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Pakistan

International Standards on Auditing

Summary
A 2006 self-assessment conducted by the Institute of Chartered Accountants of Pakistan (ICAP) notes that Pakistan adopts International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) without any modifications. Along with organizing regular seminars, the Institute also routinely updates the adoption status of IAASB pronouncements on its website. A World Bank assessment of Pakistani accounting and auditing practices conducted in 2005 confirms that ISAs are adopted without any modifications and that Pakistan had achieved progress in narrowing the gap between national and international requirements. Nonetheless, weaknesses exist and the World Bank points out that there are varying compliance gaps in auditing practices. The report identifies inadequate technical capabilities of the regulators, lack of implementation guidance, weaknesses in professional education and training, and the absence of independent oversight of the auditing profession as the main shortcomings in the Pakistani auditing framework. The World Bank, therefore, recommended strengthening the monitoring and enforcement mechanism, introducing independent oversight of the auditing profession, and improving the capacity of the ICAP.

    General Overview

    According to a 2005 assessment of accounting and auditing practices in Pakistan, published in the Report on Observance of Standards and Codes (ROSC), the World Bank observed that Pakistan had adopted the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) without any modifications. A 2006 self-assessment conducted by the Institute of Chartered Accountants of Pakistan (ICAP) confirms that "IAASB pronouncements are adopted without any modifications" (p.68) and the adoption status of the IAASB pronouncements is regularly updated on it's website. Further, the Institute (ICAP) regularly holds seminars on the IAASB pronouncements which are part of the ICAP's syllabi at both intermediate and professional level of studies. Overall, the World Bank commended Pakistan for narrowing down the gap between local requirements and international standards by adopting ISAs and International Financial Reporting Standards (IFRSs). Nonetheless, it pointed out that inadequate capabilities of the regulators, lack of implementation guidance, weaknesses in professional education and training and the absence of independent oversight of the auditing profession resulted in compliance gaps within accounting and auditing practices in Pakistan.
    With regard to the legal framework, the World Bank notes that the Companies Ordinance lays down audit requirements for companies incorporated in Pakistan. Audit requirements include procedures relating to appointment and removal of auditors, auditor duties, responsibilities, and obligations in performing audit functions. The law mandates appointing a practicing member of the ICAP for auditing public limited companies, including their subsidiaries and private companies with paid in capital of 3 million PKR or more. However, the report adds that the Ordinance does not specify as to who can audit other private limited companies. As explained by the World Bank, "many stakeholders perceive this legal limitation as a contributing factor for weak monitoring and enforcement of standards for many closely held family companies with a substantial business size" (p. 3). The Registrar of Companies, housed within the Securities Exchange Commission of Pakistan (SECP), is empowered to enforce provisions of the Companies Ordinance. The World Bank notes that although the SECP reviews financial statements of selected listed companies to monitor compliance with accounting and auditing standards, lack of technical expertise inhibits its effectiveness.
    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 SBP sets supplementary reporting requirements. All banks and development financial institutions (DFIs) are required to publish audited annual financial statements to be filed with the SBP within three months of financial year end. The audits for these entities can only be performed by selected qualified auditors approved by the SBP. Further, under Section 35 (3) of the Banking Companies Ordinance, for the purposes of prudential regulations, the SBP issues guidelines for auditors. Empowered by the Insurance Ordinance, the SECP monitors and enforces laws and accounting and auditing standards for insurance companies. The audits can be performed by ICAP members only and audited financial statements must be submitted to SECP within 4 months of financial year-end. Furthermore, tax law in Pakistan also requires companies to submit audited annual financial statements with their tax returns. 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.
    Established by the Chartered Accountants Ordinance in 1961, the ICAP, a self-regulated body 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 to bring it in line 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 on the IFAC website. The ICAP and the ICMAP are also members of the South Asian Federation of Accountants (SAFA).


    The Principles

    ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 200 effective December 15, 2005.

    ISA 210 Terms of Audit Engagements (effective 2006)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 210 effective December 15, 2004.

    ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 220 effective for periods beginning on or after June 15, 2005.

    ISA 230R Documentation (effective 2006)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 230 effective for periods beginning on or after June 15, 2006.

    ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 240 effective for periods beginning on or after December 15, 2004.

    ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 250 effective December 15, 2004.

    ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 260 effective December 15, 2004.

    ISA 300 Planning an Audit of Financial Statements (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 300 effective December 15, 2004.

    ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 315 effective December 15, 2004.

    ISA 320 Audit Materiality (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 320 effective December 15, 2004.

    ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 330 effective for periods beginning on or after December 15, 2004.

    ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 402 effective December 15, 2004.

    ISA 500 Audit Evidence (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 500 effective for periods beginning on or after December 15, 2004.

    ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 501 effective for periods beginning on or after December 15, 2004.

    ISA 505 External Confirmations (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 505 effective December 15, 2004.

    ISA 510 Initial Engagements — Opening Balances (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 510 effective December 15, 2004.

    ISA 520 Analytical Procedures (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 520 effective December 15, 2004.

    ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 530 effective December 15, 2004.

    ISA 540 Audit of Accounting Estimates (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 540 effective December 15, 2004.

    ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 550 effective December 15, 2004.

    ISA 550 Related Parties (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 550 effective December 15, 2004.

    ISA 560 Subsequent Events (effective 2006)

    According to the 2006 ICAP self-assessment, Pakistan adopted ISA 560 with amendments resulting from the issuance of ISA 700 and is effective for periods beginning on or after December 31, 2006.

    ISA 570 Going Concern (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 570 effective December 15, 2004.

    ISA 580 Management Representations (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 580 effective December 15, 2004.

    ISA 600 Using the Work of Another Auditor (effective)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 600 (the IAASB does not have an effective date for this standard).

    ISA 610 Considering the Work of Internal Auditing (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 610 effective December 15, 2004.

    ISA 620 Using the Work of an Expert (effective 2005)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 620 effective June 15, 2005.

    ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

    According to the 2006 ICAP self-assessment, Pakistan has adopted ISA 700 effective for periods beginning on or after December 31, 2006.

    ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

    According to a 2007 ICAP circular, the ICAP in its 188th meeting held on March 30, 2007 decided to adopt the ISA 701 effective July 1, 2007.

    ISA 710 Comparatives (effective 2004)

    As of July 2006, a SAFA publication notes that Pakistan adopted ISA 710 effective December 15, 2004.

    ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

    According to the 2006 ICAP self-assessment, Pakistan has adopted ISA 720 effective for periods ending on or after July 1, 2006.

    ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

    According to the 2006 ICAP self-assessment, Pakistan has adopted ISA 800 with amendments arising due to the issuance of ISA 700 and is effective for periods beginning on or after December 31, 2006.

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    Sources of Assessment

    Institute of Chartered Accountants of Pakistan, "Response to the IFAC Part 2, SMO Self-Assessment Questionnaire," Self-assessment prepared as a part of the International Federation of Accountants' Member Body Compliance Program, December 2006. Available from International Federation of Accountants website. Accessed on June 10, 2008. (ICAP 2006)

    South Asian Federation of Accountants, "Accounting Standards vis-à-vis International Standards on Auditing (ISAs) & Other IFAC Pronouncements and Standard Setting Process - A Comparative Analysis as on 15th July 2006," n.d. Available from South Asian Federation of Accountants website. Accessed on September 4, 2008. (SAFA n.d.)

    United Nations Conference on Trade and Development, "Review of Practical Implementation Issues of International Financial Reporting Standards: Case Study of Pakistan," August 22, 2007. Available from United Nations Conference on Trade and Development website. Accessed on September 4, 2008. (UNCTAD 2007)

    World Bank, "Pakistan: Report on the Observance of Codes and Standards - Accounting and Auditing," March 2005. Available from World Bank website. Accessed on September 4, 2008. (WB 2005)

    Relevant Organizations

    Institute of Chartered Accountants of Pakistan (ICAP)

    Institute of Cost and Management Accountants of Pakistan (ICMAP)

    Karachi Stock Exchange (KSE)

    Securities and Exchange Commission of Pakistan (SECP)

    South Asian Federation of Accountants (SAFA)

    State Bank of Pakistan (SBP)



    Relevant Legislation/Regulation

    Companies Ordinance No. CXXIII, 2002

    Companies Ordinance No. XLVII, 1984

    Banking Companies Ordinance No. LVII, 1962 and the Banking Companies Rules, 1963 (as amended up to 2007)

    Securities and Exchange Commission of Pakistan Act No. XLII, 1997

    Securities and Exchange Ordinance No. XVII, 1969

    Code of Ethics for Chartered Accountants (as amended up to May 2005)

    Prudential Regulations issued by State Bank of Pakistan

    Insurance Ordinance, 2000

    Modaraba Companies and Modaraba Ordinance ,1980



    Supplementary Sources

    Asian Development Bank, "Financial Management and Governance Issues in Pakistan," 2000. Available from Asian Development Bank website. Accessed on September 4, 2008. (ADB 2000)

    Council of the Institute of Chartered Accountants of Pakistan, "Annual report," 2008. Available from Institute of Chartered Accountants of Pakistan website. Accessed on September 30, 2008. (ICAP 2008)

    Institute of Chartered Accountants of Pakistan, "Assessment of the Regulatory and Standard-Setting Framework," Self-assessment prepared as a part of the International Federation of Accountants' Member Body Compliance Program. December 2005. Available from International Federation of Accountants website. Accessed on September 4, 2008. (ICAP 2005)

    Institute of Chartered Accountants of Pakistan website. Accessed on September 4, 2008. (ICAP Website)

    International Federation of Accountants website. Accessed on September 4, 2008. (IFAC website)

    South Asian Federation of Accountants website. Accessed on September 4, 2008. (SAFA website)
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