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Magazine of The Institute of Chartered Accountants of Pakistan

Governance, Transparency, Disclosure

The Holy Alliance


Magazine of The Institute of Chartered Accountants of Pakistan
Volume 43 Issue 2 April/June 2009
Publications Committee
Chairman and Chief Editor Editor's Letter 2
Abdul Rahim Suriya, FCA
President's Page 3
Abdulwahid, FCA Join the Discourse 5
Abdul Rab, FCA
Adnan Ahmad Mufti, ACA
Ahmad Saeed, FCA Governance, Transparency, Disclosure
Ahsan Ghaffar Mehanti, ACA
Asif Jamal, FCA
Ayub Vohra, FCA
Governance, Transparency, Disclosure - The Holy Alliance
Bilal Hashimi Nasim Beg 6
Faisal Habib, FCA
Farzana, ACA
Fazal Mahmood, FCA Corporate Enterprise: The Interrelationships of Governance,
Hena Irfan, ACA Transparency and Disclosure
Jehan Zeb Amin, ACA
Junaid Haji Zikar, ACA
Muntazar Bashir Ahmed 8
M. Arshad Siddiqui, FCA
Malik Mirza, ACA Other Articles
Muhammad Amin Bhimani, ACA
Muhammad Mahmood Marfatia, ACA National Finance Commission (NFC) Award
Raheel Abbas Rizvi, ACA
Sophia Ahmed, ACA
S.M. Shabbar Zaidi 11
Advisor Publications Investment Analysis of the Financial Markets - A New Dimension
Rana Mustansir M. Saood Hashim 15

The Council IFRS Versus US GAAP: Key Differences

President Syed Athar Hussain Zaidi and Saima Batool 20
Syed Asad Ali Shah, FCA

Vice Presidents More iTax Revenue

Farrukh Viqaruddin Junaidy, FCA Abdul Wahid 22
Rashid Rahman Mir, FCA

Members Interest Rate Swaps

Abdul Rahim Suriya, FCA Waqas Farooq 24
Ahmad Saeed, FCA
Imran Afzal, FCA
Mohammad Abdullah Yusuf, FCA Accountants' Role in Controlling Corruption and Fraud
Nasim Hyder, FCA Saira Shamsie 29
Rafaqat Ullah Babar, FCA
Razi-ur-Rahman Khan, FCA
Shahzad Hussain, FCA Outsourcing of Tax Audits to Chartered Accountants
Shaikh Saqib Masood, FCA
Syed Shahid Husain Jafri, FCA
Farheen Mirza 31
Syed Mohammad Shabbar Zaidi, FCA
Waqar Masood Khan Smart Tips for Power Users - Microsoft EXCEL Part-II
Executive Director
Zafar Badami 34
Moiz Ahmad, FCA

Secretary ICAP News

Shoaib Ahmed, ACA
ICAP Elections 2009 in Pictures 36
Publications Coordinator Best Corporate Report Awards 2008 40
Asad Shahzad

Editorial Office In-House

The Pakistan Accountant
Chartered Accountants Avenue, Clifton, Dead Aid 44
Karachi-75600 (Pakistan) Test Your Investment Knowledge 45
Phone: 99251636-39 Fax: 99251626
World in Focus 46
Website: Books 47
Last Page 48

The Pakistan Accountant April - June, 2009 01

Governance, Transparency, Disclosure
Among many other things, the current global financial crisis has highlighted governance issues in
areas, such as board practices, implementation of risk-management, remuneration process and the
exercise of shareholder rights, where failures in corporate governance occurred. This crisis has also
highlighted the importance of qualified board oversight and robust risk management which is not
limited to financial institutions. Furthermore, it has highlighted the fact that accounting standards and
regulatory requirements have to be sufficiently enforced.

One such critical area relating to accounting standards concerns fair value of assets. The use by
different banks of very different valuations for the same asset contributed to reduced market integrity.
Now, banks reporting according to US GAAP are using the FASB's classification on how assets have
been valued. The IASB is strengthening its standards to achieve better disclosures about valuations. The International
Auditing and Assurance Standards Board (IAASB) is also considering the lessons learned from the market meltdown and,
where necessary, it will enhance the guidance for audits of valuations of complex or illiquid financial products and related

High quality accounting and disclosure is an absolute essential for maintaining market integrity. It also provides the much
needed comparability that helps investors, big and small, to make well-informed capital allocation decisions. Each
company should prepare its financial statements on a consistent basis, so that investors can analyze performance across
time periods. Also, reporting by different companies should be comparable. In this regard, I am proud of the fact that the
Best Corporate Report Awards organized by your Institute for the last eight years, have come a long way in improving the
quality of annual reports of listed entities.

A very important condition is that the professional standards which provide the benchmark for comparability and
transparency must be of ≈high quality∆ and must provide for full disclosure --- financial and non-financial. The disclosure
must also provide for fair, timely and cost effective access by users. Transparency requires that companies must report
compliance with code of corporate governance and, where needed, give reasons for variation. Conversely, evidence of
good corporate governance leads to increased shareholder value.

It is now evident that global capital markets will insist upon clear and relevant financial information. In a highly competitive,
volatile global market we need unwavering commitment to high standards, constant improvement, and fast adaptation to
an ever changing business environment. The only way forward is that we must begin to look at disclosure as more than
just a compliance task, and at governance as more than just a hindrance.

Abdul Rahim Suriya

The Pakistan Accountant April - June, 2009 02

Governance, Transparency, Disclosure
The importance of corporate governance disclosure for developing and transitional economies is
manifold because it improves their ability to attract investment capital by building investor confidence
through accurate and timely disclosure. In this regard one of the prime objectives of the United
Nations Committee on Trade and Development (UNCTAD) has been to identify and promote good
practices in corporate governance disclosure.

UNCTAD's Intergovernmental Working Group of Experts on International Standards of Accounting and

Reporting (ISAR) publishes Guidance on Good Practices in Corporate Governance Disclosure which
has become a benchmark for good governance practices. I strongly encourage all companies and
their auditors to refer to this important guidance. This year ICAP is collaborating with UNCTAD on
corporate governance disclosure practices in Pakistani listed companies by examining the reporting practices, and
compliance with disclosure rules, of companies on the KSE30 Index. This report will be presented in the 26th Session of
ISAR being held in October 2009.

Big investment decisions are made based on reliable, high quality financial reporting which contains investor useful
information and disclosure.

In this time of fluctuating markets and uncertain economic trends, transparency and disclosure have taken on even greater
meaning. In the current volatile economic climate, in addition to the adequate disclosures on company's performance and
financial position, the disclosures relating to company's strategy, future plans, significant risks, governance and internal
control framework etc. will also be closely monitored by investors. Equally important is that financial reporting should be
consistent with the information presented to boards of directors and audit committees. While management has a key role
to ensure adequacy and completeness of such disclosures, auditors' (internal and external) role is mainly to ensure the
reliability of underlying financial reporting and disclosure.

The Institute of Chartered Accountants of Pakistan has been playing a vital and leadership role in enhancing corporate
governance, disclosure and transparency of the Corporate Sector in Pakistan. Some of the major achievements of the
Institute in this context include:

w Adoption and Enforcement of International Financial Reporting Standards (IFRS) and Internal Standards on
Auditing (ISAs);
w Drafting and enforcement of the Code of Corporate Governance;
w Establishing an effective quality assurance system through an independent Quality Assurance Board;
w Advising the Securities and Exchange Commission of Pakistan and the State Bank of Pakistan on adoption and
enforcement of matters of financial reporting, and relevant laws and regulations;
w Establishment of the Pakistan Institute of Corporate Governance (PICG); and
w Developing a soft Code of Good Governance for family owned entities in partnership with CIPE and PICG.

It is my conviction that ICAP's role for continued improvements in governance, accountability and disclosure is crucial, not
only for the corporate entities, but also for public sector and not for profit organizations. The Council, various Committees
and the Executive of the Institute have made enormous contribution to the above initiatives that have brought about
substantial improvement in governance, transparency and disclosure in Pakistan. In order to maintain this leadership role
in the areas of governance and high quality financial reporting, I am confident that these areas will remain as highest
priority on the agenda of the Council and the Institute.

Syed Asad Ali Shah

The Pakistan Accountant April - June, 2009 03

Join the Discourse


This issue»s topic is:
Asia’s Export Dependence
Should Asian economies stop pursuing export-led growth strategies of the past and start boosting
domestic demand?

Nobel prize-winning economist Paul Krugman recently declared that, ≈China should produce
things for itself instead of acquiring sterile claims on the US.∆

As export-dependent Asian countries reel from the global economic downturn, is it time for these
countries to reorient their economies to boost domestic demand instead of pandering to the US
consumer who is no longer the buyer of last resort?


With reference to the topic for the month, I would like to say that generally In my opinion when everything
too much dependence on exports and particularly for the Asian outside is failed then a nation must
economies during economic melt down is a too risky approach. try to do soul searching and identify
the capabilities they hold. This
The first Para for discourse ends with a ? but has an inbuilt word of applies to every thing from
advice to stop thinking of thriving on exports and benefiting from economics to medicine and I agree
globalization. with a certain diversion with the
discourse that we as a nation should
In the second Para words of wisdom for China from an economist (a develop more wider base of
noble man) is actually trying to protect U.S demands (Market) from domestic use and consumption
encroachment. This is protectionism. where economy of scale can be
achieved. But in most of the Asian
I agree with the gist of third Para that in crises everybody-every country-
economies it is not an easy task
every sector has its own house to be taken care of, first and looking
since we need to revamp everything
towards others as buyer/lender of last resort, proves disappointing.
to achieve such self sufficiency.
What to talk of Asian economies, there came a voice from the strongest Corruption, lack of education, social
person in US in the month of March/April 2009 ≈To buy American behaviour, legitimate and ethical
provisions is patriotic∆. There came another voice from British P.M ≈this is practices, are much required virtues
protectionism∆. to have a sense of confidence in our
own capabilities. Therefore, we must
These are hard facts and the Asian economies and all other small try to achieve this but till such time,
economies should keep these facts in mind in hey days, as well as during we need foreign assistance in form
the phase of recession. of export of services and goods.

Rafi Hyder Salman Hameed

Karachi Karachi

Members are requested to send in their comments with their name, town and membership number,
via email in care of with the word 'DISCOURSE' in the subject heading.

Responses will be edited for purpose of clarity and space.

The Pakistan Accountant April - June, 2009 05

Governance, Transparency, Disclosure

Transparency, Disclosure
The Holy Alliance
Nasim Beg FCA

I believe that it is best to practice what one preaches and I have consequently
been committed to practicing good governance. The company I run
commenced its operations as an Asset Management Company in March 2002,
when two Open-end Mutual Funds were launched simultaneously. Being one
of the pioneers of the Mutual Fund Industry in the private sector in Pakistan
(there was one other), we were determined to follow international best
practices in conducting our business with good governance, total
transparency and full disclosure - the holy alliance . At times, our business
was adversely affected due to one or the other competitor’s non-adherence to
such principles but we were not deterred by such setbacks in the firm belief
that only such practices would pay in the long run.

The Pakistan Accountant April - June, 2009 06

Governance, Transparency, Disclosure

Ever since, we have earned the Investment Committee employee's trade orders must be
reputation of always 'doing the right placed through our main Dealer
thing', building investor confidence, Since inception, decisions for all and executed through one
and resulting in the market putting a investments, on behalf of the Funds designated Broker only, so as to
distinct premium on our staff for their being managed by us, are taken by ensure that there is no front
expertise and ethics. an Investment Committee instead running.
of an individual Fund Manager. This
I would like to itemize below such has now been made mandatory for Advertising Policy
practices and concepts, some of all by a relevant insertion in the
which were being followed only by us, law. We have consciously tried to follow
while some, in the meantime, have internationally accepted norms for
been incorporated in the law for all to Regular and Consistent Mutual Funds advertising by
follow. ensuring that our ads are not
NAV Announcements misleading in any way, particularly
avoiding to advertise our Funds'
3-Year Change of Auditors Due to the importance of this, we
have, since inception, calculated returns for short, selective periods
and published the NAVs of our or giving anticipated future returns,
Right from the beginning,
Funds on a daily basis. This was etc. This policy is now followed by
according to our self-imposed rule,
not being done by others in 2002 the industry association.
the Auditors of ourselves (AMC), as
well as each of the Funds being and has, since, become mandatory
managed by us, were changed under law. Daily Compliance Audit
every three years. This has been
Since March, 2002, we have a
made mandatory for all by an Forward Pricing self-imposed daily compliance
amendment in the relevant law a
Since inception, the Unit Prices of audit, by external Auditors, of our
couple of years ago. What should
all our Equity Funds are on forward flagship Funds, The scope of the
be noted is that though the Funds
pricing basis. In 2002, this was not Audit is to determine, on a daily
were launched in the year 2002,
the case for some of the other basis, whether the Funds' business
preparatory work started two years
Mutual Funds then in existence. has been conducted in accordance
earlier and this change in auditors
Forward Pricing avoids arbitrage with the law, the Fund's Constitutive
was decided upon before 'Enron∆
against the Fund (i.e. one investor Documents and any policy
had happened and the world woke
benefiting at the cost of others) directives issued by our Board of
up to this need.
and it is now the norm, not only for Directors. The compliance audit
Equity Funds but for most Income report is issued directly to the
Dissemination of trustees of the funds and the
Funds also. More recently it has
Information been made mandatory by the auditors are not even allowed to
Regulator. discuss the draft with our staff. We
We pioneered the practice of get to look at it after it has been
sending to each and every one of Cut-off Timings and issued.
our Unit-holders a Monthly Fund
Manager's Report, giving a Time-stamping The practices stated above are only
synopsis of the activities in the some of the ones unique to our
Equity and Money markets and how We have always enforced this
concept stringently, to pre-empt contributions to The Holy Alliance.
our Funds fared during the We have not included those
preceding month. I am happy to any client taking unfair advantage
of the Unit Prices to the detriment practices of good governance,
say that this practice was gradually satisfactory transparency and
adopted by others (some, initially, of the other Unit-holders. This not
only became an issue in the US a adequate disclosure that are already
purely copying our format) and has mandated by law and being followed
now become the market norm. few years ago but has also been
made mandatory for all by a by all. It is of utmost necessity that
relevant directive from SECP. all stakeholders adhere truly, in letter
Furthermore: Statements of and spirit, to The Holy Alliance for
Account at every activity; NAVs on the common good of the Mutual Fund
client's cell-phone; highly
Employees’ Trading
informative website giving Weekly In order to obviate any conflict of
Market Reviews, Daily Performance interest, our employees, their One thing that I can state with
Sheets (comparative performance spouse(s) or children are not confidence is that it is the ≈holy
of ALL Mutual Funds), Daily Fact allowed to trade in shares except alliance∆ that has held us in good
Sheets (performance of our for shares of our Group companies stead and helped us retain customer
Income/Money Market Funds as (our funds did not as a policy confidence even during a major
well as targeted returns) and much invest in Group companies though upheaval in the markets.
more. the law now allows it). An

Disclaimer: The views, opinions and conclusions expressed herein are those of the individual authors. They do not reflect the views of
The Institute of Chartered Accountants of Pakistan. The Institute does not endorse any views expressed herein.

The Pakistan Accountant April - June, 2009 07

Governance, Transparency, Disclosure

The Interrelationships
of Governance,
Transparency and
Muntazar Bashir Ahmed FCA

This paper provides an

illustration of the
relationships between
the components of
governance by applying
the same framework as an
earlier PAIB research study, on
case studies of Pakistani listed
companies. There is no attempt to conclude
or pass judgement on either effective or ineffective handling of a
managerial situation by the respective companies on whom case studies
were developed.

The Professional Accountants in providing strategic direction, Performance dimension focuses on

Business Committee (PAIB) of the ensuring that objectives are achieved, strategy and value creation. This
International Federation of ascertaining that risks are managed focus is on helping the board to
Accountants Committee (IFAC) was appropriately and the organization»s make strategic decisions; understand
asked by the IFCA Board in October resources are used responsibly∆. the risks and key drivers of
2002 to explore the emerging performance; and indentify its key
concept of enterprise governance. A Enterprise governance constitutes the
entire accountability framework of the points of decision making.
particular focus of the project was to
consider why corporate governance organization. There are two
often failed in companies and, more dimensions of enterprise governance- The conformance aspect has
importantly, what must be done to conformance and performance, that established oversight mechanisms for
ensure that things went right. need to be in balance. the board to use and these
mechanisms are reviewed and
Conformance is also called «corporate reported on annually by the external
Introduction governance». It covers issues such
auditors. However the performance
as board structures and roles and
The report of the PAIB project defined executive remuneration. It has had dimension does not lend itself to a
enterprise governance as ≈ the set of significant coverage in recent years regime of standards and audit.
responsibilities and practices following the various corporate Instead a range of best practice tools
exercised by the board and executive scandals and there will continue to be and techniques that can be applied
management with the goal of developments in this area. are required.

The Pakistan Accountant April - June, 2009 08

Governance, Transparency, Disclosure

Case studies Investment Bank Pakistan and that numerous transactions

Limited √ Callmate Risk violated various laws. The Chairman
Uncovered (OIBPL) of the Board of directors in a
In order to test the framework and to statement to the newspaper had said
explore what goes right or wrong in The tables attached contain the that the Board was unaware of all the
companies the PAIB project chose to analysis in a summarized form of the violations and the misrepresentation
develop a number of international findings in the three cases within the that had been unearthed by the
short case studies. Each case study framework of Enterprise Governance. investigators. The fact that the Board
was based on published sources and The various aspects of each case are was kept in the dark by the
focused on corporate governance specific to the circumstances but management does not absolve the
practices and strategic issues such they all fit the model very well. directors of their responsibility but
as process of strategy development reflects on their inability to have
and resulting choice of strategy. What went wrong transparent records within the
organization in order to protect not
Principal findings This overriding question is addressed only the interests of shareholders but
below by examining the regimen of also that of the creditors, especially in
There were four key corporate governance, transparency and a financial institution.
governance issues that underpinned disclosure in each case. The Table 1
both success and failure. These shows a number of factors and their In the case of CTTL the board was
were: relevance to governance of the extremely aggressive not only in
company. The same set of factors is managing the business but seemed
1. Culture and tone at the top used to in Table 2 to see the affect always to be keeping a close watch
2. The chief executive under a corporate governance of the company share price. The
3. The board of directors strategic framework of decisions. company was a hugely profitable
4. Internal controls There was interesting commonality in company in an expanding
the factors that contributed to the telecommunications market but yet it
Similarly there were four key strategic fate of each of the companies. failed to develop as the ordinary
issues underlying success and failure share holder would expect from a
seemingly successful company. But it
Transparency was not transparent in its dealings
1. Choice and clarity of strategy
2. Strategy execution with the regulators nor with its
3. Ability to respond to fast There is a saying is that auditors and at one stage its share
market changes ≈Transparency is assurance∆ trading was suspended.
4. Ability to undertake success
ful mergers and acquisitions The saying perhaps reflects the Governance
central point of transparency, whether
Case studies of companies it is related to the transparency of The concept of governance is a
financial statements or the simple one, defined in the 1999
in Pakistan transparency of business operations. OECD Principles of Corporate
Transparency does not just deal with Governance as: 'the system by which
The attached tables show the the publication of numbers, facts and business corporations are directed
outcome of the analysis using the figures -- indeed, all of these things and controlled.» The «holy trinity» of
PAIB framework, when applied to the can be used to obfuscate, unless good corporate governance has long
three case studies relating to they are accompanied by genuine been seen as:
corporate governance that have been transparency. In other words
written on Pakistani companies by transparency is the ability to conduct 1. shareholder rights,
the author. The case studies have business in a clear and accountable 2. transparency and
been refereed by at least two way, especially associated with the 3. Board accountability.
professors of the Richard Ivey human part of the business.
Business School, The University of Transparency is one of those things While corporate governance is overtly
Western Ontario and are published by that Quality Assurance programs try concerned with board structure,
Ivey Publications who have the sole to engender, but so many executive compensation and
copyright. These cases can be corporations completely miss the shareholder reporting, the underlying
obtained from Ivey Publishing Canada mark, because they do not assumption is that it is the board that
and are based on published understand the fundamental goal. is responsible for managing the
materials on the following companies: business and controlling the risks.
When we apply the above definition,
1. Crescent Standard Investment then the conditions prevailing in The OECD principles of corporate
Bank Limited- Governance fail CSIBL were clearly to obfuscate: the governance state that the governance
ure (CSIBL) regulators investigation report framework should promote
2. Callmate Telips (A) √ Choice of mentioned that there were a number transparent and efficient markets,
accounting policy(CTTL) of different sets of accounting beconsistent with the rule of law and
3. Callmate Telips (B) √ Orix records, kept at different locations clearly articulate the division of

The Pakistan Accountant April - June, 2009 09

Governance, Transparency, Disclosure

responsibility among different Disclosure Annual reports of listed companies by

regulators. and large follow the regulations so it
There are various meanings but the is not that compliance is missing but
As we can see that the three words» most relevant is that disclosure is the that the selection of information
governance, transparency and fundamental principle of accounting omitted is often serious i.e. there is
disclosure are intertwined and each under which all material facts (whose
lack of self disclosure. As an example
one of them has to be discussed non-disclosure may render a financial
in one case study the company
together with the others. statement misleading) must be
delayed making public a huge loss by
disclosed. The full disclosure
principle states that any and all six months and even after all the
Each of the three companies had a
code of corporate governance as information that affects the full troubles that befell that company the
required by the regulations and the understanding of a company's board of directors remained
compliance with the code had been financial statements must be included unchanged. The defaulting customer
reviewed and an opinion given by the with the financial statements. Some of OIBPL had almost its entire board
statutory auditors. Yet in the case of items may not affect the ledger of directors subject to an arrest
CTTL the control of the directors over accounts directly. These would be warrant after being convicted by the
the majority of voting shareholders included in the form of High Court of manipulating CTTL
made it simple to call an accompanying notes. Examples of share price. This company was very
extraordinary meeting and remove the such items are outstanding lawsuits, popular among traders on the stock
audit firm they did not agree with. In tax disputes, and company takeovers market and was a widely publicized
two cases in which the firms while in some cases the company case but the auditors also did not
continued to function the opinions of may have to opt for self disclosure in
seem to notice what for them should
the auditors as to the compliance with an effort to be transparent. Self-
have been a material post balance
the code of corporate governance disclosure is not simply providing
sheet event, their report was clean. In
were clean. Yet in one case the information to another person.
Instead, scholars define self- hindsight these appear to fall into lack
directors were found guilty of dealing
disclosure as sharing information with of disclosure. My view is that, as the
and manipulating their company
share price and in the other case a others that they would not normally three factors being examined are
serious weakness in risk management know or discover. Self-disclosure linked, perhaps if one is violated then
controls had eroded the company involves risk and vulnerability on the all three will necessarily be violated.
equity that it had to seek new capital part of the person sharing the This is borne out by the brief reviews
or close down. information. of the three company case studies.

Tables summarizing the results of the three cases:


Table 1 What went wrong - Corporate Governance Issues

Parameters Ethics / Culture CEO Board of Internal Control / Aggressive
Identified at the Top Directors Compliance / Risk Earnings
Management Managements



Table 2 What went wrong - Business Governance - Strategic Factors

Parameters Choice / Clairity Strategy Market Abrupt Mergers
Identified of Strategy Execution Conditions Changes and



X this issue had minor significance in the case study
XX this had moderate significance
X X X the issue was of major significance

Disclaimer: The views, opinions and conclusions expressed herein are those of the individual authors. They do not reflect the views of
The Institute of Chartered Accountants of Pakistan. The Institute does not endorse any views expressed herein.

The Pakistan Accountant April - June, 2009 10

National Finance
Commission (NFC)
S. M. Shabbar Zaidi FCA

NFC - DISCUSSION & collected by the Federal or the reason there is no VAT in those
Provincial or local governments countries which operate as
DIALOGUE as the case may be. In our Federations like the USA. VAT
Constitution there is transition as essentially requires a central tax.
w National Finance Commission well as confusion on this matter. Even India is facing serious
[NFC] a constitutional body, This relates to the right to tax VAT problems on this account. We are
under Article 160 of the [Sales Tax and Excise Duty]. The practically better of.
Constitution, inter alia advises the concurrent list that was supposed
President of Pakistan on the to be amended after 10 years of CAN WE DISTURB
matter of 'distribution' of tax the Constitution still remains the
revenues between the Federation same. The issue is to understand
and the Provinces and amongst the matter in a pragmatic and COLLECTION SYSTEM?
the Provinces. practical sense.
w Whether rightly or wrongly we
w That distribution formula is have developed a sales tax
termed as the National Finance REVENUE
system totally based on the
Commission (NFC) Award. TOTAL COLLECTION system that can only work where
the tax is a Federal tax. It is a
w This is a primary economic issue major revenue earner.
which has been politicized to a
large extent. This confusion and w Notwithstanding the capacities of
lack of consensus has seriously the Provincial governments, is
effected the growth and correct there any possibility of a vibrant
policy framework for the VAT on provincial basis?
collection of tax revenues.
w This primary question is a very
TWO SIDES OF THE crucial point and it becomes all
PICTURE Major Collection Sources the more relevant when services
are yet to be brought in the net.
Income Tax on Income
Sales Tax on Goods
Revenue Collection and Federal Excise Duty NFC IS NOT TABOO
Distribution Customs

w In the past, primary financial

w In principle, NFC is restricted to Revenue aspects have been
distribution of revenue. However, overshadowed by politicization.
in order to understand the issue w The issue with regard to revenues
properly specially in Pakistan's is the fundamental question of w Very few Pakistanis know the real
context, where there is a debate devolution of sales tax on goods subject and the underlying
on the manner of collection of to Federation [as conceived issues.
revenues, the determination of originally by the Constitution] or
the body [Federation or the transferring the sales tax on w Even in academic circles, it is
Province] that should collect tax services to the Federation also. taken to be taboo and is
has direct bearing on the These are two exactly opposite considered to be an issue that
distribution. approaches. A debate and can not be resolved amicably.
practical discussion is required. The reality is otherwise.
w In all constitutions there is always
a division for the revenues to be w Generally on account of this

The Pakistan Accountant April - June, 2009 11

w Remaining amount is being NON - DIVISIBLE SUM
DISTRIBUTION distributed in the Ratio of
The distribution system works as under: Population as per latest census.
Size and Utilization
Total Revenues of the Federal
Government 100.00 So, our basic issue is to
Less: Non-divisible Pool 49.50
- DISTRIBUTION SIDE determine distribution
mechanism rather than disturbing
Divisible Pool 50.50
Size of Non-Divisible Pool - the current collection system. In
other words, even in the
Direct Transfers Federation versus forthcoming future bulk of
w Excise Royalty on Gas Provinces revenues would be collected
and Crude Oil under the Federal Taxes.
w Duty and Gas
Criterion for Distribution of This also leads to the issue of
Development Surcharge Divisible Pool 'Encroachment' where
w Net Hydal Profit - Population Federation, in addition to its
existing constitutional rights (like
Subvention Allocation -Grant-in-
sales tax on goods) taxes for
aid w The primary issue with NFC, now what is actually taxable by
Balance allocation on the basis of is determination of 'Divisible Pool' Provinces. This at times is not in
population [say 45] and its restriction to 50 percent of line with the Constitutional
total taxes collected. Provisions where the Federation
has the right to tax consumption
DISTRIBUTION w In earlier periods such 'Divisible tax on goods only. The past case
Pool' was up to 80 per cent. is 'Octroi' and the present case is
w Out of total revenue only 50.50 'Sales Tax on services' and 'CVT
per cent is 'Net Divisible Pool'. w In order to understand it fully, we on immovable properties'.
The balance 49.50 per cent is would have to understand the
'Non Divisible'. issue of utilization of funds by the w The second question is that such
respective governments. If 'Encroachment', if good for the
w Direct transfers are specific Federation is to restrict itself to country, should be curtailed or
collections and distributions to defense and foreign affairs then not. The other issue is capacity
specific Provinces, e.g. royalty there are serious issues with and capability of the Provincial
on gas and crude oil. regard to 50:50 ratio. Government.

The Pakistan Accountant April - June, 2009 12

DEVOLUTION incorporated are:

l Place of Collection
Utilization l Area of Province
l Level of Development etc.
w On the distribution side, at the moment, the system is
tilted towards Centralism and not Federalism. RESOURCES GENERATION
w If 50 per cent of tax collection is retained by the
Federation then this raises the issues of:
- Local Level

l Utilization and the priorities of the Federal w In Pakistan, one of the main features leading to abuse
Government; of taxation system is lack of apparent utilization. The
l Size of the Federation; and solution lies in 'Devolution' in the real sense. This
l Financial Dependence of the Provinces. leads us to the question of:

w We are in a strange 'trap' where there is a Central

Government like UK with a Federation like USA. This % of Total Collection
unique model needs to be tailored not destroyed. We
can tailor it. w Federal 97.5%
w Provincial 2.5%
w The first answer is to study the fixation of 50 per cent w Local almost 0%
CAP for the divisible pool.
w In the past, and even at present, in certain manner
like children (Provinces) the parent (Federation)
provides incentive for collection by the Provinces by w Sense of ownership can only arise if local revenue
way of matching grants. The concept is clear, generation is improved. This is a technical and
however, there is a need to convince the Provinces to academic, not a political issue. This does not mean
that generation at Federal level be disturbed.
generate their own revenues.
w In this aspect we are in another trap. If the Provinces'
share is increased and the divisible pool is extended w Independent National Finance Commission including
then so much money is available with the Provinces professionals like in India;
that they do not have incentive to collect more. We
have to look for the way that Provinces are incentive w Cut down in non-divisible pool;
wise to collect more. At the moment, their resources
are meager and their argument for stagnation (though w Review of the functions of the Federation;
not correct) is encroachments, etc. There is a need for
a technical, not political, solution for the trap. w Compulsory review after every five years;
Matching grant is a good idea.
w Establishment of Provincial Boards of Revenue;
w Provincial resources generation can only be achieved
if it works in coordination with the Federal system. w Representation of Provincial Boards of Revenue in the
Provincial and Federal Tax Systems have to be Policy Board of Federal Board of Revenue; and
'complementary' as both are working on same people
and same assets. w Distribution between provinces to be on weighted
average taking into account:
l Population
BETWEEN THE PROVINCES l Place of collection
l Area of the province
Balanced Distribution Criterion l Level of development

w At present the sole criterion is population. This does

not exist anywhere in the world.

w There are arguments, for and against, that the sole

criterion of 'population', as per an old census, should
not be used for allocating the 'divisible pool' between
the provinces.
w The criteria other than population that can be

The Pakistan Accountant April - June, 2009 13

Analysis of
the Financial
A New Dimension
M. Saood Hashim ACA

Traditionally investment
analysis of the financial
markets has been focused
around fundamental
analysis. To many among
us, fundamental and
investment analysis are two
names for the same thing.
Though in the developed
world, in addition to
fundamental analysis, intended company operates; and The Rationale behind
technical analysis has taken finally we will assess the company
Technical Analysis
roots as an alternative itself with particular emphasis on the
method of analysis, it is still financial health and projections. Technical approach to investment
in its infancy in Pakistan. analysis is based on the following
Fairly straightforward. This is what is three premises:
Although my focus is
commonly referred to as Fundamental
towards technical analysis, it Analysis. (i) Market Discounts Everything
would be convenient to start
with a refresher on Fundamental analysis looks at the Based on this premise any information
fundamental approach. underlying (or intrinsic) value of a
- be it economical, political,
company and compares it to the
current market price. If the intrinsic psychological or otherwise - that can
Fundamental Analysis influence the price is already reflected
value is greater then the price can
reasonably be expected to increase in the price. Accordingly it follows that
Being professional accountants, most
of us would find nothing new in and vice versa. the study of price action is all that is
Investment Analysis. When some one relevant. The technician sees the price
asks us our advice on the Technical Analysis movement as a result of some (known
methodology to analyze a particular and/or unknown) changes in
market based investment (e.g. some Technical analysis is a method of fundamentals. In a way he is indirectly
listed company) we respond as evaluating securities, by analyzing studying the fundamentals. However,
follows: historic prices and volume trends
he does not concern himself directly
(which are plotted on charts).
Technical analysts are not concerned with the fundamentals since they are
First of all we will analyze the general
economic conditions; with the security's intrinsic value; already reflected in the price and
instead they look for the market's knowing about the specific
secondly, we will evaluate the specific response to the forces of supply and fundamentals is an unnecessary step
industry environment in which the demand. in the forecasting process.

The Pakistan Accountant April - June, 2009 15

Figure 1 - Daily KSE-100 index bar chart showing the index values and volume. The chart perfectly
demonstrates that the market moves in trends. From November 2004 to March 2005 you can see a very
strong up trend, and from March 2005 to May 2005 a visible down trend.

(ii) Prices Move in Trends Technical Analysis Tools is likely to move in, they approach the
problem from different angles. The
The sole purpose of charting is to Justice can not be done if I try to fundamental analyst studies the
identify trends in the early stages of cover the discussions regarding the cause of market movement, while the
their development and then trade many technical analysis tools in use. technical analyst studies the effect.
those trends. Without the validity of Complete books have been written The technical analyst believes that the
this assumption, a substantial part of and can be written on just one of effect is all that is to be studied and
technical analysis would become such tools. However, for the benefit of the reasons or the causes are
worthless. the reader I have briefly touched unnecessary. However, the
upon some of the basic tools of fundamental analyst always has to
(iii) History Repeats Itself technical analysis in the addendum. know why.

Much of the study of market action The Balanced Approach

has to do with the study of human
Fundamental versus
psychology. Chart patterns (refer to Technical Analysis Often fundamental analysis says
the addendum), for example, reflect
something which is 180 degrees off
certain pictures that appear on While technical analysis focuses on
charts. They reveal the bullish or the true trend of the market.
market action, fundamental analysis
bearish psychology of the market. examines all the relevant factors Frequently we encounter securities
They are based on the study of affecting the price of the security. heading south when these analyses
human psychology, which tends to forecast a northward direction and at
remain unchanged and accordingly it Although both these approaches other times we come across
is safe to expect that the historical attempt to resolve the same problem securities rising when these analyses
results will be repeated. of determining the direction the price predict a collapse.

The Pakistan Accountant April - June, 2009 16

Figure 2 - Weekly KSE-100 index bar chart showing index values and volume. At the recent index high
of over 15,500, all the fundamentals were pointing towards a big bull run. However, it actually ended in
a major collapse. After the collapse, fundamental news poured which confirmed the bearish spell.
However, one technical indicator was pointing towards an imminent danger. The weekly index values
were rising, but the weekly volumes were drying up suggesting that the force to drive the market
upwards was losing strength. (See figure 4 also).

The answer to this lies in timing the Technical analysts believe that Some enthusiastic technical analysts
market. To be successful in the fundamental information generally go to the extent of labeling
market a high percentage of the time, available is already impounded in the fundamental analysis as nothing but
you must know what direction the price and the prices are now reacting opinions (often based on personal
general market and the intended to the generally unknown bias and emotions) on future
security are heading and then go in fundamentals. See figure 2. (Also see expected values which may differ
that direction. figure 4 in the addendum). from one analyst to another. Though
this may be true to an extent, it would
In a trending market, generally the be too harsh to completely discard
If investment decisions were solely
fundamental and technical the conventional wisdom of
based on fundamental analysis, you
approaches are confirming each fundamental analysis. Fundamental
could frequently encounter the 180
other. It is at the beginning of analysis has stood the test of time
important market moves that they are degrees problem. Adopting technical and its acceptance in the financial
usually in conflict since the analysis on the other hand will enable circles speaks for itself.
fundamentals do not seem to explain you to pick much of the move early
the price movement. Usually they on. Smart investors (including Through fundamental analysis we can
come back into sync at some point institutions) will be taking positions in form an opinion on the intrinsic value
later. securities (due to knowledge of some of a security and if we figure out that
generally unknown fundamental) its market price is significantly below
One explanation for this apparent when the general public is closing its intrinsic value we can enlist it as a
discrepancy is explained by technical their positions. This move by the potential candidate for investment.
analysts who view that market price smart investors could be picked up Technical analysis can then be
leads the fundamentals or quite early by employing technical employed to find the right time to
conventional wisdom of the moment. analysis methods. commit money to this candidate.

The Pakistan Accountant April - June, 2009 17

Employing fundamental analysis in Patterns periods and then dividing by "n." For
addition to technical analysis gives example, adding the closing prices of
the added advantage of having an Based on the premise that history a security for most recent 20 days
exit target price (the intrinsic value) repeats itself, certain patterns have and then dividing by 20. The result is
and having an idea of the potential been seen to appear frequently on the security's average price over the
return on the investment. This return charts and after their appearance last 20 days. This calculation is done
can then be compared with the risk they end up most likely in a similar for each period in the chart and then
involved and if the risk-return balance fashion as they have been ending plotted on the same chart as the
is tilted towards the return side of the historically. Some of the patterns price. A simple technical trading
equation, funds can be committed include double top, head and system would be to buy when the
subject to the timing affirmation from shoulders top, double bottom, head security's price rises above its moving
the technical analysis. and shoulder bottom and many more. average and sell when the price falls
below its moving average.
Conclusion Head and shoulders top is a chart
formation that rises to a peak and Other famous indicators are Relative
It would be enough to conclude that then declines, then again rises above Strength Index and Moving Average
technical and fundamental analyses the former peak and again declines, Convergence Divergence.
are complimentary where and then once again rises but does
fundamental analysis is used to select not cross above the second peak and Support and Resistance
what to buy and technical analysis is again declines. The first and third
used to determine when to buy. peaks are shoulders, and the second Support levels indicate the price
peak forms the head. The low made where the majority of investors believe
Addendum to Investment in each case becomes the base, also that prices will move higher and for
referred to as the neck line. When the that reason jump in to buy, and
Analysis of the Financial neck line is violated the third time, this resistance levels indicate the price at
Markets - A New Dimension pattern is said to be complete and which a majority of investors feel
signals the start of a bearish move. prices will move lower and hence
rush to sell,
Technical analysis is almost entirely
based on the analysis of price and
volume. The price and volume are It is quite possible that
plotted on various types of charts these support and
including line, bar, candlestick charts resistance levels are
and many more.
broken. However, quite
The bar chart plots the opening, high, frequently it is seen that a
low and the closing prices for the day rising security halts at its
(or week, month, hour, minute etc.).
Each bar on the chart is plotted in the
resistance level after
following manner: which it may or may not
move on to a higher
level. Similarly a falling
Figure 3 - Example of a head and
security halts at its
shoulders top
support level and then
Indicators and Moving may or may not move
Averages downwards.

An indicator is a mathematical There are various

calculation that can be applied to a methods for arriving at
security's price and/or volume fields.
The result is a value that is used to potential support and
anticipate future changes in prices. resistance levels. One of
There are countless indicators being the best ways is to
used currently. One such indicator is
Volume is plotted as a histogram at a moving average.
expect support and
the bottom of the chart. An example resistance at previous
of a bar chart with a volume A "simple" moving average is lows and highs.
histogram can be viewed in Figure 1 calculated by adding the security's
and Figure 2. prices for the most recent "n" time

The Pakistan Accountant April - June, 2009 18

Figure 4 -KSE-100 index bar chart showing daily index values. Notice how effective the 20 days moving average has been
in identifying entry and exit points. Also observe the accurate prediction of the May 2008 collapse (See figure 2 also)

Figure 5 - Azgard Nine Limited (ANL) bar chart showing the daily prices. Notice how effective is the
support.near the 20-21 level (the previous low).

Figure 6 - Dawood Lawrencepur Limited (DLL) bar chart showing the weekly prices. Once again notice how
effective is the resistance near the 100-105 level (the previous high). Also notice that at the end of 2007, the
price did stop for a while before breaking past the 100 levels.

M. Saood Hashim is a member of the Institute and has been closely following market activity at the Karachi
Stock Exchange since 2000. His main focus has been towards technical analysis.

The Pakistan Accountant April - June, 2009 19

Key Differences
Mandatory transition to IFRS will translate in to more opportunities for
ICAP members in the US and other countries as IFRS becomes the
profession’s common language
Syed Athar Hussain Zaidi FCA
and Saima Batool

IFRS is a comprehensive, globally for member countries to use IFRS arrangements and contracting,
accepted set of accounting standards began in 2005 and several major among others. Several areas of
using a principles-based approach countries have plans to adopt or professional practice may be
with a greater emphasis on converge to IFRS in the near future, impacted as follows:
interpretation and application of those including Brazil by 2010 and Canada,
principles, aiming at best reflecting India, Japan, and South Korea by w Corporate legal professionals
the financial reality of transactions. It 2011. A recent survey of over 200 and accountants who serve
is a less extensive compendium of finance professionals showed that management and boards should
literature than US GAAP with limited given a choice, 42 percent would already be involved in IFRS
industry guidance and less detailed discussions or plan on doing so
consider adopting IFRS before 2014.
application guidance. in the near future. Strong
There are over 200 key differences documentation, policies,
In November 2008, the US Securities between the two standards IFRS and procedures, and protocols will be
and Exchange Commission (SEC) the US GAAP. Examples of pervasive necessary to ensure consistent
released a proposed roadmap differences are the lack of 'bright-line' and uniform application of IFRS
outlining milestones that, if achieved rules under IFRS, such as when across organizations to reduce
by 2011, could lead to the mandatory accounting for leases, and IFRS the risk of litigation based upon
transition to International Financial revenue recognition guidance being the application of principles, and
Reporting Standards (IFRS) starting in significantly less extensive than US use of management's judgments
fiscal years ending on or after GAAP, which can pose many and estimates.
December 31, 2014. It also outlines challenges as revenue recognition is
additional criteria that would allow the number one financial statement Professionals involved in drafting
certain other issuers to elect to use fraud risk. contracts with accounting
IFRS as early as 2009. The roadmap
provisions will need to consider
follows previous action by the SEC in The time is now for companies, and the impact of IFRS on earn-outs,
December 2007, when they amended also for professionals that serve them, credit agreements, purchase
rules to allow foreign private issuers to understand the impact of IFRS.
to file financial statements under IFRS agreements, sales contracts, and
without reconciliation to United States bonus plans, among others, as
Generally Accepted Accounting
The Impact of IFRS the key drivers of these, such as
Principles (US GAAP). reported profits, may differ under
The transition to IFRS in the US will IFRS compared to US GAAP.
A large number of countries either have wide-reaching consequences
permit the use of IFRS or require strict for corporate clients and accounting w Contracts drafted to support
professionals. Continued interaction specific accounting results for
reporting under IFRS for their listed
at various stages of transition, leases, derivatives, and
companies. More than 40 percent of
implementation, and subsequent securitizations will have to be
the Global Fortune 500 use IFRS.
monitoring will be essential to ensure carefully analyzed, as the
Stock exchanges in the 85 countries
a successful outcome. This could be requirements will change.
that require IFRS comprise 35 percent
particularly critical given the
of the global market capitalization, w Additionally, contracts with
compared to 25 percent of the global pervasive impact across companies,
existing US GAAP or local GAAP
market capitalization held by US including finance and accounting
provisions, such as debt
exchanges. processes, controls, internal covenants or income-sharing
reporting, tax structures, treasury arrangements, would need to be
The European Union (EU) requirement management, compensation recalculated if they included

The Pakistan Accountant April - June, 2009 20

profit before interest, taxes, accounting method. In addition, may be significantly impacted by
depreciation and amortization or the structure of business IFRS.
other earnings-based calculation. transactions may be impacted by
the difference in classification of w It should, however, be noted that
w Moreover, volatility of earnings as debt versus equity under IFRS. IFRS requires a much greater
a result of greater fair value exercise of judgment, supported
reporting under IFRS could w White-collar defences and by contemporaneous analysis
trigger ≈material adverse change∆ corporate investigation and anti- and documentation than US
provisions in contracts. fraud professionals may see a GAAP. IFRS totals approximately
shift in cases to IFRS-based 2,330 pages. If you printed out
w Finally, contracts with ≈frozen regulatory proceedings or both sets of standards - the IFRS
GAAP∆ provisions, where disputes. The level of and the US GAAP, the IFRS stack
financial statements are required documentation to support would rise to just above your
to be prepared applying the management's judgments and ankles while the US GAAP stack
same GAAP used at the time the estimates employed to support would be several feet over your
initial agreement was entered their reasoning may be key in head. Having reported the latest
into, would need to be assessed these cases. facts both about IFRS and US
if transitioning from one GAAP, we feel a challenge lies
accounting method to another in w Accountants and malpractice before ICAP to help its members
order to avoid maintaining two professionals will need to prepare tap in to more opportunities by
sets of books and records. themselves for the change in the seeking full recognition of their
way audits are performed under qualification in the west,
w Accountants involved in mergers IFRS and the requisite new particularly in the United States
and acquisitions may witness an auditing methodologies and of America, as the US GAAP
increase in cross-border processes. Tax lawyers and would remain of academic
transactions or an increasing accountants will need to work significance only.
number of deals where IFRS is with their clients to strategize and
the predominant prescribed reorganize tax structures that

Syed Athar Hussain Zaidi, FCA currently heads finance at the General Secretariat of the Parliamentary Union of the OIC
Member States in Iran.

Saima Batool is a staff member at AGN Azmoudekaran, Certified Public Accountants in Iran. She is an Educator Member
of the Association of Certified Fraud Examiners USA.

The Pakistan Accountant April - June, 2009 21

iTax Revenue
Abdul Wahid FCA

Budget is annual regular item for the Government wants more revenue to
strengthen its defense, law and order,
first week of June every year. health, education, development
Decades ago when the government projects and to meet the rising cost of
financial year was closed in March, living. Only very few tax payers are
wholeheartedly tax payers. Every tax
the budget used to be announced in
evader has a different way, trick of
the end of February or early March. trade and scheme of avoiding tax. No
Before the budget, stocks of strict formula can be framed out. It
productions are stored and held by requires experience, common sense,
familiarity with tax evasion, honesty to
the dealers, in expectation of rise in the government and loyalty to the
price, due to more tax, sales tax, country, which is very rare.
custom duty, excise
In the following lines, we shall take up
duty, etc. the proposals for increasing
government revenue. Every subject
discussed here is a complete topic in
itself, sufficient for seminars for days,

The Pakistan Accountant April - June, 2009 22

books, arguments, discussions and 5. Salaried Assessee: here. They live here alone or
still no consensus. No doubt, every They are the largest group of even with families. They pay
tax payer has a question as to what assessees. Salaried persons are for food, clothing and rent.
he is getting for the payment of claimed and so considered the Actually, most of them are
income tax, when they also see most pitiable taxpayers. It is said paid in their home countries
several rich men getting lots of that they have no chance of out of which they take out
income, free of tax or with little tax, evading taxes. They are given
like agriculture landlords. their expenditure. These are
lenient treatment, avoidances shown as honorary workers,
and relief in many fields. Actually which is not the fact. They
1. Withholding tax on telephone:
speaking, drafting of the Finance may not be taxed in their
Up to last two years withholding
Ordinance, Budget, Amendments
tax on electricity was adjustable home country or financing
and issue of SROs are all
and refundable but last year it country as under the double
was restricted to only few. handled at all the stages by the
taxation agreements they are
Similarly, if withholding tax on assesses of this category.
Following aspects would bring up working here.
telephone is also made non
adjustable / refundable this year, some short comings:-
(e) Bank statement is not a
sufficient more revenue can also
(a) Not all, but few especially compulsory part of anyone's
be expected.
good government servants return but if once only it is
2. Withholding tax is almost a have part time jobs, made compulsory for the
compulsory deduction at different generally as an employee salaried persons then lots of
rates for various items. In but sometimes as other financial activities shall
practice it is not strictly followed. consultants or advisors. They come to light.
Considering it to be a burden on are classified here as good
the seller, the rates are increased because to meet their 6. More Tax Payers
or withholding tax is not expenses, they prefer to
deducted. Provision in the law work extra. There is no way Suggestions:
should be made that if a to get both their salaries
withholding tax is not deducted, it brought together for tax (a) On electricity and telephone
shall be payable by the company calculation.
bills there is space for CNIC
or payer responsible for
enforcing WHT. and NTN but generally these
(b) In a salary circle, if there are
cases in many thousands it is are not filled in correctly. It
3. 6% on professional services: humanly impossible for an should be made mandatory
Only two years ago, it was officer and his three or four for these companies to fill up
introduced. Prior to it all the staff members to keep their NTN numbers.
professionals were paying tax record intact to say nothing
according to their incomes. The of reading and checking (b) Rates of all sorts of income
plea for fixing 6% was that these in about 278 days of
income from professionals is should be same including
the year.
much more relative to the tax property income, prizes on
collection on it. No doubt, the bonds, dividend, bank profits
(c) If not all, at least one third of
argument appears quite the salaried assesses would etc.
convincing but no one be having other sources of
considered the hardships to income such as part time (c) Differential treatment for
professionals with low incomes jobs, bank profit, dividend, lottery, import, export,
and extra savings to the property income, agricultural farming etc. should be at
professionals with big incomes income, share in other same rate with similar
and lesser income tax, now @ 6% business etc. For the last few exemption.
only. Instead of introducing years, salary certificate from
compulsory 6% tax on the employer is considered to (d) For schools, colleges and
professional incomes, Federal be sufficient as return. The
Board of Revenue (FBR) should educational institutions
new salary income tax return charging high fees, say, more
have taken up detailed inquiry, form, if modified to include
investigation and audit into the than Rs.1,000 per child per
other sources of income can
cases of lower- or non-payment month, must also provide
cover this shortcoming.
of tax. At the most, this 6% limit CNIC/NTN of the father or
should have been made guardian.
(d) For NGOs and other
minimum tax rate without any
organizations supported and
upper limit. (e) Similar, to electricity,
financed from foreign
countries, a little vigilance will telephone, WHT be charged
4. Adjustable withholding tax on
show that most of the foreign on gas bills above an amount
domestic air tickets and air
workers are working free and that may be fixed.
conditioned railway sleepers may
also be considered. do not get any remuneration

The Pakistan Accountant April - June, 2009 23

Interest Rate Swaps
This article analyzes the peculiarities of one of the most important
derivative products Interest Rate Swaps (IRS) . Effort has been made to
analyze both the structural and valuation intricacies of the product.
Waqas Farooq ACA

Introduction (this is called net cash this is the interest on the Rs. 50
settlement/netting). million principal for 6 months at 7%
An interest rate swap is a contract per annum, and the Bank would pay
between two counterparties to Example A interest on Rs. 50 million principal
exchange periodically interest at the 6 month KIBOR rate prevailing
payments (fixed for floating and On 30 June 2007, Party A (≈A∆) takes on 30 June 2007. Suppose that 6
floating for fixed). The payments are Rs. 50 million long term loan facility month KIBOR on 30 June 2007 is
in the same currency (other than in from XYZ Bank (≈XYZ∆) at 6 months 6.2%, the Bank would pay Rs. 1.55
cross currency interest rate swaps in KIBOR (Karachi Inter-Bank Offer million (Rs. 50m x 6.2% x _). In net
which payments in different Rate) plus 2% spread with the settlement case, A would pay the
currencies are exchanged) and are maturity of 4 years. A is concerned Bank Rs. 0.2 million (Rs. 1.75m - Rs.
calculated on a notional principal about rising trend of KIBOR and it 1.55m).
amount (this amount is called notional simultaneously initiated an IRS on 30
as this is used only for the June 2007 with ABC Bank (≈the In total there are 8 exchanges of
computation of interest payments and Bank∆). As per the terms of the IRS, A payment on the swap. The fixed
is not exchanged between agrees for a period of 4 years to pay payments to be made by A are
counterparties). As per the contract, ABC Bank interest at 7% per annum
always Rs. 1.75 million. The floating
on each payment date (also referred (with semi-annual payments) on Rs.
rate payments on a payment date are
to as reset date/settlement date) 50 million (notional principal) in return
computed using the 6 month KIBOR
during the swap period, the cash for receiving interest on Rs. 50 million
rate prevailing six months before the
payments based on difference in at 6 month KIBOR, payments to be
made semi-annually. payment date. If KIBOR is greater
fixed and floating rates are
The first payment would be than 7% ABC Bank will pay the
exchanged by the parties from one
exchanged on 31 December 2007 difference between KIBOR and 7% to
another. The party incurring a
(i.e. 6 months after 30 June 2007). A A, and if KIBOR is less than 7% party
negative interest rate differential for
would pay the Bank Rs. 1.75 million, A will pay the difference to ABC Bank.
that leg pays the other counterparty

The Pakistan Accountant April - June, 2009 24

Reasons for entering position). One way in which interest would be A would be paying 9%
rate position can be hedged through interest per annum. This will benefit A in
into IRS
IRS is by fixing the interest cost. As case KIBOR increases more than 9%.
After understanding the basic we have seen in the above example
concept the question arises as to why Party A has fixed its interest cost at Apart from above IRS are also used
one should enter into IRS. One of the 9% p.a (7% fix rate under IRS and 2% for speculative trading purposes and
primary reasons for entering into the availing the opportunity of credit
spread over KIBOR as specified in
quality arbitrage in the different credit
swap arrangement is reducing the loan agreement with XYZ Bank). markets.
interest cost (hedging interest rate No matter what the KIBOR 6 month

IRS Market
As per the data of the Bank for International Settlements IRS accounts for the largest proportion of the Over the
Counter derivatives market.

Notional Amounts Outstanding (In billion of US Dollars)

Jun 2008 Dec 2007 Jun 2007 Dec 2006 Jun 2006

IRS Contracts 458,304 393,138 347,312 291,582 262,526

Total derivative contracts 683,725 595,341 516,407 414,845 370,178

Share of IRS 67% 66% 67% 70% 71%

Source: Bank for International Settlement website

Financial derivative business made its provided they meet the eligibility The permitted types of transactions
way to Pakistan in 2003. Before the criteria as specified in the regulations include G7 Foreign Currency Options,
promulgation of Financial Derivatives and obtain Authorized Derivatives PKR Forward Rate Agreements (FRA)
Business Regulations (FDBR) in 2004 Dealer (ADD) or Non Market Maker and PKR Interest Rate Swaps (IRS).
by State Bank of Pakistan (SBP), Financial Institution (NMI) status from However, banks/DFIs can undertake
banks were required to obtain SBP. FDBR contains the regulatory any other type of transaction with
specific transactional approval from framework for derivatives business SBP's prior approval.
SBP. Under FDBR banks are allowed and specific requirements for
to undertake derivative business permissible derivative products.

Statistics of Financial Derivatives Market in Pakistan:

Notional Amounts Outstanding (In billion of PKR)

Dec 2008 Sep 2008 June 2008 Mar 2008

IRS 105 109 99 96

FX Options 38 80 88 183
Cross Currency Swap 146 157 174 172

Forward Rate Agreement 2 7 3 -

Source: State Bank of Pakistan website

Valuation of IRS are based on the international The revaluation of an IRS involves
theories and practices which may not calculating the net present value of
After discussing the basic structure of be applicable completely to the the future cash flows under the swap
IRS and its market information both Pakistani environment where the arrangement discounted at
globally and in Pakistan we divert our derivative market is still at the infancy appropriate rates of interest. IRS
attention to the more complex area stage. The principles mentioned involves a stream of interest rate cash
that is the valuation of IRS. below are then aligned to the Pakistan flow receipts and a separate stream
environment. The valuation model of interest rate cash flow payments.
Below is a summary of the principles discussed below is one of the many These two streams are generally
which are generally adopted in the synthetic models that can be used to revalued separately and the results
mark to market of IRS. The principles value IRS. combined to determine the overall

The Pakistan Accountant April - June, 2009 25

market value of the swap. Bond w There is a change in the arrive at the market price. On the
pricing method with the derivation of market sentiment regarding other hand zero coupon rates take
zero curves is used commonly to the credit spread of the into account the differing level of risk
revalue the IRS. This can be a issuer. associated with the cash flows in the
complex process and there are a different maturity band i.e. it
variety of practices used. The difference between the value of recognizes that a cash flow in year 1
fixed and floating leg is the value of is not worth the same as an equal
Under the bond pricing method two the swap. It should also be noted flow in year 2 solely because of the
legs of the IRS (i.e. fixed and floating that the notional principle amounts time value of money but also
legs) are considered as the fixed included in the fixed and floating leg because of the relative risk (most
and floating leg bond issued / revaluation offset each other as the important being the reinvestment
purchased according to the positions notional principal is deducted in one risk) associated with each flow. It is
held in the swap transaction. The leg and added on the other. also to be noted that the zero
party having long position in the coupon method also automatically
fixed leg and short position in the Zero coupon bonds are the type of accounts for the reinvestment risk by
floating leg (i.e. receiving fixed rate bond that is issued below par value using different discount rates for
from the counter party) will be (i.e. at discount) and redeemed at different maturity bands.
assumed to have purchased a fixed the par value on maturity. There is no
rate bond and issued a floating rate intermediate coupon payments on Internationally, zero coupon rates for
bond. The party which is long in the zero coupon bonds. In case of different maturities are determined
floating leg and short in fixed leg (i.e. Pakistan, Treasury Bills issued by using following variables / quoted
receiving floating rate from the SBP are the best example of zero- interest rates:
counterparty) will be assumed to coupon bonds.
have purchased a floating rate bond
Treasury spot rates (quoted yields
and issued fixed rate bond. In case The zero rate is the rate of interest
on securities issued by the
of above example Party A is earned on an investment that starts
considered to have purchased a today and lasts for n number of
floating rate bond from the Bank and
years. All the interest and principal is
Interest rate futures
issued a fixed rate bond to the Bank. realized at the end of n years and
Vice versa is the position of the there are no intermediate payments.
Bank. w Swap rates (internationally
Many of the interest rates we quoted by the investment banks
observe directly in the market are not to make the swap markets)
Net present value of the IRS
pure zero rates. Consider a 5 year
is computed as follow: In the context of Pakistan only
Pakistan Investment Bond (PIB) that
provides 8 % coupon. The price treasury rates are available i.e. the
w The value of the fixed leg is rates on the treasury bills and PIBs
(yield) on this PIB does not exactly
computed by discounting the determine the 5 year zero rate issued by SBP, the yields on the
fixed leg cash flows, in the above because some of the return on the same represents the market
example Rs. 1.75 million every six bond is realized in the form of sentiments on the interest rates in
months and Rs. 50 million coupons prior to the end of year five. the economy. So any model for the
notional at maturity, using the valuation of derivatives must derive
appropriate discount rate which is The question arises as to why use the discount rates using yields on
commonly the rate on zero curve the zero coupon rate and not the treasury securities.
of the relevant maturity. market yields on the bonds having
various maturities? In other words, Complexity arises as to how the zero
w There is no need to value the why there is a need to plot a zero rates should be computed? Zero
floating leg on the premise and coupon curve and why we cannot rates can be computed from the
common logic that floating rate use the yield curve? There is a prices of the instruments traded in
bonds (floaters) are always conceptual difference between the the marketi.e. T-bills and PIBs. Zero
yield of 5 year PIB making coupon rates upto the maturity
traded at the par value because
intermediate coupon payments and period of 1 year are directly available
there is no difference in the
the zero coupon bond of the same from the secondary market in the
market interest rate and coupon
maturity. The yield on the five year form of yield on on-the-run treasury
rate on the floater. Floaters are
PIB represents the IRR (weighted
traded at above or below par bills. For maturity period of more
average yield commonly termed as
value only in following cases: than one year zero-coupon rates are
yield to maturity) of the instrument
computed using Bootstrap Method.
and assumes that all the cash flows
w Between two reset dates of the bonds during its tenor have Bootstrapping is a method for
where the coupon rate is the same level of risk including constructing a zero-coupon fixed
determined and market reinvestment risk. This is the reason income yield curve from the prices of
interest rates are changed why all the cash flows are a set of coupon bearing products by
between the reset dates; and discounted at the same yield to forward substitution. The most

The Pakistan Accountant April - June, 2009 26

important assumption while using the In the case of 6 months and 1 year subsequent maturities. It is to be
bootstrapping method is that the securities where the coupon noted that the zero-coupon rates
prices of the coupon bearing payments are zero (i.e. they are zero- derived above can only be used to
instruments in the secondary market coupon bonds); there is no need to value the default free cash flows
are determined using the arbitrage- bootstrap as the IRR on the same because they are derived from the
free valuation model (i.e. each fixed represents the zero-coupon rate of securities issued by the SBP and
income security is considered as a that maturity. In the case of other these securities are considered risk-
bonds which are making semi-annual free (i.e. no credit and liquidity risk).
package of zero-coupon bond and
coupon payments we need to derive This indicates that the rates derived
accordingly its price cannot be
the zero-coupon rate using the above cannot be used directly to
determined using single yield) and bootstrapping method. Below is the value the IRS and adjustments need
not the traditional model in which computation of zero coupon rate of to be made to the above rates for
single rate is used to discount all the 3.5053% for the bond with 1.5 years credit and liquidity risks. There are
cash flows of the security. of maturity: various approaches to make the said
Reconstitution and stripping of adjustments. The method generally
treasury securities in a developed As the bond is trading at par annual used in Pakistan is to take the
market like USA ensures that yield is same as the coupon rate. historical spread between the yield on
arbitrage free valuation model is Bond will pay interest of Rs. 1.75 government securities (commonly
followed; to date this practice is not every 6 months and principal of Rs. referred to as the PKRV rates) and
being followed in Pakistan. Following 100 will paid at the end of 1.5 years. KIBOR.
is the general methodology of As we have assumed that the price of
bootstrapping: Rs. 100 is determined using arbitrage Now its time to apply the valuation
free valuation model following formula methodology discussed above to our
w Define set of yielding products; will represent the bond price: example of Party A and ABC Bank
these will generally be coupon IRS. The valuation date is 31
bearing bonds like PIBs. 100 = 1.75/(1+3.00/2)0.5 + December 2007 and there are 7
1.75/(1+3.3/2)1 + (100+1.75)/(1+X)1.5 interest payments to be exchanged in
w Derive discount factors for all the future.
terms; these are the IRR of the Solving the above equation we will
above bonds. The IRR / yield are get the rate of 1.7527% (annualized
quoted on the Reuters / 3.5053%). This is the rate that the Mr. Waqas Farooq is an Associate
Bloomberg. market would apply to a 1.5 year zero member of ICAP and currently
coupon security. working with Ernst & Young Bahrain in
w Bootstrap the zero coupon curve The above approach can be followed its Assurance and Advisory Business
step-by-step. to derive the zero-coupon rate for Services (Financial Sector).

Example of Valuation of IRS

The following example sets out the calculations of the ≈zero-coupon∆ discount factors.

Market Time to Annualized Zero Coupon

Price Maturity yield to Rate
(in Rs.) (in years) maturity (%) (%)

100 0.5 3.00 3.00

100 1 3.30 3.30
‘100 1.5 3.50 3.5053
100 2 3.90 3.9164
100 2.5 4.40 4.4376
100 3 4.70 4.7520
100 3.5 4.90 4.9622
100 4 5.00 5.0650

The Pakistan Accountant April - June, 2009 27

Date Period to Next Fixed rate Zero Coupon Discount Present Value
Cash flows Cash flows Rate (%) * Factor

[A] [B] = A - 31 Dec [C] = [D]** E] = [F] = C * E

2007 (50,000,000* 1/(1+D/100)^B

30-Jun-08 0.5 1,750,000 3.00 0.985329 1,724,326

31-Dec-08 1 1,750,000 3.30 0.968054 1,694,095
30-Jun-09 1.5 1,750,000 3.5053 0.949634 1,661,859
31-Dec-09 2 1,750,000 3.9164 0.926044 1,620,578
30-Jun-10 2.5 1,750,000 4.4376 0.897135 1,569,986
31-Dec-10 3 1,750,000 4.7520 0.869988 1,522,478
30-June-2011 3.5 1,750,000 4.9622 0.844082 1,477,144
30-June-2011 3.5 50,000,000 4.9622 0.844082 42,204,112
Value of Fixed Leg 53,474,578
Value of Floating Leg
** 50,000,000
Value of Swap 3,474,578

The swap has positive fair value of Rs. 3,474,578 to ABC Bank and negative fair value of the same amount
to Party A.

* In the above valuation example zero-coupon rates are not adjusted for credit and liquidity risks.
** At any reset date value of the floating leg is always equal to the notional amount.

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The Pakistan Accountant April - June, 2009 28

Accountants' Role in
Controlling Corruption
and Fraud
Saira Shamsie ACA

Corruption and
it s Impact

Corruption has
pervaded all
sectors of our
society. It may be
more prevalent or
more obvious in
some countries
than others. But in
today's business
environment, the
implications of
corruption at a
local level reach
far beyond national
boundaries. The impact of corruption on our question. It deprives government and
society cannot be overstated. It regulators of credibility and weakens
Corruption has increases the risks and costs of
business, damages investor
the forces of law and order. In such a
scenario, public morale inevitably
become a major confidence, hampers economic
development, and reduces country
suffers and social hardship -
particularly in developing and
global concern. credit ratings. It brings the integrity of
professions and of business into
emerging economies - can be the
inevitable result.

The Pakistan Accountant April - June, 2009 29

The way forward

Malaysia is the first Asian country to The International Federation of

Accountants (IFAC) urges
implement legislation to protect accountancy bodies worldwide to
unite with various professions, the
whistleblowers. The legislation is aimed at business community, governments,
regulators and other organisations to
protecting directors, management and eliminate corruption. Further,
Accountants are urged to develop
auditors of public listed companies who relationships with legislative and
regulatory authorties, the legal
report breaches. profession and other groups
interested in improving the framework
for good governance, transparency
What is corruption? Bribery, fraud, National and international standards and accountability.
illegal payments, money laundering, of practice already alert members of
smuggling - all these come to mind the accountancy profession, whether The accounting profession's individual
as obvious examples. But corruption or not in public practice, to the role in curbing corrupt practices is
possibility of fraud or other emphasised by exercising
does not always involve money: it can
irregularities and require them to 'professional skepticism' when
present itself in the guise of special
report any such findings to internal establishing business relationships
favors or influence. In today's
management. But what should the and in reviewing transactions
complex and rapidly changing between related parties. Further effort
accountant do if management fails to
environment, the potential variations is required to strengthen audit
take appropriate action to remedy the
of corruption are as many as there are situation? In theory, the accountant committees role and function in line
criminal minds to devise them. An all- could take matters further by with international best practices.
purpose rulebook is inconceivable: reporting the misdeed to external The elimination of corruption is an
the fight against corruption must take authorities. But is it fair to expect the ambitious target. Only with a dramatic
the broadest possible approach if it is accountant to expose himself or increase in public awareness will it be
to have real impact. herself to the potential repercussions possible to begin the fight.
of such action: job insecurity or loss, Accountancy profession both at
professional victimisation, personal institutional and individual level needs
Accountants’ role as
whistle blowers
Ultimate responsibility for
discouraging and preventing
Local Development
corruption, whether within the The Institute and Federal Board of Revenue
business world or in the public sector,
rests with management. By have signed an MOU for development and
introducing proper systems of implementation of ≈Tax Audit Framework∆ for
corporate governance and "setting
the tone at the top," management can
conduct of tax audit by FBR through Chartered
significantly reduce the opportunities Accountants. This will ensure a fair, transparent
for malpractice.
and equitable tax administration which will
But accountants have a key role in enhance public confidence in the tax system
society's efforts to reduce corruption.
First, as professionals with a duty to
and deter tax frauds.
protect the public interest, they are
bound by rigorous codes of
professional and personal ethics danger, threats to family or other third to play its part in the campaign to
calling for the highest levels of parties? Until such time as create a culture in which corruption
integrity and objectivity. Second, their appropriate legal infrastructures have cannot survive.
key strategic positions within an been put in place to protect the
enterprise or organisation - whether in "whistle-blower" and to raise
an internal position or as an external expectations of responsible action by The author is Manager of Directorate
other professions or sectors of of Techinical Services, ICAP
auditor or adviser - mean that they
very often have access to highly society, is it realistic or reasonable to
place this burden on members of the
privileged and confidential
information. accountancy profession?

The Pakistan Accountant April - June, 2009 30

Outsourcing of
Tax Audits
to Chartered Accountants
Farheen Mirza

History of Tax Audit by Prevalent Practices in Other objective and effective tax audit
system that will create deterrence to
Chartered Accountant’s Countries mis-declarations in the tax returns
Firms filed by the tax payers. Such a
In India there is a well laid down system is expected to contribute in
Section 4A of the Income Tax system of tax audit. Section 44AB of
developing a culture of compliance
Indian Income tax Act provides for
Ordinance, 1979, inserted in 1996 with tax laws over time that will help in
Audit by CAs in certain cases. In
provided for outsourcing of audit to improving the tax collections as well
certain developing countries like
private agencies. Vide Finance Act as to improve the tax to GDP ratio.
Turkey, there is an independent body
1998 private agencies were Tax audit by professionals are
created by the government that
substituted by firms of Chartered conducted to create an environment
performs tax audit.
Accountants (CAs). Income Tax of 'deterrence' rather than collection
Ordinance, 2001 contained the of revenue in the short run. The real
Reasons to Develop Tax impact on collection is achievable in
concept of audit through CAs since
its inception. Sub section (8) of Audit Framework the long run.
section 177 of Income Tax Ordinance
2001 and section 32A of Sales Tax The Institute of Chartered The purpose of tax audit is to ensure
Accountants of Pakistan (ICAP) and that declarations made by the tax
Act, 1990 provides for conduct of
the Federal Board of Revenue (FBR) payers are accurate and reliable.
audit by CAs.

Background Facts and

FBR and ICAP have entered into a Memorandum of
Circumstances Understanding (MoU) for development and
Accounting income of companies is
implementation of ≈Tax Audit Framework∆ for the
audited annually by Chartered conduct of tax audit by FBR through chartered
Accountants. Accounting income is accountants.
adjusted as per the provisions of the
Income Tax Ordinance, 2001 to arrive Outsourcing of tax audit to chartered accountants firms
at taxable income. Relevant clearly demonstrates the confidence of the Government
information is required to arrive at the of Pakistan/FBR in ICAP and the Chartered
taxable income and to verify the
correctness of the taxable income.
Accountancy (CA) profession.
Under the current provisions of the
tax laws (Income Tax Ordinance, Main objective of the tax audit is to
desired that there should be a
2001, Sales Tax Act, 2000 and Excise framework that would result in create deterrence for under or
Duty Act 2005), there is a system of creating a more transparent incorrect declarations of income by
self assessment, that enables the tax assessment process and to develop the tax payers
payer to determine his own tax and agree upon an objective of audit
liability. Under this system, there is so that there is no 'disagreement' and Salient Features of the Tax
major reliance on the tax payer to file 'disillusionment' for the results. Audit Framework
accurate and reliable tax return.
However, with all the provisions in the Main purpose behind outsourcing of a. The tax auditor may be
tax laws the results are not very tax audit through Chartered appointed at any time after the
encouraging. Accountants is to establish an filing of tax returns;

The Pakistan Accountant April - June, 2009 31

b. There would be three sets of The tax audit report would be j. A tax auditor appointed under
documents subject to tax audit addressed to the FBR and this framework would not express
namely, the income tax return, include a clear expression of an opinion on the amendments
monthly sales tax cum federal opinion on the fairness of the emanating from difference of
excise duty returns and return of income, sales tax cum opinion between the tax
statement of additional federal excise duty returns, and department and taxpayer on the
information (collectively referred statement of additional tax treatment for any item as
to as tax statements); information. The tax audit report disclosed in the return of income.
would explicitly state: However, the auditor would
c. The FBR would have the sole provide information relating to
discretion for selecting the i. whether or not the income tax facts of the matter to the
companies and the auditors for return and sales tax cum Commissioner of Income Tax /
conducting tax audit. ICAP would federal excise duty returns Collector of Sales Tax & Federal
provide all information available are in agreement with the Excise including a schedule
with it relating to the chartered details provided in the explaining the history of the said
accountant firms, at the request statement of additional matter in the past year(s).
of the FBR; information;
k. The role of tax auditor would
d. The auditor would issue an ii. whether or not the statement stand completed with the
engagement letter to the FBR of additional information submission of final tax audit
specifically setting out the nature, contains information as report. There will be no
scope and timing of the tax audit required by the Tax Audit requirement for presence in
engagement; Framework applicable to the person or furnishing any
taxpayer; and information during the course of
e. Statement of additional adjudication / appeal and in any
information would be prepared iii. whether or not the other subsequent proceeding.
and submitted by the tax payer information contained in the
to the tax auditor duly signed by statement of additional Responsibility of the
the Chief Executive Officer and information is fairly stated in
all material respects.
Chief Financial Officer of the
company. In the absence of Management is responsible for the
either of them, signed by a g. The auditor's responsibility would
be to issue a report on the tax preparation and fair presentation of
director of the company,
statements based on the results these ≈Tax Statements∆ in accordance
supporting the return of income
of audit procedures performed by with the requirements of Income Tax
filed. Such statement would
him and using his professional Ordinance 2001, Sales Tax Act 1990
effectively provide details relating
judgment. The responsibility of and Federal Excise Act 2005. This
to the line items in its balance
final assessment of income and responsibility includes: designing,
sheet and profit and loss
tax payable remains with the implementing and maintaining internal
components. In view of the varied
nature of businesses and sectors relevant tax officials of the FBR. control relevant to the preparation and
of economy, under this fair presentation of tax statements that
framework, separate models of h. The relevant officer of tax are fairly stated, selecting and
statement of additional department would issue the order applying appropriate accounting
information have been developed either accepting or altering the policies, and making accounting
to make these relevant for tax return submitted by the estimates that are reasonable in the
respective sectors. Such taxpayer, and the tax auditor circumstances.
would not be responsible for the
statement of additional
content of the order issued ≈Tax Statement∆ will be prepared by
information would serve to create
except to the extent of the audit the management from its books and
a bridge between the accounting
report issued by him. records. The accounting principles
income and the taxable income
and also between production and will be the same as used in the
i. Selection of audit firm would be preparation of financial statements
sales as reported in accounts
done by FBR without any direct and Statement of Additional
and tax returns. The audit of
these statements would provide a or indirect involvement of ICAP. Information in accordance with the
reasonable assurance regarding To ensure independence of the requirements of Income Tax
the fairness of the taxable tax auditor, the statutory auditor Ordinance 2001, Sales Tax Act 1990
income. or tax advisor of a company and Federal Excise Act 2005.
would not be appointed as Tax
f. The auditor would issue tax audit Auditor of that particular It is essential to note that it is the
report and give his opinion on the company. The decision of primary responsibility of the taxpayer
information required to arrive at selection of auditor would lie with to prepare the information in such
the taxable income and sales tax the FBR having regard to particular manner so that the tax auditor can
and federal excise duty payable. circumstances of each case. verify the compliance thereof.

The Pakistan Accountant April - June, 2009 32

Responsibility of the Tax 176 (c) The firm of chartered Outsourcing of tax audit to chartered
accountants, as appointed accountants firms clearly
Auditor by the Board, to conduct demonstrates the confidence of the
audit under section 177, for Government of Pakistan/FBR in ICAP
Audit of Tax Statements would any tax year, may with the and the Chartered Accountancy (CA)
encompass examination of the return prior approval of the profession. The proposed scheme of
of income, sales tax cum federal Commissioner concerned, tax audit outsourcing through CAs
excise duty returns and statement of enter the business will increase the responsibility as well
additional information with the premises of a taxpayer, as the quantum of work for our
audited financial statements, books selected for audit, to obtain members in audit profession. Thus,
of account, related records and any information, require this is a great opportunity for our
documents by performing such audit production of any record, audit firms and our members in
procedures as considered on which the required practice should capture this
appropriate under the circumstances information is stored and opportunity with a great deal of
by the tax auditor in accordance with examine it within such responsibility and due care, which is
the Tax Audit Framework. premises; and such firm expected of us in performing such
may if specifically functions. In order to ensure effective
The auditor would issue report on delegated by the liaison and necessary quality
such return of income / sales at the Commissioner, also controls, ICAP is also considering
conclusion of the audit to the FBR exercise the powers as developing an oversight mechanism
and include a clear expression of provided in sub-section (4). to monitor the effective
opinion on the fairness of the return implementation of tax audits carried
of income, sales tax cum federal 210 (1B) The Commissioner may out by our members.
excise duty returns and statement of delegate the powers to a
firm of chartered ICAP has agreed to assist the
additional information. Such auditor's
accountants appointed by Government and FBR's endeavors to
report may form the basis for the
the Board, to conduct the build a strong tax base and culture
Deputy Commissioner of Income Tax
audit of persons selected of compliance for achieving
and Deputy Collector of Sales Tax &
for audit under section 177. sustained economic growth and
Federal Excise to frame tax macroeconomic stability. ICAP will
assessment. After receiving the also assist in all manner so that its
report of the auditors, respective tax
Signing of MoU for
members and firms participate and
officials would issue a notice to the Development and collaborate in conducting that
taxpayer and finalize the assessment Implementation of Tax Audit function.
in accordance with the laid down
procedure. It is hoped that this process will help
In order to achieve the above in establishing a robust system of tax
In designing the audit procedures, audit that will help in achieving FBR's
objectives, FBR and ICAP have
the tax auditor would consider the entered into a Memorandum of objectives of enhancing tax base,
possible audit procedures (as Understanding (MoU) for increasing tax revenue and
considered appropriate by the development and implementation of improving tax to GDP ratio essential
auditor keeping in view the ≈Tax Audit Framework∆ for the for sustained economic growth. For
requirements of International conduct of tax audit by FBR through the profession it represents a
Standards on Auditing, his chartered accountants. This contribution to the economy and a
knowledge of the business of that framework is aimed at laying down source of additional sustained
taxpayer), together with the specific necessary requirements and revenue.
instructions, if any, regarding any providing guidance to the firms of
areas of examination that need Chartered Accountants and the ICAP has circulated Tax Audit
special focus, specified by the FBR. officials of the FBR with regard to the Framework to members for
scope of work, the reports to be comments by email on June 23,
Amendment in Finance Act issued by the tax auditors and other
2009 and it is also available on ICAP
relevant matters for effective and
2009 for Conduct of Tax website at:
efficient conduct of such audits.
Audit By Chartered
The MoU is effective from July 1, xation.php.
2009 and FBR will determine in
consultation with ICAP the date of Members are requested to study the
In Finance Act 2009, following
implementation of Tax Audit same in detail before undertaking
amendment has been made in
Framework. The framework at this any tax audit and seek guidance
section 176 and 210 of Income Tax
stage is for 'Company Cases' only. from ICAP, wherever required.
Ordinance 2001:

The author is Assistant Manager of Directorate of Techinical Services, ICAP

The Pakistan Accountant April - June, 2009 33

Smart Tips for
Microsoft EXCEL Part-II
Zafar Badami FCA

Ability to work with data in multiple Sum the value of a cell

worksheets is a essential skill for
across multiple worksheets
Excel users. For example, you may
required to enter the same data into
Another common Excel task is to sum
many worksheets without retyping or
the value of a cell in multiple
copying the text into each one. Or,
worksheets and then displaying the
how can you easily sum the cell
result in another cell. For example,
values across multiple worksheets?
you may want to sum the number of a
Or, how can you list the names of the
particular product that customers
worksheets in your workbook?
have ordered over a period of time,
such as by quarterly periods. If
These five tips for Excel power users
worksheets are formatted in the same
will help answer those questions and
Worksheets provide a more.
way for each period, the total sales
for the product always appears in the
sound and instinctive same cell in each worksheet.
way to manage your Enter data in multiple
data in Microsoft worksheets at the same time Finding the sum in this
situation is simple. You can
Excel. Many times, As an example, let's say you want to
put the same title text into different
use a formula:
multiple worksheets
worksheets. One way to do this is to
are used to further type the text in one worksheet, and w Start Excel. A new,
blank work-book appears.
separate data into then copy and paste the text into the
other worksheets. If you have several w In cell B3 in Sheet1, type 20.
categories such as worksheets, this can be very tedious. w In cell B3 in both Sheet2 and
sales or production. Sheet3, type 30.
An easier way to do this is to w In cell A1 in Sheet1, type the
use the CTRL key: following formula:
=SUM (Sheet1:Sheet3!B3)
w Start Excel. A new, blank w Press ENTER. Notice that cell A1
workbook appears. displays 80, which is the total
w Press and hold the CTRL key,
sum of the cells in the three
and then click Sheet1, Sheet2,
and Sheet3.
w Click in cell A1 in Sheet1, and
Run the spelling checker on
then type:
multiple worksheets
This data will appear in each simultaneously
You can check your spelling in
w Click Sheet2 and notice that the multiple worksheets simultaneously:
text you just typed in Sheet1 also
appears in cell A1 of Sheet2. The w Start Excel. A new, blank work
text also appears in Sheet3. book appears.

The Pakistan Accountant April - June, 2009 34

w In cell A1 in Sheet1, type any text you want. Repeat other purposes. For example, you may want to make
this step for Sheet2 and for Sheet3. calculations for just those worksheets that the user has
w Press and hold the SHIFT key, and then click Sheet1, selected. The following steps expand on the example
Sheet2, and Sheet3. demonstrated when we summed the value of cells
w On the Tools menu, click Spelling.. across multiple worksheets.

Spell checking is performed on each of the worksheets you w Start Excel. A new, blank workbook appears.
selected. w Select Sheet1.
w On the View menu, point to Toolbars and then click
List the names of worksheets Control Toolbox..
w Click the Command Button.
In some instances, it is useful to be able to determine and w Click somewhere on the worksheet to insert the
list the names of the worksheets in your Excel workbooks. command button, and then click and drag
For example, you might want to create an index to catalog the borders of the command button to size it.
the worksheets in your workbook. You could then store the w Right-click the command button, and then click
results in a separate worksheet. That way, you can quickly View Code on the shortcut menu.
find the location of a particular worksheet. Try it out: w In the Visual Basic Editor, enter the following code
between the Private Sub Command Button1
w Start Excel. A new, blank work-book appears. statement and the End Sub statement:
w Add a command button to the worksheet: q Dim Sht As Object
q Dim arSheetNames() As String
q Select Sheet1. q Dim i As Integer
q On the View menu, point to Toolbars and then q i=0
click Control Toolbox.. q For Each Sht In ActiveWindow.SelectedSheets
q Click the Command Button.. q i=i+1
q Click somewhere on the worksheet to insert the q ReDim Preserve arSheetNames(1 To i)
command button, and then click and drag the q arSheetNames(i) = Sht.Name
borders of the command button to size it. q Next Sht
q startSheet = arSheetNames
w Now, add Visual Basic code to the command button: (LBound(arSheetNames))
q endSheet = arSheetNames
q Right-click the command button, and then click (UBound(arSheetNames))
View Code on the shortcut menu. q Worksheets ("Sheet1").Range("A1") .Formula =
q In the Microsoft Visual Basic® Editor, enter the "=SUM (" & startSheet & ":" & endSheet & "!B3)"
following code between the Private Sub w On the File menu click Close and
CommandButton1 statement and the End Sub Return to Microsoft Excel..
statement: w On the Control Toolbox,, click Exit
q Set NewSheet = Sheets. Add(Type:=xlWorksheet) Design Mode to quit design
q For i = 1 To Sheets.Count mode and enable the command
q NewSheet.Cells(i, 1) Value = Sheets(i).Name Nexti button.
w In cell B3 of Sheet1, type the value 20.
w On the File menu, Click Close and Return to w In cell B3 of Sheet2, type 30, and then in cell B3 of
Microsoft Excel. Sheet3, type 40 Click Sheet1..
w On the Control Toolbox, click Exit Design Mode to w Hold down the SHIFT key, and then click Sheet1 and
quit design mode and enable the command button. Sheet2 to select just those worksheets.
w Click the command button on Sheet1. w Click the command button on Sheet1 and notice that
the value displayed in cell A1 is 50. This is the sum of
A new worksheet is created, listing the names of all the cell B3 for Sheet1 and Sheet2.
worksheets in the workbook. w Hold down the SHIFT key and click Sheet3 so that all
three sheets are selected. Notice that the total in cell
Test to see which worksheets have been A1 is now 90, which is the sum of cell B3 for all
selected three worksheets.

You can select multiple worksheets by holding down the

SHIFT key, and then clicking each worksheet name. The author is Director of Education and Training, ICAP.
Sometimes, you may want to know which worksheets
have been selected so you can use that information for

The Pakistan Accountant April - June, 2009 35


Elections 2009 in Pictures

The Day Begins

ICAP electoral staff at Facilitation Center ICAP electoral staff with Election Committee
Chairman Majeeduddin Khan

We make a mistake assessing an election campaign as if we were judging a prize fight --- focusing
only on the skills of the contestants and what is happening in the ring. An election more resembles
the process at an art auction. To determine whether bidders will prefer a Rembrandt or a Picasso,
you need to factor in the taste of the customers --- their beliefs, their values. Indeed, the value of a
painting, or the quality of a candidate, lies in the eyes of the beholder.

Alan Baron

Election Committee and Election Officers oversee final arrangements ICAP IT staff responsible for conducting E-voting

ICAP ladies out in full force Final Touches! Executive Director ICAP
Moiz Ahmad in consultation with EC Chair

The Pakistan Accountant April - June, 2009 36


Candidates queue up to welcome voters

Great Voter Turnout

Female members were equally enthusiastic

A view of the gathering

The Pakistan Accountant April - June, 2009 37


ICAP Elections

President ICAP Syed Asad Ali Shah Executive Director ICAP Moiz Ahmad Chairman Board of Studies Fazal Husain Saifee

Council Member Ahmad Saeed Council Member Abdul Rahim Suriya

Past Presidents

Ahmed D. Patel Ebrahim S. H. Dahodwala Najam I. Chaudhri

M. Afzal Munif Pir Mohammed A.Kaliya Masoud Ali Naqvi A. Husain A. Basrai

The Pakistan Accountant April - June, 2009 38


ICAP Elections

M.Yousuf Adil S.M.Shabbar Zaidi Zafar Iqbal Sobani

Softer Sides

Shabbar Zaidi and Farrukh Junaidy All's well that ends well. Shoaib Ahmed
share a light moment Secretary ICAP heaves a sigh of relief

Shaikh Saqib Masood and Pervez Muslim Syed Asad Ali Shah with M. Yousuf Adil

The Pakistan Accountant April - June, 2009 39

Best Corporate

Report Awards 2008

The Joint Committee of the Syed Asad Ali Shah, President ICAP, competitiveness amongst companies
Mr. Hasan Bilgrami, President ICMAP, in striving for excellence in corporate
Institute of Chartered
Mr. Muhammad Rafi, Chairman of reporting.
Accountants of Pakistan ICAP and ICMAP Joint Committee and
(ICAP) and Institute of Cost Mr. Abdul Rahim Suriya, Chairman of Syed Asad Ali Shah highlighted the
and Management Evaluation Committee expressed importance of transparency in annual
Accountants of Pakistan hope that regular presentation of Best accounts. He said that the annual
Corporate Report Awards will go a reports are the single most important
(ICMAP) announced the long way in improving disclosures, source of information that the public
final results for Best quality and transparency of relies upon in making sound
Corporate Report Awards information in annual accounts. investment decisions. Investors
2008. The ceremony was equate high quality annual reports as
Syed Salim Raza said that the Best an integral part of high quality
held on June 15, 2009.
Corporate Report Awards are management and Corporate
Chief guest Syed Salim promoting greater and more effective Governance and the purpose of Best
Raza, Governor, State Bank communication of financial and other Corporate Report Award is to
of Pakistan distributed the information by companies to their recognize those companies who have
stakeholders through the publication provided most appropriate information
awards and certificates to
of timely, informative, factual and in their annual reports that is useful to
the winning companies of reader friendly annual reports. It also the investors.
seven sectors. aims fostering a spirit of

The Pakistan Accountant April - June, 2009 40


All companies are grouped in following categories:-
i) Financial Sector d) Textile
a) Banks f) Miscellaneous
b) NBFC s
In each sector five best reports had been short-listed
ii) Non-Financial Sector except for Textile Sector in which there was only one
a) Engineering company received Certificate of Merit. The sector wise
b) Fuel and Energy position of the Companies is as follows:
c) Chemical and Fertilizers

Engineering Financial Sector - NBFCs

1 Siemens (Pakistan) Engineering Co. Limited 1 IGI Insurance Limited

2 Crescent Steel & Allied Products Limited 2 Atlas Insurance Limited
3 International Industries Limited 3 Arif Habib Securities Limited
4 Hinopak Motors Limited 4 Adamjee Insurance Company Limited
5 Atlas Honda Limited 5 New Jubilee Insurance Company Limited

Fuel & Energy Miscellaneous Sector

1 Pakistan Petroleum Limited 1 Rafhan Maize Products Company Limited

2 Pakistan Oilfleds Limited 2 Pakistan Tobacco Company Limited
3 Attock Petroleum Limited 3 Shakarganj Mills Limited
4 Oil & Gas Development Company Limited 4 Security Papers Limited
5 Attcock Refinery Limited 5 KSB Pumps Company Limited

Chemical & Fertilizer Textile Sector

1 Fauji Fertilizer Company Limited 1 Certificate of Merit was awarded to

2 ICI Pakistan Limited Kohinoor Mills Limited
3 Glaxosmithkiln Pakistan Limited
4 Dawood Hercules Chemical Limited
5 Sanofi Avantis Pakistan Limited

Financial Sector - Banks

Siemens (Pakistan) Engineering
1 Askari Bank Limited
2 Allied Bank Limited Company Limited got over all top
3 Faysal Bank Limited position in the competition of the Best
4 Meezan Bank Limited Corporate Report Awards 2008.
5 MCB Bank Limited

The Pakistan Accountant April - June, 2009 41


Why Africa is so much poorer

after receiving billions of
dollars in aid?
In a new book, controversial economist Dambisa Moyo argues that aid
to African countries, whether from governments or celebrities, is doing
more harm than good.
Dambisa Moyo, 40, a former market economists like Peter Bauer
investment banker, born in Zambia and William Easterly. Bauer is best
and educated at Harvard and Oxford, remembered for his opposition to the
author of Dead Aid has been named widely-held notion that the most
one of TIME magazine's 100 Most effective manner to help developing
Influential People in theWorld in 2009. countries advance is through state-
controlled foreign aid. Like most
In Dead Aid, Dambisa Moyo confronts modern supply-side economists,
one of the most controversial issues Bauer stressed the detrimental effects
of our time: that billions of dollars in of high taxes on economic activity.
aid sent from wealthy countries to Bauer also saw that government-
developing African nations has directed investment would increase
helped to reduce poverty and "inequality in the distribution of
accelerate growth. In the past fifty power." William Easterly is Professor of
years, more than $1 trillion in Economics at New York University,
development-related aid has been joint with Africa House, and Co-
transferred from rich countries to Director of NYU's Development
Africa, but it has failed to lift millions Research Institute. In The Elusive
of recipients out of poverty, hunger Quest for Growth William Easterly
and illiteracy. In fact, poverty levels analyzes the reasons why foreign aid
continue to escalate and growth rates to many third world countries has
failed to produce sustainable growth.
have steadily declined.
One main reason, according to him, is
debt relief which calls for a more
Dead Aid describes the state of
scrutinizing process.
postwar development policy in Africa
and contends that aid has made
Moyo»s proposals have ignited
African governments unresponsive to
criticism from economist and
the real needs of their people and
antipoverty crusader Jeffrey Sachs
indifferent to the private sector. It who argues that Moyo fails to
props up corrupt governments and, in establish any scientifically proven
the worst cases, it has abetted causal link between aid and Africa's
regimes that have destroyed some problems and ignores the many
African countries. In the book, Moyo studies showing development aid
draws a sharp contrast between working, for example her proposal to
African countries that have rejected phase out all government-to-
the aid route and prospered and government aid in five years, as well
others that have become aid- as her failure to acknowledge the
dependent and seen poverty progress achieved by aid efforts
increase. against malaria and HIV/AIDS in
African countries. Moyo, on her part,
Moyo has stated that her arguments has stated that her book does not
are based on those made by pro- target humanitarian aid to Africa.

The Pakistan Accountant April - June, 2009 44


Moyo has found allies in Rwandan Moyo»s enthusiasm over a burgeoning

President Paul Kagame and Senegali market in Africa is not shared by the
President Abdoulaye Wade who have World Bank. In a guest article Walk,
expressed similar views on aid, with a don»t run (The Economist, July 11,
particular focus on reducing 2009), Justin Lin, the chief economist
protectionism and lowering trade at the World Bank argues that ≈efforts
barriers. Kagame also invited Moyo to create African stock markets have
to Rwanda to discuss her thesis and not yet borne much fruit.∆ Excluding
bought copies of the book for his South Africa, the annual value of
entire cabinet. traded shares relative to GDP in
Africa is below 5 percent.
Moyo also lambasts celebrities like
Oscar winning actress Angelina Jolie In Moyo»s defense, the Financial
and U2 lead singer Bono for Times (May 23, 2009) noted, ≈There
≈perpetuating a negative stereotype are plenty of Africans who disagree in
of Africa∆. In an interview she has whole or in part with what Ms Moyo
said, ≈I have never, ever, seen any says. But even they appear to find
celebrity stand up and say, ≈Guys, refreshing the presence of an
this continent has problems but you articulate young African in a debate
know what, look at these positive dominated for so long by aging
things that are happening. They have western academics and rock stars.∆
15 stock markets.∆

Test Your
What is an earnings surprise?

a) When a company's earnings are significantly above or below analyst expectations.

b) When a company decides to not report earnings for a quarter.
c) When company delivers its earnings at an unexpected time.
d) When a company amends and re-releases its previously reported earnings.

occurs, the share price will often decline.

earnings surprise occurs, the company's share price will usually increase. When a negative earnings surprise
earnings estimates. Company earnings are watched closely by many analysts and investors. When a positive
An earnings surprise occurs when a company's quarterly or annual report is above or below analysts'

When a company's earnings are significantly above or below analyst expectations a)

The correct Answer is:

The Pakistan Accountant April - June, 2009 45

World In Focus

Recovery is Coming
The International Monetary Fund has said that the world economy is starting to pull out of recession though Olivier Blanchard,
IMF chief economist, has cautioned that ≈it is likely to be a weak recovery∆.

IMF is marking up its growth forecasts for next year and hinting that it might reduce its estimates for bank losses. However,
investors signaled their doubts about the strength of any economic recovery by selling off commodities, notably oil and gold,
and stocks.

The IMF now forecasts global growth of 2.5 per cent next year, up from 1.9 per cent in April, led by strong growth in China and
India, a rebound in Japan and positive but sub-trend growth in the US. It upgraded its forecasts for Europe too, but still expects
the eurozone to contract 0.3 per cent next year, with Germany declining 0.6 per cent.

The IMF did not update its estimates for losses facing banks. It urged further efforts to clean up the banking system, noting that
≈bank capitalization remains a concern, notably in Europe∆.

Mr. Blanchard said governments should prepare for the possibility that further stimulus could be needed. ≈It may be that private
demand is going to be very weak for longer than we anticipated. In that case the fiscal stimulus in some form will have to be

China’s Economic Growth Accelerates China Overtakes

Analysts expect China to be the first major country to emerge from the global
Japan to Become
slump. That could help pull the rest of the world out of recession as China buys
more raw materials, industrial components and consumer goods from struggling
World’s No.2 Stock
economies of United States and Europe. Earlier this month, the IMF raised its Market
forecast of China's growth in 2009 by one percentage point to 7.5 percent. The
World Bank boosted its forecast last month from 6.5 percent to 7.2 percent. China overtook Japan as the world's
According to Goldman Sachs, compared with the previous quarter, China's second second largest stock market by value
quarter growth accelerated to 16.5 percent on an annualized basis. for the first time in 18 months after a
$585 billion government stimulus
The Chinese government is trying to reduce reliance on exports by boosting package and record bank lending
domestic consumption by pumping money into the economy through a massive boosted share prices this year. The
scheme to construct new airports and other public works. Shanghai Composite Index has gained
75 percent this year, the best
performing major market against a 5.5
percent advance in the Nikkei 225
Stock Average. The United States has
World Bank Says Remittances are Crucial the biggest equities market worth
$10.8 trillion.
Link in Global Economy
According to data from Bloomberg,
While foreign investment to developing countries is drying up, remittances are Chinese companies account for four of
expected to remain relatively stable. The World Bank predicts a 7 per cent fall in the ten largest companies by market
2009, followed by a modest 3 per cent rise the year after. By 2010 remittances will value. Toyota Motor Corp., the top
broadly equal net private capital flows to developing countries. ranked Japanese company at No. 25
is worth about one-third the
While the biggest aggregate recipients of remittances are India, China and Mexico, capitalization of PetroChina Co., the
countries like Honduras, Lebanon and Tajikistan which are most reliant on world's No.1. Japan's nagging
remittances tend to be poorer and more unstable. In contrast to previous G-8 deflation, an ageing population and
gatherings which underlined the risk of remittances being used as cover for terrorist enormous public debt have sapped
financing, this year's L'Aquila G-8 summit reiterated the aim of making them easier strength from what was once the
and cheaper by aiming to cut down administrative costs from 10 to 5 per cent in world's largest market by
five years. capitalization.

The Pakistan Accountant April - June, 2009 46


Strengths - Based The Return of Depression Economics

Leadership and the Crisis of 2008
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Nearly a decade ago, Krugman surveyed the economic crisis that had swept across
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Last Page

the Future of

Amazon's will now sell continuing education
legal books from the Practising Law Institute

Kindle 2
(PLI) on its six inch portable electronic reader
Kindle which features a built-in wireless

network over the Sprint network in US.

Practising Law Institute (PLI), a nonprofit group
in the US, that provides continuing education

for lawyers is making its books available for
sale on Inc.’s Kindle,
underscoring the widening appeal of the digital
The 2 main players of the e-reader
The Kindle edition of Copyright Law: A Practitioner's Guide, by market are Amazon's Kindle 2 and
Bruce P. Keller and Jeffrey P. Cunard, is priced at $236, a 20% Sony Corp.'s Portable Reader System
discount from the $295 print price. Amazon says its goal is to price (PRS-505).
books as low as possible for customers.
Originally released at a cost of
Traditionally, lawyers buy PLI books whose binders allow them to $399.00, Kindle 2 has since dropped
insert new material and discard the old. PLI customers typically in price to around $359.00. Though
receive annual supplements priced at $125. With the Kindle, users Kindle works outside the US, you will
will be able to delete old versions of their texts and substitute new need a US credit card and shipping
books. The digital editions are also searchable. address to buy e-books. If you are
looking for a similar international
Many PLI titles are extensively footnoted, with the information often reader, you might try the Sony PRS.
provided at the end of each chapter. The Kindle e-books treat the
footnote numbers as 'links', enabling a reader to toggle* between While Kindle is wireless, Sony relies
text and footnote. on broadband connections to
purchase and download content. But
An average law textbook is easily over 1,000 pages and many are unlike Sony, Kindle 2 does not
multivolume sets, so that's a lot of information, With Kindle it will be support PDF. Instead, Amazon offers
possible to carry an entire law library. According to PLI, 67 of its 90 its users to send their PDF
titles are now available in the Kindle format. documents to Amazon's automatic
document conversion service which
"There are a lot of practical reasons to believe that the digital converts the file for free, but charges
market may well be more profitable for publishers of legal, medical to send the converted documents
and educational texts," said Andrew Frank, a vice president at back to your Kindle 2.
market-research firm Gartner Inc. "Since these texts are reference
material, the ability to index them and set up bookmarks, which you However, neither the Kindle 2 nor the
can do easily with the Kindle, will save time and money for users." Sony are cheap, and there's the
added cost of content.
* Switch between computer operations using the same key or command

The Pakistan Accountant April - June, 2009 48