Subsidiary Rules of Pakistan Railways framed under section 47
of the Railway Act, 1890
IV. Following Railway Codes containing the department wise controls:
(i) PR Code for the Accounts Department (Part I & II)
(ii) PR Code for the Engineering Department
(iii) PR Establishment Codes (Vol-I & II)
(iv) PR Code for the Mechanical Department
(v) PR Code for the Traffic Department
(vi) PR Code for the Stores Department
(vii) PR General Codes (Vol-I & II)

Further audit observed multiple instances of poor compliance of SOPs issued by MoR to
carry out train operations and Instructions issued by Federal Government from time to time
regarding administrative controls rendering a weak control structure. Some of the imbecilities
impacting management control structure are:
(a) Non-existence of strategic plan
(b) Inconsistency of policies of the political regimes
(c) Unnecessary creation and up-gradations of posts at senior management level
(d) Non-existence of Research & Development Wing
(e) Non-hiring of professionals in H.R and rationalization of staff
(f) Non-automation of Railway operations
4.1.2 Financial controls and their structure
Pakistan Railways being a self-accounting entity has departmentalized accounts headed

by Member Finance who is assisted by three FA&CAOs. The FA&CAOs carry out multiple
functions including revenue collection reporting, financial concurrence and compilation of
accounts. The departmentalized accounts performs three functions on behalf of:
(a) Ministry of Railways
(b) Ministry of Finance
(c) CGA & Auditor General of Pakistan
Brief detail of these functions are:
a) Functions performed on behalf of Ministry of Railways
(i) Internal Audit Function
(ii) Exercise of Internal Checks of transactions relating to Railway Receipts
and Expenditures
(iii) Treasury function, including collection of Railway Revenue and
disbursement of salaries and other miscellaneous payments
(iv) Physical verification of stock i.e. inventories, process goods, lying in
various depots, sub depots , workshops, factories, imprest and charged off
stores with engineering subordinates etc. at the intervals and frequency
prescribed in Pakistan Railways Code for the Stores Department
(v) Regular physical check of documents and records relating to Railway
receipts at its primary unit level i.e. Railway Stations on monthly and
periodical basis by the representatives of accounts department known as
Inspector of Station Accounts
b) Functions performed on behalf of Ministry of Finance
(i) Regulating financial matters of Pakistan Railways in light of provisions of
General Financial Rules (GFR), New System of Financial Control and
Budgeting 2006, Railway statutory rules, codes and manuals.

(ii)
Devising detailed procedures orders and SOPs from time to time for better
and smooth financial operations
(c) Functions performed on behalf of CGA & AGP
(i) Maintenance, compilation and reporting of monthly and annual accounts
of Pakistan Railways to the Accountant General Pakistan Revenue
(AGPR) on the prescribed format for and on behalf of CGA & Auditor
General of Pakistan.
Furthermore, the PAO is assisted by Chief Finance & Accounts Officer, (CF&AO) and
CIA. The CF&AO furnishes advice in financial and accounting matters and CIA heads the
internal audit wing.
4.2 Analysis of Control Environment of PR
Audit of financial controls revealed non segregation of functions- both concurrence and
pre-audit functions were being performed by the Accounts Department alone. Moreover,
Pakistan Railways could not adopt the latest accounting models and prevailing IFRS. The
accounts of Pakistan Railways are still being maintained on manual basis.
Despite existence of Internal Audit Department, Pakistan Railways is lacking an efficient
internal control structure. The prime reason for the weak internal audit department is
lackadaisical management response. Resultantly, recurrent irregularities have had been pointed
out by the statutory auditors. A perusal of audit reports, for the last half decade, depicts multiple
deviations from desired internal control environment as discussed below:
4.2.1 Inventory mismanagement:
Pakistan Railways is making huge investments in inventories- the inventory balance,
under various heads like sales/scrap, stores, workshop manufacturing suspense account and
suspense other accounts stood at Rs 20,694.59 million on 30.06.2019. However, the Audit
observed that inventory balances are not organized, counted, inspected, segregated and classified
as per modern standards. A standardized book keeping of inventory and inventory review for
culling obsolete inventory is not being performed. Owing to these ineffective and weak controls,
PR is beset with problems of theft, misappropriation, overstatement of value of inventory and
unnecessary procurements resulting in capital blockage.
4.2.2 Poor asset management:
Pakistan Railways has weak physical and financial controls over tangible assets. Proper
recording of assets i.e. the date of purchase, model number, serial number, acquisition cost,
expected life through asset register is not being maintained at HQ and Divisional levels. Periodic
review of controls, policies and procedure regarding acquisition, booking in relevant heads,
depreciation, capitalization, useful life expectancy, inspection and salvage value for assets has
not been carried out by the management of PR. Therefore, the financial statements of PR do not
reflect true and fair picture about assets management.

4.2.3 Inappropriate Procurement and Consumption Practices:
Poor adherence of Public Procurement Rules and deviations from codal provisions, has
resulted in multiple procurement issues in Pakistan Railways, like substandard quality,
overpricing, defective material etc. Furthermore, the consumption trend for procurements in
general and operational fuel in particular varied over the years. The classic example of this is
High Speed Diesel (HSD).
The efficient fuel management system is the mainstay of cost effective train operations.
Despite, inclusion of more fuel-efficient locomotives to the fleet, PR operational fuel
consumption remained high. In 2018-19, PR consumed 159.93 million liters of HSD oil 9 .
Besides irrational rationing system, the major factor responsible for the excess consumption of
HSD oil is non-adoption of modern accountal and measurement systems.
4.2.4 Defective land management:
Besides earning from its core functions i.e. passenger and freight business, PR‟s earnings
include leasing of surplus Railway land for commercial and agricultural purposes. Pakistan
Railways has 167,690 acres of land for operational and leasing purpose. However,
encroachments, non-compliance of lease agreements and defective leasing policies have resulted
in a loss of potential revenue. Audit observed, encroachments on railway land valuing, at
Rs 4,474.74 million10, depriving PR of significant lease earning. However, one classic example
of defective land management is Royal Palm Golf & Country Club11.
4.2.5 Poor human resource management:

As discussed in Para 1.6 of chapter 1 of the report, the HR department of PR is being
manned through adhocism. The cadre comprises of non-professionals with a week hierarchy.
4.2.6 Project Mismanagement:
Project mismanagement is another high risk area. In order to rehabilitate and improve
Railway infrastructure, rolling stock, equipment and operational systems, Government of
Pakistan allocated funds through Public Sector Development Programme. During financial year
2018-19 an expenditure of Rs 21,126.87 million was incurred on the execution of 28 projects.
Project mismanagement resulted both in cost and time overrun in almost all projects. Mis-
utilization of PSDP funds has also been highlighted in the Report.
For a public owned commercial concern, like Pakistan Railways, both policymakers and
management owe the responsibility of ensuring existence of an appropriate internal control
environment. A control environment having adequate and effective internal controls, efficient
risk management paraphernalia and sound governance policies will be a sine qua non for survival
of Pakistan Railways as a going concern.
9
Audit Report 2018-19
10
ibid
11
Interim Forensic Audit Report RPGCC

Annexures
Annexure-A
Unauthorized expenditure without budget allotment

Rs in million
Actual
Head of Account NAM Head Budget
Expenditure
Railway Board
Rent of Office Building A03402 0 1.975
Purchase of Medicine A03927 0 0.060
Write off Loans Advances (Govt. Servants) A05301 0 0.013
Locomotive Factory
Rent for Res. Building A03403 0 0.353
F.A. & C.A.O/PR
Insurance A03602 0 0.090
Software. A13702 0 0.036
F.A. & C.A.O/M&S
Entertainment & Gifts A06301 0 1.009
F.A. & C.A.O/Revenue
Bank / Legal Fees A03101-2 0 2.363
Chief Internal Auditor
Lump sum Grant A05216 0 0.006
Police Department
Software. A09202 0 0.003
Software. A13702 0 0.002
DIVL/HQ Administration
Conference Workshop Seminar Symposia A03903 0 0.056
Advertisement & Publicity A03907 0 9.612
Delegation Abroad A03912 0 0.578
Stores Department
Transportation of Goods A03806 0 3.766
Misc. Expenses:

Management Information System (I.T)
POL Charges A03807 0 0.025
P. Way engineering & structural works
Furniture & Fixture A13201 0 5.090
Track Machine A13101 0 171.739
Operating Expenses
Electricity A03303 0 14.707
Elec. & genl. Comm. Services
T.A/D.A. A03805 0 30.686
Others A03970 0 2.240
Imp. & welfare expenditure
Others A03970 0 24.287
Staff Welfare Works
Others A03970 0 80.943
G.M./Development
Furniture & Fixture A09701 0 0.003
Hardware / I.T Equipment A09201&03 0 0.119
Medical
Cash awards. A06103 0 0.003
Director School
Misc. Advance 0 54.409
Total 408.687

Annexure-B
Misclassification of Expenditure (PSDP to Revenue)
Sr. No Accounting Unit Para No Correct Head Wrong Head Amount in Rs
1 DAO Quetta 26 PSDP Revenue 296,750

2 17 PSDP Revenue 4,492,447
3 DAO KYC 39 PSDP Revenue 2,600,000
4 40 PSDP Revenue 3,540,000
DAO PSC 12 PSDP Revenue 2,280,134

5
27 PSDP Revenue 7,687,297
6 DAO RWP 54 PSDP Revenue 1,011,145
7 SAO CFI 24 PSDP Revenue 1,498,000
Total 23,405,773
Misclassification of Expenditure (Revenue to PSDP)
Sr. No Accounting Unit Para No Correct Head Wrong Head Amount in Rs
1 6 Revenue PSDP 323,587

DAO Karachi
2 41 Revenue PSDP 51,441,511
3 AO Project 81 Revenue PSDP 1,016,980
Total 52,782,078

Annexure-C
Head wise detail of expenditure of Profit and Loss account

Figure in Rs
Ordinary Working
2017-18 2018-19 Variation %
Expenses
Administration 9,221,757,651 9,518,348,964 296,591,313 3.22
Repair & Maintenance 19,337,641,973 17,779,699,366 (1,557,942,607) (8.06)
Operating Staff 6,732,444,611 7,247,207,433 514,762,822 7.65
Operational Fuel 13,887,571,635 16,168,199,888 2,280,628,253 16.42
Operation other than
2,637,963,661 2,839,831,833 201,868,172 7.65
Staff & Fuel
Misc. Expenses 253,361,403 218,670,396 (34,691,007) (13.69)
Other Expenses 81,299,087 78,510,246 (2,788,841) (3.43)
Total Working
52,152,040,021 53,850,468,126 1,698,428,105 3.26
Expenses
I. Other Expenditures
Health & Welfare
418,539,683 345,743,378 (72,796,305) (17.39)
Services
Staff Training 171,802,462 142,858,478 (28,943,984) (16.85)
Educational Facilities 99,057,533 96,657,210 (2,400,323) (2.42)
Contribution to SBF &
582,271,581 441,260,950 (141,010,631) (24.22)
Other Welfare Funds
Pension Payments 31,858,144,042 31,418,892,014 (439,252,028) (1.38)
Other Misc Expenses 63,392,836 - (63,392,836) (100.00)
Total Other
33,193,208,137 32,445,412,030 (747,796,107) (2.25)
Expenditures
II. Improvement & Welfare Expenditures
Public & Passenger
1,780,088 24,287,636 22,507,548 1264.41
Amenities
Staff Welfare Works 84,021,356 80,943,437 (3,077,919) (3.66)
Other Un-remunerative
83,334,567 85,665,841 2,331,274 2.80
Works
Total Improvement &
169,136,011 190,896,914 21,760,903 12.87
Welfare Expenditures
III. Interest on Debt
Interest on Foreign
300,000,000 300,000,000 -
Loans
Interest on Overdraft 383,335,044 496,433,359 113,098,315 29.50
Total Interest on Debt 683,335,044 796,433,359 113,098,315 16.55
Source: Financial Statements and notes for the year 2018-19

Annexure - D
Prepayment and Advances
1. (Misc. Advance Revenue)

Figure in Rs
Cumulative Outstanding on
Sr. No Suspense Head 30/06/2019
Cr Dr
i Advance for Local Purchase 92,263,883 111,049,358
ii Outstanding Electric Charges 554,894,596 353,808,503
iii Outstanding Sui Gas Charges 36,681,624 1,507,275,358
iv Outstanding Telephone Charges 26,114 105,866
v Other items 35,023,875 303,209,667
Total Miscellaneous advance (Revenue) 718,890,092 2,275,448,752
Net Off 1,556,558,660
2. Miscellaneous Advance Purchases

Figure in Rs
Cumulative Outstanding on
Sr. No Suspense Head 30.06.2019
Cr Dr
i Purchases -615,455,157 4,210,943,772

Net Off 4,826,398,929

Annexure-E
Ratio Analysis
Railway reforms toolkit (World Bank)
Name of
S# Formula 2017-18 2018-19
Ratio
(i) Revenue Ratio

Revenue
Revenue to (Passenger +
1 45,333,912,591 32,984,131,000 37,898,836,000
Traffic Unit Freight) / Traffic 1.37 50,037,969,272 1.32
Unit
Accounts
Collection Receivables /
2 9,105,135,550 49,569,679,092 67.04 54,507,931,037
Ratio Total Revenue * 9,817,997,698 65.74
365
Government
Subsidy to
3 Subsidy / Traffic 38,397,800,000 32,984,131,000 1.16 37,898,836,000
traffic Unit 37,000,000,000 0.98
Unit
Subsidy as % Government 32,385,295,000,0 35,952,419,000,00
4 38,397,800,000 0.12% 0.10%
of GDP Subsidy / GDP 00 37,000,000,000 0
(ii) Operating Ratio

Total
Total Operating
Operating
1 Expenses / Traffic 32,984,131,000 2.59 86,486,777,070 37,898,836,000 2.28
cost to traffic 85,514,384,169
Unit
unit
Labor cost to Labour Expenses
2 6,732,444,611 32,984,131,000 0.20 7,247,207,433 37,898,836,000 0.19
traffic unit / Traffic Unit
Traffic Traffic Units /
3 32,984,131,000 11,881 2,776,208 11,881 3,189,869
density Track kilometer 37,898,836,000
[Accounts
Average payable/(operatin
4 payment g expenses- 1,724,303,135 85,514,384,169 86,486,777,070 15.62
7.36 3,700,330,041
period depreciation)]*
365
(iii) Debt Service Ratio
Gearing Total Debt / Total
1 73,630,194,109 28.54% 285,221,909,767 25.78%
Ratio Equity 257,981,545,792 73,538,234,599
(iv) Operational Sustainability
Total T. Operating
1 Operating Expenses / Total 85,514,384,169 172.51% 54,507,931,037 158.67%
49,569,679,092 86,486,777,070
Expense ratio Revenue
Source:
(i) Pakistan Railway Year Book 2018-19

(ii) Pakistan Railway Financial 2018-19
(iii) Pakistan Bureau of Statistics

Annexure-F
International Accounting and Financial Reporting Standards
Sr. Standard Standard Title

No. No.
1 IAS 1 Presentation of Financial Statements
2 IAS 2 Inventories
3 IAS 7 Statement of Cash Flows
4 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
5 IAS 10 Events after the Reporting Period
6 IAS 12 Income Taxes
7 IAS 16 Property, Plant and Equipment
8 IAS 19 Employee Benefits
9 IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
10 IAS 21 The Effects of Changes in Foreign Exchange Rates
11 IAS 23 Borrowing Costs
12 IAS 24 Related Party Disclosures
13 IAS 26 Accounting and Reporting by Retirement Benefit Plans
14 IAS 27 Separate Financial Statements
15 IAS 28 Investments in Associates and Joint Ventures
16 IAS 29 Financial Reporting in Hyperinflationary Economies
17 IAS 32 Financial Instruments: Presentation
18 IAS 33 Earnings per Share
19 IAS 34 Interim Financial Reporting
20 IAS 36 Impairment of Assets
21 IAS 37 Provisions, Contingent Liabilities and Contingent Assets
22 IAS 38 Intangible Assets
23 IAS 39 Financial Instruments: Recognition and Measurement
24 IAS 40 Investment Property
25 IAS 41 Agriculture
26 IFRS 1 First-time Adoption of International Financial Reporting Standards
27 IFRS 2 Share-based Payment
28 IFRS 3 Business Combinations
29 IFRS 4 Insurance Contracts
30 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
31 IFRS 6 Exploration for and Evaluation of Mineral Resources
32 IFRS 7 Financial Instruments: Disclosures
33 IFRS 8 Operating Segments
34 IFRS 9 Financial Instruments
35 IFRS 10 Consolidated Financial Statements
36 IFRS 11 Joint Arrangements
37 IFRS 12 Disclosure of Interests in Other Entities
38 IFRS 13 Fair Value Measurement
39 IFRS 14 Regulatory Deferral Accounts
40 IFRS 15 Revenue from Contracts with Customers
41 IFRS 16 Leases
42 IFRS 17 Insurance Contracts

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Audit Report

Department of the Auditor General of Pakistan

Audit Report on Financials of PR for FY 2018-19 Page i

Audit Report on Financials of PR for FY 2018-19 Page ii

Audit Report on Financials of PR for FY 2018-19 Page iii

Depreciation Reserve Fund

Non Voted (Charged)

Revenue and Capital Expenditure

Audit Report on Financials of PR for FY 2018-19 Page iv

Railway Reserve Fund

Suspense under Capital

Suspense under Revenue

Voted (Other than Charged)

Audit Report on Financials of PR for FY 2018-19 Page v

Key findings of the report

(a) Appropriation Accounts

(b) Commercial Accounts

Audit Report on Financials of PR for FY 2018-19 Page vii

2. Financial Reporting inadequacies

(i) Non-preparation of cash flow and statement of changes in equity

3. Internal control environment

(i) Non-existence of Strategic plan

Audit Report on Financials of PR for FY 2018-19 Page viii

Audit Report on Financials of PR for FY 2018-19 Page ix

Audit Report on Financials of PR for FY 2018-19 Page 1

Audit Report on Financials of PR for FY 2018-19 Page 2

Audit Report on Financials of PR for FY 2018-19 Page 3

Audit Report on Financials of PR for FY 2018-19 Page 4

Appropriation Accounts were prepared by the FA&CAO/ Pakistan Railways in respect of

2.1.1 Revenue Grants No. 94 of PR for the year 2018-19

Audit Report on Financials of PR for FY 2018-19 Page 5

Summary of Budgeted and Actual Expenditure

Repair and Maintenance 19,877,594,000 17,779,699,000 (2,097,895,000) (10.55)

Audit Report on Financials of PR for FY 2018-19 Page 6

2.1.3. Analysis of Appropriation Accounts

Analysis of appropriation account of Pakistan Railways, for the FY 2018-19, revealed

Audit Report on Financials of PR for FY 2018-19 Page 7

2.2. Commercial Accounts for the FY 2018-19

Pakistan Railways is as much a Government concern as a commercial enterprise. Its

2.2.1 Profit and Loss Account

Audit Report on Financials of PR for FY 2018-19 Page 8

Gross Earning 54,507,931,037 49,569,679,092 4,938,251,945 9.96

Profit/(Loss) (32,775,279,392) (36,628,040,121) (3,852,760,729) (10.52)

Misc. Receipts 5,994,700 5,990,642 4,058 0.07

Net Profit/(Loss) (32,769,284,692) (36,622,049,479) (3,852,764,787) (11.75)

2.2.1.1 Analysis of Profit & Loss Account

(i) Gross earnings: Earnings of PR comprised of passenger, other coaching, goods

Audit Report on Financials of PR for FY 2018-19 Page 9

Audit Report on Financials of PR for FY 2018-19 Page 10

2.2.2 Balance Sheet of Pakistan Railways as on 30th June 2019

Audit Report on Financials of PR for FY 2018-19 Page 11

Total Liabilities & Capital 377,484.20 348,118.12 29,366.08 8.44

2.2.2.1 Analysis of Balance sheet

The analysis of Balance Sheet reveals the following facts:

1. Capital and Net worth

Audit Report on Financials of PR for FY 2018-19 Page 12

Audit Report on Financials of PR for FY 2018-19 Page 13

Audit Report on Financials of PR for FY 2018-19 Page 14

Audit Report on Financials of PR for FY 2018-19 Page 15

Audit Report on Financials of PR for FY 2018-19 Page 16

Audit Report on Financials of PR for FY 2018-19 Page 17

(i) Revenue ratios: