According to a 2007 United Nations Conference on Trade and Development report on the implementation of International Financial Reporting Standards (IFRSs), Pakistan has made significant progress in aligning national accounting requirements with international practices by adopting IFRSs and also ensuring their enforcement by putting mechanisms in place. The report further explains that in line with the Institute of Chartered Accountants of Pakistan (ICAP) proposal, accounting standards would be applicable on a three-tiered structure including: (1) tier one or public interest entities comprising listed companies, large companies that meet a certain size criteria and entities that have public accountability must comply with IFRSs by 2009; (2) medium-sized entities are required to adhere to Accounting and Financial Reporting Standard for Medium Size Enterprises developed by the ICAP; and (3) small-sized entities must comply with Accounting and Financial Reporting Standard for Small Size Enterprises also developed by the ICAP. A 2007 presentation by Mr. Asad Ali Shah of the ICAP further notes that ICAP has adopted all but IFRS 1 and IFRS 4. A few other international standards, although adopted, are pending approval of the Securities and Exchange Commission of Pakistan. Earlier, in a 2005 assessment of accounting and auditing practices in Pakistan, the World Bank commended Pakistan for making progress in bringing national accounting requirements in line with IFRSs. Nonetheless, the World Bank, as well as the 2007 UNCTAD report, identifies certain hindrances to the full adoption of international standards. For instance, IAS 39 and IAS 40 have been held in abeyance by the State Bank of Pakistan due to resistance to adoption. Other shortcomings observed by the World Bank include inadequacies in the technical capabilities of regulators, lack of implementation guidance for accounting and auditing practices, and weak professional training and education.

General Overview

In a 2005 World Bank assessment of Pakistani accounting and auditing practices published in a Report on the Observance of Standards and Codes (ROSC), the World Bank notes that "Pakistan has made progress in closing the gap between local requirements for corporate financial reporting and international standards by adopting International Financial Reporting Standards (IFRSs)" (p. i). Although this has improved corporate financial reporting, the assessment noted there are still compliance gaps in both accounting and auditing practices resulting from inadequate technical capacities of the regulators, absence of implementation guidance, and weaknesses in professional education and training. Moreover, a few of the international standards were yet to be adopted in Pakistan. A November 2007 presentation by Mr. Asad Ali Shah of the Institute of Chartered Accountants of Pakistan (ICAP) reiterated that over the last twenty years, in an ongoing effort to converge with IFRSs, Pakistan has been adopting international standards promulgated by the International Accounting and Standards Board (IASB) and Pakistani authorities have been making continuous efforts for the full adoption of IFRSs.

To further consolidate its convergence plans, in April 2006, the South Asian Federation of Accountants (SAFA) sponsored the First South Asian Accounting Summit in Karachi, Pakistan. At this summit, representatives of the ICAP presented to speakers from the IASB an update on the adoption of IFRSs in Pakistan. Per the ICAP, the standards would be applicable in accordance with the three tiers of entities identified: (1) tier one companies comprising public interest entities (PIE) must comply with IFRSs by 2009; (2) medium-sized entities are required to adhere to Accounting and Financial Reporting Standard for Medium Size Enterprises developed by the ICAP; and (3) small-sized entities must comply with Accounting and Financial Reporting Standard for Small Size Enterprises also developed by the ICAP. PIEs as defined in a 2006 presentation by the same author include listed companies, public utilities, unlisted banks and large size companies that meet the following criteria (1) turnover of over USD 17 million; (2) number of employees over 750; and (3) borrowing in excess of USD 8.5 million. As of 2007, a technical committee has already been formed to carry out a detailed review of IFRSs. The 2007 Shah presentation further notes that the ICAP has adopted all but IFRS 1 and IFRS 4. In addition, the presentation notes that the adoption of IFRS 4 is being actively considered by the ICAP insurance committee and IFRS 1 will be adopted following the adoption of all pending international standards.

A 2007 United Nations Conference on Trade and Development report on the implementation of IFRSs reiterated that Pakistan has made significant progress in aligning national accounting requirement with international practices by adopting IFRSs and also ensuring their enforcement by putting mechanisms in place. The report also corroborated the ICAP three-tiered structure for implementation of accounting standards and noted that "Pakistan's initiative for developing standards for SMEs was recognized by the South Asian Federation of Accountants (SAFA), comprising professional accounting bodies of India, Pakistan, Bangladesh, Sri Lanka and Nepal" (p. 5). In fact, SAFA has adopted the SME standards as SAFA standards/guidelines, the report added.

Nonetheless, many impediments to the full adoption of IFRSs were highlighted in the 2007 Shah presentation as well as the UNCTAD report. For instance, the authors noted that significant time is required so that regulators can agree upon removal of inconsistencies between national legislation and the international standards. Also, resistance from certain stakeholders such as banks may delay full implementation of IFRSs. Along with the shortage of faculty for training and continuing education on IFRSs, additional time may be required for implementation of certain complex international standards by preparers of financial statements.

With regard to the legal framework, the World Bank points out that the Companies Ordinance lays down primary requirements for financial reporting of all companies incorporated in Pakistan. The Ordinance mandates group incorporated companies in Pakistan to prepare consolidated financial statements in accordance with the IFRS requirements. Concerning listed companies, the Fourth Schedule of the Ordinance lays down the form, content, and certain disclosure requirements for preparing financial statements while the Fifth Schedule outlines the same for non-listed companies. All companies under the Companies Ordinance are obliged to present financial statements in line with IFRSs notified in the government gazette by the Securities and Exchange Commission of Pakistan (SECP).

The Monitoring and Enforcement Department (MED) of the SECP is responsible for enforcing IFRS compliance by listed companies. Listed entities are required to prepare quarterly financial statements to be filed with the SECP, Registrar of Companies and the Stock Exchange. Under the Securities and Exchange Commission of Pakistan Act, the SECP also issues listing requirements that specify disclosures applicable to listed entities. According to the 2007 Shah presentation, the requirements of the Companies Ordinance take precedence in case conflicts with international standards arise. As mentioned earlier, the Shah presentation reaffirmed that the ICAP in association with the regulatory authorities will work towards ensuring that Pakistani Generally Accepted Accounting Practices (GAAP) is fully compliant with IFRSs by year 2009 for all PIEs. Financial reporting requirements for insurance companies are governed by the Insurance Ordinance of 2000 which also empowers the SECP to monitor and enforce accounting and auditing requirements for such entities. The World Bank assessment adds that the SECP lacked the technical capabilities to execute its responsibilities. Non-banking financial companies are governed by the Non-Banking Finance Company Rules of 2003 which authorize the SECP to monitor and enforce accounting and auditing requirements.

Empowered by the Banking Companies Ordinance the State Bank of Pakistan (SBP) regulates financial reporting by banks and similar financial institutions. In addition to the requirements laid out in the Companies Ordinance, the Banking Companies Ordinance outlines the supplementing accounting and auditing requirements for the entities it regulates. At the time of the 2005 assessment, the World Bank observed that "due to the exemption granted to financial institutions from the applicability of IFRS 39 and 40 these formats are deviating from full compliance with IFRSs" (p. 4). The 2007 UNCATD report, however, noted that the SPB has in principle agreed with the ICAP to eliminate the remaining differences between IFRSs and the accounting requirements for banks in the near future. The World Bank report also pointed out that the SBP's Department of Banking Supervision needs to improve monitoring and enforcement of accounting and financial reporting requirements.

Established by the Chartered Accountants Ordinance in 1961, the ICAP is a self-regulated body that oversees the accountancy profession in Pakistan. According to the World Bank, as of 2005, the Government of Pakistan was in the process of revising the ordinance in order to provide additional power to the ICAP for taking necessary disciplinary actions against its members. The World Bank observed that the ICAP "lacks fulltime qualified professionals for undertaking efforts in effectively facilitating the standards setting process" (p. 11). According to the World Bank, ICAP members must follow the ICAP Code of Ethics which was revised in 2003 in accordance with the International Federation of Accountants (IFAC) Code. The ICAP and the Institute of Cost and Management Accountants of Pakistan (ICMAP) are listed as members

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

ID

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, the "consideration for adoption has been deferred by the appropriate Committee of the Institute until the issue of applicability of IAS-39 and IAS-40 to banks is settled" (p. 2). However, the 2007 Shah presentation notes that IFRS 1 will be adopted following the adoption of all pending international standards.

IFRS 2: Share-based Payment (effective 2005)

EN

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, IFRS 2 is effective for annual periods beginning on or after January 1, 2007.

IFRS 3: Business Combinations (effective 2004)

EN

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, IFRS 3 is effective for annual periods beginning on or after January 1, 2007.

IFRS 4: Insurance Contracts (effective 2006)

ID

According to the 2007 Shah presentation, the ICAP Insurance Committee is actively deliberating on the adoption of IFRS 4.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

EN

According to the November 2007 ICAP report on adoption status of IFRSs in Pakistan, IFRS 5 is effective for annual periods beginning on or after January 1, 2007.

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

EN

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, IFRS 2 is effective for annual periods beginning on or after January 1, 2007.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

ID

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, "the Council in its 188th meeting held on March 30, 2007 has adopted IFRS 7" (p. 2). However, notification is awaited from the SECP.

IAS 1: Presentation of Financial Statements (effective 2007)

EN

According to the 2007 ICAP status report, IAS 1 has been adopted in Pakistan.

IAS 2: Inventories (effective 2005)

EN

According to the 2007 ICAP status report, IAS 2 has been adopted in Pakistan.

IAS 7: Cash Flow Statements (effective 1994)

EN

According to the 2007 ICAP status report, IAS 7 has been adopted in Pakistan.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

EN

According to the 2007 ICAP status report, IAS 8 has been adopted in Pakistan.

IAS 10: Events after the Reporting Period (effective 2005)

EN

According to the 2007 ICAP status report, IAS 10 has been adopted in Pakistan.

IAS 11: Construction Contracts (effective 1995)

EN

According to the 2007 ICAP status report, IAS 11 has been adopted in Pakistan.

IAS 12: Income Taxes (effective 2001)

EN

According to the 2007 ICAP status report, IAS 12 has been adopted in Pakistan.

IAS 14: Segment Reporting (effective 1998)

EN

According to the 2007 ICAP status report, IAS 14 has been adopted in Pakistan.

IAS 16: Property, Plant and Equipment (effective 2005)

EN

According to the 2007 ICAP status report, IAS 16 has been adopted in Pakistan.

IAS 17: Leases (effective 2005)

EN

According to the 2007 ICAP status report, IAS 17 has been adopted in Pakistan.

IAS 18: Revenue (effective 1995)

EN

According to the 2007 ICAP status report, IAS 18 has been adopted in Pakistan.

IAS 19: Employee Benefits (effective 2006)

EN

According to the 2007 ICAP status report, IAS 19 has been adopted in Pakistan.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

EN

According to the 2007 ICAP status report, IAS 20 has been adopted in Pakistan.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

EN

According to the 2007 ICAP status report, IAS 21 has been adopted in Pakistan.

IAS 23: Borrowing Costs (effective 1995)

EN

According to the 2007 ICAP status report, IAS 23 has been adopted in Pakistan.

IAS 24: Related Party Disclosures (effective 2005)

EN

According to the 2007 ICAP status report, IAS 24 has been adopted in Pakistan.

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

EN

According to the 2007 ICAP status report, IAS 26 has been adopted in Pakistan.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

EN

According to the 2007 ICAP status report, IAS 27 has been adopted in Pakistan.

IAS 28: Investments in Associates (effective 2005)

EN

According to the 2007 ICAP status report, IAS 28 has been adopted in Pakistan.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

ID

According to the November 2007 ICAP adoption status of IFRSs in Pakistan, "the Council in its 190th meeting dated July 26, 2007 adopted IAS 29" (p. 1). However, notification is awaited from the SECP.

IAS 31: Interests in Joint Ventures (effective 2005)

EN

According to the 2007 ICAP status report, IAS 31 has been adopted in Pakistan.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

EN

According to the 2007 ICAP status report, IAS 32 has been adopted in Pakistan.

IAS 33: Earnings per Share (effective 2005)

EN

According to the 2007 ICAP status report, IAS 33 has been adopted in Pakistan.

IAS 34: Interim Financial Reporting (effective 1999)

EN

According to the 2007 ICAP status report, IAS 34 has been adopted in Pakistan.

IAS 36: Impairment of Assets (effective 2004)

EN

According to the 2007 ICAP status report, IAS 36 has been adopted in Pakistan.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

EN

According to the 2007 ICAP status report, IAS 37 has been adopted in Pakistan.

IAS 38: Intangible Assets (effective 2004)

EN

According to the 2007 ICAP status report, IAS 38 has been adopted in Pakistan.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

NC

According to the 2007 ICAP status report, "implementation of this standard has been held in abeyance by State Bank of Pakistan for Banks and DFIs [Development Financial Institutions]" (p. 2).

IAS 40: Investment Property (effective 2005)

NC

According to the 2007 ICAP status report, "implementation of this standard has been held in abeyance by State Bank of Pakistan for Banks and DFIs" (p. 2).

IAS 41: Agriculture (effective 2003)

EN

According to the November 2007 ICAP report on adoption status of IFRSs in Pakistan, IAS 41 is effective for annual periods beginning on or after January 1, 2007.