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SR. NO. I. II. III. IV. V. VI.
DESCRIPTION Introduction Executive summary Definitions and terminologies Revisions in general disclosures Changes in balance sheet disclosure requirements Changes in the profit and loss account: disclosure requirements
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The Securities and Exchange Commission of Pakistan vide its S.R.O. 859(1)/2007 dated August 21, 2007 has revised the Fifth Schedule. Most of the inconsistencies that previously existed between the Fifth Schedule, Fourth Schedule and IFRS have now been removed. The Fifth Schedule has been revised to bring it in line with the requirements of the Fourth Schedule. Consequently, now both the schedules are in line with the requirements of IFRS and Accounting Standards for MSEs and SSEs. Key changes in the Revised Fifth Schedule are summarized in the following pages.
EXECUTIVE SUMMARY 1. Medium and Small Sized companies directed to follow the Standards for MSEs and SSEs, as applicable. 2. Provision included that specifically states the Fifth schedule is to apply to all unlisted companies unless otherwise specified. 3. Disclosure requirements of small sized companies excluded from some revised Fifth schedule requirements that are applicable to medium sized companies; particularly in terms of disclosure of : i. Long term and short term investment classifications - held to maturity, available for sale, held for trading, and related disclosures – market value / Book Value. ii. Trade debts and short term loans and advances to and short term investments in related parties iii. Classification of non-current liabilities into suitable sub-heads and separate disclosure of loans from related parties, banking companies. iv. Contingencies and commitments v. Details of remuneration to the directors and CEO 4. Disclosure requirement of ‘Redeemable capital’ has been withdrawn. 5. Debentures and Long-term loans, Liabilities against assets subject to Finance Lease, Deferred Liabilities and Long term Deposits are now classified under the head ‘Noncurrent Liabilities’. 6. In the Revised Fifth Schedule, the clause regarding exchange gain/loss capitalization has been removed to bring it in line with the requirements of IAS 21 and accounting and reporting standard for MSEs. 7. Following terminologies have been changed in the Revised Fifth Schedule: Fixed Assets with ‘Non-current assets’ Tangible assets with ‘Property, Plant & Equipment’ 8. Classification of Long Term Investment and Short Term Investment is now in line with MSE and SSE Standards which is as follows for MSE only: (a) held to maturity investments, which are not due to mature within next twelve months; (b) available for sale investments, which are not intended to be sold within next twelve months, and (c) market value of listed securities and book value of unlisted securities as per their latest available financial statements. 9. The disclosure of ‘Deferred cost’ has been removed from the balance sheet. 10. In the Revised Fifth Schedule clause regarding valuation of Inventories in ‘Current Assets’ has been removed. 11. Current and Long term portion of Murabaha has to be classified separately.
12. The disclosure of “Proposed Dividend” has now been removed from the Balance Sheet - Current Liabilities and Profit and Loss account, bringing it in line with the requirements of IAS 10 ‘Events after the Balance Sheet Date’ and MSE Standard. 13. The following provisions have been included in the fifth schedule: Disclosure of amount of interest on borrowings from related parties. Details of remuneration to directors and CEO.
DEFINITIONS AND TERMINOLOGIES
1. Inclusion of definitions: Following definitions have been added to in the Revised Fifth Schedule: Capital Reserve Economically Significant Company Medium-sized Company Related party Revenue reserves Small-sized Company 2. Exclusion of definitions: Following definitions have been omitted from the Revised Fifth Schedule: Accounting Policies Finance Lease Financial Statements Fund Liability Operating Lease Prior Period Items Provision Reserve Unusual Items Previously, expressions not defined in the Ordinance were to be assigned the meaning under Generally Accepted Accounting Principles (GAAP). Now, users are directed to refer to the ordinance, schedule, IFRS and standards for MSEs and SSEs and if not defined therein the expression shall be assigned the meaning in GAAP. 3. Revised terminologies The following terminologies have been revised: Fixed Assets with ‘Non-current assets Tangible assets with ‘Property, Plant & Equipment’. Debentures and Long-term loans, Liabilities against assets subject to Finance Lease, Deferred Liabilities and Long term Deposits are now classified under the head ‘Non-current Liabilities’. Marketable securities are referred to as short term ‘financial assets’. IV. REVISIONS IN GENERAL DISCLOSURES The following requirements have been included in the revised Fifth Schedule: Medium and Small Sized companies directed to follow the Standards for MSEs and SSEs, as applicable. Provision specifically stating the Fifth schedule to apply to all unlisted companies. General nature of any credit facilities available to the company under contract other than trade credit and not availed of at the balance sheet date to be disclosed. Penalties imposed by any law to be disclosed.
The following disclosure requirements have been excluded from the revised Fifth Schedule: The fact and reason of non compliance with fundamental accounting assumptions. Basis of translation of foreign currency assets or liabilities into rupees. Estimated amounts for material items that can not be accurately quantified together with description of that item. Corresponding figures, except for the first financial statements. Additional information relevant to financial statements to be included in the notes thereto and deemed to be the integral part of the Financial Statements, No provision regarding any information that is of no material significance.
CHANGES IN BALANCE SHEET DISCLOSURE REQUIREMENTS Non Current Assets: The following new disclosures have been included: New line items in Tangible Assets: (a) (b) office equipments development of property
New line items in Intangible Assets (a) (b) (c) brand names complete software licenses and franchise
The following disclosure requirements have been excluded from the revised fifth schedule: o o o o o Disclosure of movements in cost and written down value of property, plant and equipment In case of revaluation of assets disclosure of revalued amounts, cost, valuer details, etc. Exchange gain / loss adjusted in value of non current assets Provision requiring Lump sum depreciation provided before the commencement of the ordinance to be allocated among sub heads Where original cost cannot be ascertained the valuation shall be the net amount at which an asset stood at the commencement of this Ordinance less previously written off amount. Assets subject to finance lease to be disclosed separately.
Long Term Investments The following new disclosures have been included: A company which is not a Small-sized Company: o Classification of Long Term Investment and Short Term Investment is now in line with MSE and SSE Standards which is as follows : (a) held to maturity investments, which are not due to mature within next twelve months; (b) available for sale investments, which are not intended to be sold within next twelve months, and (c) market value of listed securities and book value of unlisted securities as per their latest available financial statements. The following disclosure has been changed in the revised fifth schedule: o Investment in subsidiary companies and associated undertakings has been replaced by investment in related parties;
The following disclosure requirements have been excluded from the revised fifth schedule:
Separate disclosure of investments made in subsidiary and other associated undertaking in listed companies, unlisted companies, modarabas, immovable property, redeemable capital, Government securities. Provision for diminution in value of investments, if any. Separate disclosure of investments against each specific fund.
Long term Loans and advances The following changes have been made: o Loan and advances to subsidiary, associated undertaking, directors, Chief Executive and managing agents has been replaced by loans and advances to related parties Separate disclosure of loans and advances due after 3 years excluded. Terms and conditions, securities obtained and any other material information shall be disclosed.
Deferred costs o Disclosure has been done away with
Current assets The following disclosures have been excluded: o o o o Basis of valuation for stores, spares, loose tools and stock in trade. Requirement of debts considered good for which company has no security other than director’s personal security. Bills receivable. Cash in hand and cash in transit and amounts held in special accounts under the Ordinance.
The following disclosures have been changed: Whereas all companies falling under the fifth schedule were required to disclose the aggregate amount of trade debts, loans and advances and other receivable due from directors including the CEO and associated undertakings, Now only in case of Medium-sized Company disclosures are required of: (i) Trade debts, loans and advances and Financial assets (a) amount due by directors, CE and executives of the company (b) due by Related party Loan and advances: (a) (b) Investment in Related Party Other investment as: (i) (ii) (iii) Share Capital and reserves Detailed disclosures of the following have been eliminated: o o Capital and revenue reserves. Separate balance sheet disclosure of authorized, issued, subscribed, called up share capital, calls unpaid, options on un-issued shares, terms of -9Held to maturity investment Available for sale investments Held for trading
redemption of preference shares, shares held by holding company (in case of subsidiary). Surplus on revaluation of fixed assets o Disclosure of movement in revaluation surplus excluded.
Redeemable capital All disclosure requirements of ‘Redeemable capital’ have been excluded. Non-current liabilities The following provisions have been included: o o Current and Long term portion of Murabaha are to be classified separately. Long term deposits are classified according to their nature
The following provisions have been excluded: o o o o Distinction between secured and non-secured debentures and terms of security including assets under charge. Detailed disclosures of liabilities against assets subject to finance lease. Detailed disclosure of deferred liabilities. Detailed disclosure of debentures.
Current liabilities The following provisions have been excluded: o o Definition of current liabilities excluded. Separate disclosure of current portion of liabilities against assets subject to finance lease, short term deposits, bills payable, profit accrued on redeemable capital. Disclosure of Proposed Dividend as liability has now been removed Provision requiring liabilities to be valued at amounts less than actually payable.
Contingencies and commitments The following provisions have been excluded: o o Arrears of cumulative preference shares. Information regarding the existence of contingent loss : (a) (b) (c) the nature of contingency; the uncertain factors that many affect the future outcome; an estimate of the amount of loss or the range of amount of loss or a statement that such an estimate cannot be made.
Other sum for which the company is contingently liable.
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CHANGES IN THE REQUIREMENTS
The following provisions have been included in the fifth schedule: o o Disclosure of amount of interest on borrowings from related parties. Details of remuneration to directors and CEO.
In the Revised Fifth Schedule the clause regarding exchange gain/loss capitalization has been removed. To bring it in line with the requirements of IAS 21 and accounting and reporting standards for MSEs and SSEs. Turnover The profit and loss account was previously required to show the following deductions from turnover: (a) commission paid to sole selling agents (b) commission paid to other selling agents (c) brokerage and discount on sales The profit and loss account is now required to show the following deductions form turnover: Trade discount and sales tax. Other operating Income o Line items merged into ‘income from financial assets’ and ‘income from non-financial assets’ o Income from unusual items, prior period items excluded. Expenses o Specific line items merged into classification by function,with subclassification as material. o Exclusion of requirement of separate disclosure of share of profit of holders of redeemable capital, loss on redeemable capital, loss on sale of investments & fixed assets, loss from unusual and prior period items, deferred taxation
Z:\ICAP\Annexures to Circular 2008\Brief Analysis of 5th Schedule.doc
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