Professional Documents
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8568 Financial Reporting II
8568 Financial Reporting II
LEVEL M.COM
ROLL NO BY547653
Assignment No.2
The violations of IFRS in the Corporate Sector of Pakistan
Abstract
The worldwide application of International Financial Reporting Standard (IFRS) not only
standardize the accounting treatments but also helpful in producing true and fair financial
statements. All the counties using International Financial Reporting Standard (IFRS) can easily
make comparisons of their financial statements across the corporate sector and country. Because
of its fair results these are highly reliable standards for the allocation of resources and for
keeping the accounting records. The Institute of Chartered Accountants of Pakistan (ICAP) is
responsible for the implementation of these standards in Pakistan. The Institute of Chartered
Commission of Pakistan (SECP), the Securities and Exchange Commission of Pakistan (SECP)
implement these standards but there are some contradictions between these standards and the
companies’ ordinance 1984. The Institute of Chartered Accountants of Pakistan (ICAP) council
formulates a strategy to provide a roadmap for the implementation of these standards. Despite of
all its advantages The International Financial Reporting Standard (IFRS) adoption gave some
challenges e.g., Noncompliance with existing regulations, different views of Securities and
Exchange Commission of Pakistan (SECP) etc. But these standards play an important role in the
No.
1.Introduction 4
2. Literature review 5
Accounting
Accounting
6. Conclusion 12
1. Introduction
The importance of International Financial Reporting Standard (IFRS) and its adoption in
corporate sector of Pakistan. The International Financial Reporting Standard (IFRS) gives
helpful standards for the developing countries that can increase the economic revenues by
showing the true and fair position of the economy. This paper contains the precise discussion of
Financial Reporting Standard (IFRS) adoption in Pakistan. First part of this research outcome
gives the International Financial Reporting Standard (IFRS) principles and their relative
importance.
The Second section connotes the adoption of International Financial Reporting Standard
(IFRS) in Pakistan and its execution by Institute of Chartered Accountants of Pakistan (ICAP)
then implementation by Securities and Exchange Commission of Pakistan (SECP). The Institute
of Chartered Accountants of Pakistan (ICAP) council formulates the strategy for the compliance
of these standards with those of the existing laws and regulations, it also monitors these
standards once implemented. Third section of the paper elaborates the importance of
comparative analysis of, true and fair statements, appropriate allocation of resources, investor’s
confidence etc. The fourth and last part of the study states the obstacles in the adoption of
International Financial Reporting Standard (IFRS) in Pakistan. This research product gives the
Standard)?
Standard) implementation?
➢ RQ4: What are the hurdles in way to implement IFRS (International Financial Reporting Standard)
in Pakistan?
2. Literature review
All the listed firms around the world are influenced directly or indirectly by the
Board (IASB). Accounting standards are formed not only by the pragmatic analysis but also by
the political actions due to which International Financial Reporting Standard (IFRS) is
According to the Fatima Alali & Lei Cao the major undertaking of International Financial
Reporting Standard (IFRS) is to enable the users of financial statements to better compare their
The main goals of International Financial Reporting Standard (IFRS) are to create quality
and relevant standards that are also comparable for the promotion of these standards and to apply
the standards in maintaining the quality (A. Skotarczyk, 2011). The International Accounting
Standard Board (IASB) formulates these accounting standards under the process called ‘due
process’, and individuals, companies and government authorities also help in this process. The
International Financial Reporting Standard (IFRS) are formulated for the unionization of the
accounting standards across the world for better quality and fair value at international level.
These standards provide substitutes for the accounting operations. As the accounting affairs vary
across the country, nations and industries so as different substitutes are available for their
resolution (Financial Standards Report, 2010). The International Financial Reporting Standard
(IFRS) are enforced by the International Accounting Standard Board in 2001. The International
Accounting Standard Board (IASB) replaced the IAS committee because the International
was established on February 1, 2009 the objective of this board is to hire and manage the
members of the committee. The International Accounting Standard Board (IASB) is based upon
the International Accounting Standard Committee (IASC) foundation and it formulates the high
Standard Committee (IASC) are International Accounting Standards (IAS) and those set by the
IAB are called as International Financial Reporting Standard IFRS). There are 30 International
Accounting Standards (IAS) and 8 International Financial Reporting Standard IFRS). The
preparation of financial statements is based upon going concern principal and the accrual-based
accounting. And these financial statements include; balance sheet, income statement, cash flow
statement, statement of changes of equity and the accounting notes. The 110 countries
implemented International Financial Reporting Standard (IFRS) at the time of writing but by the
end of 2011 all the countries shift towards International Financial Reporting Standard (IFRS) for
and quality of accruals concluded that the accounting earnings quality depends upon the
(IFRS) implementation for the preparation of accounting records and there is no direct relation in
the quality of earnings and the International Financial Reporting Standard (IFRS) adoption
The United Nations Conference on Trade and Development (UNCTAD) in 2007 stated
the adoption of International Financial Reporting Standard (IFRS) and Pakistan made major
Report, 2010). Following are the principles of IFRS (International Financial Reporting
Standard):
➢ Inventories (2005)
that were specially formulated for the small and medium size enterprises that are:
➢ Leases (2010)
➢ Revenue (1995)
(2009)
➢ Agriculture (2009)
under the CA Ordinance 1961, it monitors the accounting regulations. Its member has the
authority to sign all the audit reports of the organizations. There are 16 council members
Pakistan (ICAP) is responsible for all the accounting regulations so at the time of International
Financial Reporting Standard (IFRS) implementation after a careful review of these standards by
these standards to Securities and Exchange Commission of Pakistan (SECP). The Securities and
All the companies have to comply these standards as given by the Institute of Chartered
Accountants of Pakistan (ICAP) in the preparation of their accounting records. All the
International Financial Reporting Standard (IFRS) principles that are enforced by the
international standard board (IASB) are applicable in Pakistan except the International Financial
Reporting Standard (IFRS) 1 and International Financial Reporting Standard (IFRS) 9. The
execution of these standards is under consideration of ICAP. Exceptions are there regarding the
adoption of IFRS e.g., International Financial Reporting Issues committee (IFRIC) 4 was
concerned by government on or before the June 30th 2010, IAS 39, 40 & IFRS 7 should be
implemented in case of banks and Development Finance Institutions (DFIs) and IAS 39, 40 in
of
quality of data and also the predictions and decisions varies across the industries. The
methods of forecasting the future cash flows also vary that leads to different techniques
used for the comparisons of the financial statements. The insurance regulations entail to
take the investment at cost or market price whichever is less whereas the IAS 39 requires
ii. The IFRIC 4 & IFRIC 12 implementation is delayed because of these reasons; affect the
status of assets, IRR varies because of the changes in profit and dividend distribution,
calculations of discount rate and lease payments, evaluating the discounting rates of
future cash flows and some other legal constraints are there.
iii. The SECP is of the point of view that mutual funds are not the entities so that its
financial statements cannot be merged with asset management companies but IAS entails
the consolidation of financial statement so IAS is under consideration for the execution
iv. The IAS 1 entails that the existing terminologies and the contents of the financial
v. The contradictions are there in the regulations of IFRS and Companies Ordinance 1984
e.g., in the treatment of revaluation surplus in the balance sheet, in the time period of
6. Conclusion
This study is Summarize up in only few words, IFRS the world’s most acceptable standards
producing true and fair financial statements is composed of such principles that are sufficient for
keeping the financial statements updated and comparative for analysis across the industries and
countries. It includes all the principles regarding the accounting treatment of all material objects.
The IFRS also enhances the cross-border earnings and built investor’s confidence. The IFRS is
implemented in Pakistan by ICAP under the supervision of SECP. The strict strategy is
established by the ICAP council for the implementation of IFRS. After implementing these
standards council review its effects on daily basis. The SECP made appropriate changes as
required in the existing regulations. Despite of its familiarity there are some hurdles in its
implementation like the contradictions with existing regulations, difference in the method of
mutual funds status i.e., mutual fund is not the company so the asset management companies
cannot consolidate he financial statements of mutual funds etc. Limitations of the research study
sector, its regulations adopted by the local industries, solutions to overcome the hurdles in
International Financial Reporting Standard adoption and the enhanced economic revenues are
not discussed in detail. The benefits of International Financial Reporting Standard adoption in
Pakistan are not reported in monetary terms. The International Financial Reporting Standard
International Financial Reporting Standards (IFRS) and Its Influence on Pakistan, Journal of
Applied Finance & Banking, by Hafiz Abdur-Rashid, Fatima Amin and Ayesha
Farooqui,vol.2, no.2, 2012, 1-13, ISSN: 1792-6580 (print version), 1792-6599 (online),