ABDUL REHMAN MUHAMMADI

SP18-BBA-003

Assignment No. 2

Corporate Governance

Q.1 How is accounting and auditing regulated in Pakistan? Briefly describe the regulatory
body, its composition, and powers in Pakistan?

Pakistan Institute of Chartered Accountants 

The Chartered Accountants Ordinance of 1961 and the ICAP ByeLaws of 1983 founded ICAP in 1
961 to govern Chartered Accountants (CAs) in Pakistan. Banks and financial institutions are requ
ired by the SBP to provide audited financial statements prepared and audited in accordance wit
h ICAP standards. ICAP is empowered to govern CAs under the Chartered Accountants Ordinanc
e of 1961 (also known as the CA Ordinance) and the ICAP Byelaws of 1983. Accounting regulatio
n is divided into two categories: private sector and public sector. The assumption behind privat
e
sector regulation is that the public interest in accounting will be best served if standards are cre
ated by the business sector. for IFRS 1 First
Time Adoption of International Financial Reporting Standards and IFRS 14 Regulatory Deferral A
ccounts, Pakistan has embraced all current IFRS Standards.
Q.2 Name top international audit firms working in Pakistan? Describe the impact of Deloitte
Touche Tohmatsu Limited's exit from Pakistan?

PricewaterhouseCoopers.

KPMG (Klynveld Peat Marwick Goerdeler)

EY (Ernst & Young)

PUSH Digits Chartered accountants.

BDO (Binder Dijker Otte)

Grant Thornton.

Crowe Horwath Chartered Accountants.

The fact that Pakistan is now the world's largest country – and the world's largest non-
sanctioned economy – without the presence of all four Big Four accounting companies is a
national disgrace.

But, beyond the humiliation, there are real repercussions for the Pakistani economy,
particularly for foreign direct investment into the nation. Investors rely on accurate,
dependable information sources regarding the nation and company they are considering
investing in first and foremost. And with Deloitte's departure, they will have one less
trustworthy voice to rely on when it comes to deciding whether or not to invest in Pakistan.

If you are a company in Pakistan looking to raise capital from a global set of investors, or if you
are a startup looking to raise money from a global venture capital fund, there are now fewer
accounting firms that you can list on your financial statements to assure those investors that
you are telling the truth about your company's financial health.

In the corporate world, credibility counts more than anything else, and Pakistan has just lost a
key source of it.

Of course, we must not overestimate the consequences. The other three enterprises are still
here, and this is one of them. However, Deloitte's exit serves as a warning and sets a dangerous
precedent, especially in light of news that Ernst & Young is weighing whether or not to continue
in Pakistan.

Deloitte's and EY's situations are absolutely separate. But the fact that both are happening at
the same time – and that Deloitte has decided to pull the plug – means that Corporate
Pakistan's international credibility is about to be questioned at a time when startups are
expanding the definition of what it means to be a Pakistani company and finally beginning to
attract serious amounts of money.

At least in the case of Deloitte, there is the logical argument that they had a small market share
and that no scandals or difficulties were hidden.

If EY decides to go, what will we tell ourselves and international investors? They hold the
second-largest market share in Pakistan's audit market, after only PwC. That is to say, Pakistani
enterprises and entrepreneurs cannot be trusted to speak the truth, their auditors cannot be
trusted to check their assertions on behalf of investors, and the regulator is unlikely to
intervene anytime soon.

If that were to happen, we would find ourselves struggling to attract even the meager levels of
foreign investment that flow into the country .
Q.3 Describe the difference between income smoothing and window dressing?

Window dressing refers to the company's decision to dress up the financial statements for
potential investors and creditors. ... Smoothing out income generated, when there may be
spikes at certain times and drops at others, allows it to appear like the company has that
smooth growth pattern