Budget Highlights 2011-12
By Tariq Mustafa Ramzan & Co.,
Cost & Management Accountants
Sales Tax and Federal Excise l The reduced rate of sales tax @8% on supply of sugar
has been withdrawn and now sugar will be taxable at
l The rate of Sales Tax is proposed to be reduced from normal rates.
17% to 16%.
l Further Crystaline Sugar has been exempted from
l The exemption of sales tax on Dump Trucks, Con- sales tax and would be subject to federal excise duty
crete Mixer, Agricultural Equipment/Machinery, CKD @ 8% payable in sales tax mode.
kits, CNG kits, cylinders and valves for CNG kits,
Commercial catalogues, Rock Phosphate, Phos- l The zero-rating regime has been rationalized to limit
phoric Acid and Mineral oil has been withdrawn. its application only to selected sectors.
l Exemption of Sales Tax on bricks, building blocks, l Inspector Inland Revenue is proposed to be included
computer software, surgical tapes, aircraft, ambu- as an authority under the sales tax act, 1990.
lances, fire fighting vehicles and other items of 6th
schedule to be withdrawn. l Officers with designation assistant commissioner and
above have been empowered to carry out investiga-
l The exemption of sales tax on defence stores at im- tive audit under 38b of the sales tax act, 1990.
port and local supply is proposed to be withdrawn.
l Officers inland revenue is being empowered to reject
l Zero Rating of CNG Buses, Trucks, Dumpers, Trail- refunds filed under section 66 of the Sales Tax Act,
ers and Road Tractors has been withdrawn. 1990 where incidence has been passed on to the con-
l The value addition tax levied on commercial importers
is being enhanced from 2% to 3%. Customs Act
l Excise duty on cement is being reduced. Further, duty l Regulatory duty on certain items including edible
on white cement is proposed to be withdrawn. items, is proposed to be removed.
l Reclaimed lead, if supplied to recognized manufactur- l Duty on pharmaceutical raw materials is proposed to
ers of lead batteries has been exempted from Sales be reduced to 5%.
l The budget proposes tariff rationalization on bars,
l SED @ 2.5% chargeable to importers and manufac- rods and profiles of refined copper and copper alloy.
turers has been abolished.
l To provide incentives to local manufacturers and sup-
l FED leviable on aerated beverages is proposed to be pliers of domestic goods against international tend-
reduced from 12% to 6% to make it in line with its sub- ers, finance bill proposes to treat these supplies as
stitute juices. exports to entitle them duty drawback.
l FED levied on services provided by property develop- l The following concessions have been proposed for in-
ers or promoters is proposed to be abolished. dustries:
l FED on locally produced Cigarettes is proposed to be l Butyl acetate industry through concession on import
increased by increasing the upper limit of duty slabs. of its raw materials (Sabutol)
l The FED leviable on filter rods for cigarettes has been l Glass industry through concession on its two major
rationalize from Rs.1/- per filter rod to 20% ad val. raw materials namely “mirror backing paint” and
“waste / scrap of glass”
l The FED on unmanufactured tobacco is being en-
hanced from Rs.5/- per kg to Rs.10/- per kg.
Focus Section 8 Management Accountant, May-June 2011
l Machinery and equipment used in oil exploration. l To encourage enlistment on stock exchange, the ex-
isting tax credit equal to 5% is proposed to be en-
Income Tax hanced to 15%.
l The federal budget 2011-12 seeks to enhance basic l Filing of withholding tax statements are proposed to
exemption limit from Rs.300,000/- to Rs.350,000/-. be filed on monthly basis before 15th of the subse-
l Individual taxpayers whose normal income is be-
tween Rs.300,000/- to Rs.350,000/- shall now be re- l For Broadening of Tax Base and utilization of third
quired to file return of income, for the purposes of party databases, NTN and CNIC of eligible taxpayers
documentation. are proposed to be provided expressly along with
other particulars, in the withholding tax statements
l Individual Tax Payers would be required to file Wealth filed by withholding agents.
Statement if income exceeds Rs.1,000,000 as com-
pared to current limit of Rs.500,000/- l For broadening of tax base, the requirement of man-
datory filing of return of income by the commercial and
l Tax on services, in case of companies which is cur- Industrial consumers of electricity with annual billing
rently adjustable is proposed to be the minimum tax. above one million rupees, is proposed.
l The rate of tax on return on receiving ‘dividends’ from
l To encourage equity financing, and to provide relief to
Asset Management Companies by banks is proposed
new corporate industrial undertakings established on to be enhanced from 10% to 20% to discourage the
or after 1st July 2011, with 100% equity financing, a practice of arbitrage by banks.
tax credit equal to 100% of tax payable is proposed.
l To encourage investments made by nonresidents in
The existing companies may also take benefit under
Government Securities, the withholding tax on profit
this arrangement if investment in BMR is financed on debt deductible @ 10% is proposed to be a final
through 100% equity, on or after by 1st July 2011. tax. Now they will not be required to file return of in-
l The rate of tax on Cash Withdrawals from Banks is
proposed to be reduced to 0.2% from existing 0.3%. l To encourage domestic investments in the Govern-
ment Securities, the withholding tax on profit on debt
l In order to harmonize the existing tax credits available deductible @ 10% arising from investment in Govern-
to individuals for investment in shares and for pre- ment securities by individual is also proposed to be a
mium paid to Insurance Company, the maximum cu- final tax. They will also be relieved from statutory filing
mulative limit for both the investments is fixed @ 15% of return of income.
of the taxable income, with maximum upper limit for l After imposition of capital gain tax on Modarba certifi-
investment up to Rs. 500,000 as compared to current cates and instruments of redeemable capital traded at
limit of Rs.300,000/- and the time period for holding stock exchange through Finance Act 2010, the 0.01%
the investment to get the benefits of tax credit is en- CVT on such instruments is proposed to be withdrawn
hanced from one year to three years l Exemption from income tax of the income of Com-
l Tax relief is proposed to be provided to withdrawals puter Training Institutes is proposed to be withdrawn.
from a Voluntary Pension Fund exceeding Rs.
Extract from TMRC’s Brief Comments on Federal Budget 2011-12
Corrigendum in Mar-Apr. 2011 Issue
On page 13, second para in the introduction of Syed Asad Ali Shah may be started with "Mr. Shah served as Former President ..."
instead of "Mr. Shah is currently the President ...". On page 16, the comments of heads of the two Institutions are extracted from the
letter addressed by them to the President ICMAP.
Focus Section 9 Management Accountant, May-June 2011
Brief Summary of
Federal Budget 2011-12
Compiled by Asif Hussain Siddiqi, APA
Economic Situation l FBR Tax to Rs.1952 billion.
l The economy has l Gradual elimination of tariff differential subsidy.
shown resilience de- l Targeted food and fertilizer subsidies.
spite severe chal-
lenges i.e. floods, security situation, energy shortages, ris- l Zero net financing from SBP each year.
ing international oil and commodity prices and higher inter- l Implementation of New Growth Strategy.
l Continuation of ban on new recruitments and purchase of
l GDP growth from 2.4% (revised) in 2010-11 to 4.2% (tar- durable goods.
l Rationalization of other expenditure.
l Inflation (CPI) from 15.5% during 2010-11 to 12.0% in
l Establishment of an independent commission to scrutinize
2011-12(target). all development and current expenditure with a view to en-
l Fiscal Deficit reduced from 6.3% in 2009-10 to 5.1% in suring their necessity, efficacy and value to the public ex-
2010-11 and 4% of GDP in 2011-12 (target). During 2010- chequer.
11 past arrears amounting to Rs.120 billion (0.6% of GDP) l Establishment of an independent commission to examine
were paid. Fiscal deficit 2011-12 including grants would be structure of pay and allowances across the public services
at 3.4% of GDP. and bring equity and fairness across them.
l Exports grew by 27% in the first ten months and will cross $
24.5 billion mark.
Salient Features of the Budget
The budget 2011-12 has the following main salient features:
l Remittances are likely to cross $ 11 billion.
l The total outlay of budget 2011-12 is Rs 2767 billion. This
l The foreign reserves above $ 17 billion.
size is 14.2% higher than the size of budget estimates
l Pakistani Rupee is stable. 2010-11.
l FBR tax collection at Rs.1320 billion for 11 months i.e. an l The resource availability during 2011-12 has been esti-
increase of 16% over the same period last year. mated at Rs 2463 billion against Rs 2256 billion in the
budget estimates of 2010-11.
l Current account in surplus July-April 2011 (US $ 748 mil-
lion). l Net revenue receipts for 2011-12 have been estimated at
Rs 1529 billion indicating an increase of 11% over the
Challenges budget estimates of 2010-11.
l Containing of Fiscal Deficit. l The provincial share in federal revenue receipts is esti-
l Reducing Inflation. mated at Rs 1203 billion during 2011-12 which is 16.4%
higher than the budget estimates for 2010-11.
l Overcoming energy shortage.
l The capital receipts (net) for 2011-12 have been estimated
l Increasing investments. at Rs 396 billion against the budget estimates of Rs 325 bil-
l Creating employment. lion in 2010-11.
l Reducing Public Debt. l The external receipts in 2011-12 are estimated at Rs 414
Proposed Budget Strategy
l The overall expenditure during 2011-12 has been esti-
l Containing Fiscal Deficit to 4% of GDP. mated at Rs 2767 billion of which the current expenditure is
Focus Section 10 Management Accountant, May-June 2011
Rs 2315 billion. Current expenditure shows an increase of Transport and Communication Sector has been allocated
less than 1% over the revised estimates of 2010-11, while Rs.55 billion. NHA has been allocated Rs.40 billion and
development expenditure will increase by 64.4% in 2011- Rs.15 billion has been allocated to Railways. This would
12 over the revised estimates of 2010-11. ensure economic integration and balance regional devel-
The share of current expenditure in total budgetary outlay
for 2011-12 is 84% as compared to 90% in revised esti- Health sector will be devolved to the provinces by June,
mates for 2010-11. 2011, however, to implement CCI decision, Rs.15 billion
The expenditure on General Public Services (inclusive of has been proposed to finance different vertical health pro-
debt servicing transfer payments and superannuation al- grammes.
lowance) is estimated at Rs.1660 billion which is 71% of the HEC and Population Welfare Programme will also be fi-
current expenditure. nanced by federal government with an allocation of Rs.14
The sali ent features of the PSDP 2011-12 are as un der:- billion and Rs.4 billion respectively.
The size of Federal Public Sector Development Pro- Allocation for Special Areas (AJK, GB and FATA) is at
Rs.28 billion with a view to accelerate development activi-
gramme (PSDP) for 2011-12 is Rs. 300 billion. While for
ties in less developed areas.
Other Development Expenditure an amount of Rs.97 billion
has been allocated. The PSDP shows an increase of 53% Allocation for special programmes (People Works
over the revised estimates 2010-11. Programme-I and People Works Programme-II) an alloca-
tion of Rs.33 billion has been made.
The provincial PSDP for 2011-12 has been approved at
Rs.430 billion against revised estimates of Rs.266 billion. Relief Meas ures
An amount of Rs.10 billion has been allocated to ERRA in
Following relief measures are proposed to be extended to the
the PSDP 2011-12.
Civil Servants and the Personnel of the Armed Forces with ef-
Within the resource available, allocations have been made fect from 1st July, 2011:-
to maximize economic impact of the development pro-
gramme and to achieve core objective of growth reducing An increase of 15% in pay of all Civil Servants and Person-
poverty and to ensure balanced development. nel of the Armed Forces with effect from 1st July, 2011.
The proposed federal development programme places an Pensioners who retired on or after 01.07.2002 may be al-
equal emphasis on physical infrastructure sector (55%) lowed an increase @ 15% and those who retired on or bef-
and social sector (44%). ore 30.06.2002 may be allowed an increase @ 20% in pen-
Water sector has been allocated Rs.36 billion i.e. 12% of to- sion.
tal federal PSDP. Raising of Mangla Dam including reset-
Existing Conveyance Allowance may be increased by 25%
tlement Satpara Multipurpose Dam, Gomal Zam Dam,
to all the employees in BPS 1-15 and their equivalent in the
Kachi Canal, Raini Canal and other water sector projects
have been provided appropriate funds.
To overcome energy shortage, investment would be made All the Civil Servants and Personnel of the Armed may be
for power generation, distribution and conversation by the allowed Conveyance Allowance at the prescribed rates ir-
government in WAPDA during 2011-12 at Rs.115 billion respective of their place of duty.
which include Rs.32.5 billion through budget. This will help
Increase in misc allowances mostly admissible to the em-
in reducing power shortage in the country.
ployees in BPS 1-15.
For Basha Diamer Dam, Rs.18 billion has been allocated
from budget while WAPDA will arrange Rs.2.5 billion from All the ad-hoc relief allowances granted upto 01.07.2009
the market. In addition, Neelam Jhelum Hydro Power Pro- will be merged in the Basic Pay Scales-2008 and to intro-
ject, Gudu Steam Power Project and Combined Cycle duce the new pay scales.
Power Plant at Chechoki Malian are being implemented by
WAPDA. Com pul sory Mone ti za tion of trans port fa cil ity to the
Civil Servants in BPS-20 to BPS-22 of the Federal
In addition to hydel projects, nuclear sources would also be Government
used for power generation. An amount of Rs.22 billion has
been allocated to Pakistan Atomic Energy Commission.
Fo cus Section 11 Management A ccountant, May-June 2011
Harnessing Eco-Control to Boost
Environmental and Financial Performance
The growing importance of environmental issues in business has prompted companies to put effective environmental
management systems in place. The use of eco-control tools can improve both the environmental performance and financial
performance of organizations. A study of Canadian manufacturing firms illustrates this concept.
By Jean-François Henri, CMA and Marc Journeault, CMA
This is one of the Articles of Merit, judged as such under Professional Accountants in Business - Articles of
Merit Programme 2009, for distinguished contributions to Management Accounting, established by the
Professional Accountants in Business Committee (PAIB), (under its former name of FMAC) of IFAC.
T he most recent report by the Intergovernmental Panel on Cli-
mate Change (IPCC) asserts that climate change is attribut-
able to human actions. It also describes the numerous repercus-
from the sale of waste materials used as an input by another com-
pany or from the reuse of recyclable materials. Environmental in-
vestments may include purchases of emission reduction technolo-
sions of this phenomenon on the environment and underlines the gies or construction of infrastructures that reduce the risk of eco-
importance and urgency of reducing environmental impacts. As logical damage. Lastly, environmental incentives entail the integra-
one of the main ecological offenders, organizations have an unde- tion of environmental criteria in companies’ bonus systems to moti-
niable role and responsibility to work toward a solution. Moreover, vate employees to endeavour to attain specific environmental ob-
the increase in environmental legislation and pressure from inter- jectives.
nal and external stakeholders unequivocally confirms the impor-
tance of this issue for organizations. The challenge for organiza- Eco-control and Environmental Performance
tions is to undertake concrete actions to reduce the ecological im-
pact of their operations while maintaining their economic objec- It is difficult to define the concept of environmental performance.
tives a crucial importance to shareholders and investors. Eco- One of the definitions proposed rests on four dimensions: i) im-
control tools can play a pivotal role in this area by allowing organi- provement of products and processes, ii) regulatory compliance
zations to attain their environmental objectives while ensuring the and financial impacts, iii) relations with stakeholders and iv) envi-
profitability of their operations. ronmental impacts and corporate image. The first two dimensions
deal with internal processes in the organization whereas the last
What are Eco-Control Tools? two involve external processes. Environmental performance is
therefore defined as the simultaneous attainment of satisfactory
Organizations implement and use management control systems performance along these four dimensions.
(MCS) to monitor, control, measure and modify their strategic ob-
jectives. Performance, budget and incentive management sys- In general, eco-control tools can contribute to environmental per-
tems are among the most widely used MCS. Eco-control refers to formance by allowing organizations to procure reliable information
the consideration of environmental aspects in each of these tools. required for strategic decision making concerning the environ-
ment. Considering that the organization has limited resources and
The objective is not to create new management tools but rather to faces a multitude of choices in day-to-day management, these
integrate environmental aspects in existing tools and to isolate tools also represent a way to orient the actions of all employees to-
their effect on the organization. The integration of ecological as- ward the attainment of environmental objectives set by top man-
pects in performance measurement systems entails the develop- agement. Specifically, they let the organization establish, co-
ment of environmental performance indicators (EPI). Diverse EPI ordinate and communicate strategic priorities related to the envi-
allow organizations to monitor changes in internal environmental ronment; signal critical issues to managers; improve the allocation
aspects and measure the attainment of environmental objectives. of resources managed; measure its ecological actions and pro-
They may translate, in quantifiable measures (monetary or physi- mote congruence between individuals and the organization.
cal), the various environmental impacts of the activities of the or-
ganization. They may also measure the efficiency of internal pro- Environmental Performance Indicators (EPI)
cesses and systems put in place to improve the organization’s en-
vironmental performance. Specifically, four main uses of EPI are observed in organizations to
enhance environmental performance. First, EPI can be used to
Moreover, in an eco-control context, budgets can serve to identify monitor the level of compliance with laws and regulations. By set-
and plan objectives for spending, income and environmental in- ting the maximum levels of waste and emissions required by the
vestments and to monitor the attainment of these objectives. Envi- law as an objective, EPI can be used as a vigilance system to
ronmental spending may include the cost of waste processing or monitor, control and correct any deviation from the targets. Sec-
water purification, whereas environmental income may originate ond, EPI can be an important source of information that facilitates
Meritorious Article 17 Management Accountant, May-June, 2011
Table 1: Usage Index of EPI usage index of EPI for the top 50 performing
firms in environmental matters versus the 50
worst performing firms.
The results shown in this table reveal that
manufacturing firms use EPI fairly intensively,
with an index of about 70 per cent. The EPI are
used primarily to monitor the level of compli-
ance with legislation and regulations (75 per
cent), favour continuous improvement (73 per
cent) and facilitate decision making (71 per
cent). This table also suggests that the level of
use of EPI by the top performing firms in envi-
ronmental matters is higher than that of the
worst performing firms. The average difference
is 50 per cent.
The integration of environmental aspects in the
budget can help organizations improve their en-
vironmental performance. First, the budget can
be used as an operational and strategic plan-
ning tool to allocate the resources required to
attain the environmental objectives of the or-
ganization. It also serves to communicate finan-
strategic decision making concerning the environment. By supply- cial objectives related to the environment to all
ing accurate reliable data on processes and environmental im- employees. In addition, this eco-control tool can be used to monitor
pacts, EPI enable managers to acquire a clear vision of these is- objectives, to direct and motivate employees toward attainment of
sues and to take them into account in their strategic decisions. these objectives and measure the results obtained. The organiza-
Third, EPI can be used to favour continuous improvement by di- tion has the ability to use the budget as a vehicle to ensure congru-
recting the organization’s attention to environmental issues. EPI ence between the employees’ actions and the organization’s ob-
continuously send signals to managers regarding environmental jectives. Lastly, similar to EPI, the budget can be used as an infor-
issues and stimulates discussion, dialogue and debates on this mation base to favour organizational learning related to the envi-
topic. This dynamic process contributes to the emergence of initia- ronment. For example, it can compile data on expenses related to
tives and innovations that modify the processes in place and miti- the environment, allowing the organization to assess the sources
gate the environmental impact of operations. This process also of these expenses and subsequently implement concrete actions
clarifies the causes of these issues and contributes to organiza- to decrease spending.
tional learning. This learning, in turn, allows the organization to for-
Table 2 illustrates an index of the degree of integration of environ-
mulate new policies or internal standards that specify how future
mental aspects in budgets of manufacturing firms.
actions can be carried out in a more environmentally-friendly man-
ner. Fourth, EPI can be used to supply the data required for exter-
nal reporting purposes. This reporting is a means of responding to
Table 2: In dex of In tegration of En vi ron mental
various pressures from stakeholders (investors, clients, creditors, As pects in Budg ets and In cen tives
shareholders, etc.) by presenting financial and non-financial infor-
mation on the environmental impact of company operations. Re-
porting informs and promotes awareness among the stakeholders
of the environmental actions taken by the company. As environ-
mental performance is a subjective issue conditioned by the ex-
pectations of each of the parties, reporting represents a key prac-
tice to legitimize the environmental actions of the organization.
To support these assertions, a survey was administered to 303 Ca-
nadian manufacturers in order to assess their level of use of eco-
control systems and their level of environmental performance. Ta-
ble 1 illustrates the results related to the use of EPI in these compa-
nies. First, it presents an average index of usage of the EPI de-
scribed above for all respondents. Second, the table compares the
Meritorious Article 18 Management A ccountant, May-June, 2011
The results show that these companies integrate environmental environmental performance can translate by an increase in sales
aspects in their budget to a moderate degree, with an average to “green” consumers.
global index of 61 per cent. Spending is the main environmental
aspect included in the budget of these companies. This table also By contributing to the brand image and the company’s reputation,
shows that the top performing firms with respect to the environ- stronger environmental performance can generate an important
ment incorporate ecological aspects in their budget (82 per cent) to strategic advantage vis-a-vis the market. By contributing to the en-
a greater extent than do the worst performers (35 per cent). vironmental performance of companies, eco-control tools can also
enhance financial performance. First, they can help organizations
En vi ron men tal In cen tives identify opportunities to reduce environmental impacts at source
and determine the associated financial gains. Second, these tools
Integration of environmental aspects in bonus programs can also can be used to supply information for reporting, namely by publiciz-
help organizations improve their environmental performance. Bo- ing the environmental performance of the company to its various
nus systems based on attaining environmental objectives repre- stakeholders.
sent a powerful tool to motivate employees to undertake the ac-
tions required to attain these targets. They therefore represent a Table 3 underlines this contribution of eco-control tools to financial
way to orient employees’ actions in the direction desired by the or- performance via environmental performance. The 50 top perform-
ganization. A bonus system linked to the environment lets com- ing firms in environmental aspects (linked above to a higher use of
pany management clearly convey to employees the importance of eco-control tools) have a higher financial performance index (64
these issues for the organization. In turn, the employees wishing to per cent) than do the 50 worst performing firms (58 per cent). This
optimize their compensation will prioritize actions related to the en- variance between the two groups of firms might seem modest, but
vironmental objectives rewarded by the bonus system and will will- it is non-negligible when one considers the multitude of elements
ingly exert more effort to achieve these objectives. Environmental that influence organizational performance.
incentives promote concerted action by all employees and contrib-
ute to environmental performance. This proposition is affirmed by Table 3: In dex of Fi nan cial Per form ance
the results in Table 2.
Among the manufacturers surveyed, the top 50 performers with re-
spect to the environment incorporate more environmental aspects
in their employee bonus program (68 per cent) than do the 50
worst performing firms (22 per cent).Nonetheless; this practice re-
mains fairly uncommon among the companies included in this
sample, as shown by the low index of 47 per cent.
To summarize, the results of this study demonstrate that, by sup-
plying useful information for decision making, by directing and mo-
tivating managers and employees to attain environmental objec-
tives and by favouring continuous improvement, eco-control tools
can contribute to the environmental performance of companies.
Eco-control and Fi nan cial Per form ance
Har ness ing these tools
Virtue is a universal ideal, but not at any price. Even if executives
endorse active engagement in environmental initiatives, they rec- Eco-control tools represent a simple and accessible solution that
ognize that mobilization of businesses in this area is currently in- will let executives take escalating environmental challenges into
sufficient. One of the major obstacles to the implementation of en- account in their organization. Because this environmental consid-
vironmental actions within organizations is the belief, still firmly en- eration is part of the organization’s existing MCS, it does not re-
trenched among executives, that considering environmental as- quire the development of new systems and is therefore less oner-
pects is costly and represents a substantial expense for the organi- ous. The results of this study of manufacturers show that eco-
zation. Increasingly, however, experts are insisting that it is possi- control tools can contribute to the environmental and financial per-
ble to couple environmental management and organizational prof- formance of organizations. However, the findings also indicate that
itability. How can this be achieved? awareness of the strategic advantages of the use of eco-control
tools needs to be raised considerably, to generalize their imple-
First, the proponents of the “win-win” argument emphasize that im- mentation in companies as a whole
proving environmental performance can help reduce environment-
related costs. This reduction may originate from a decrease in the Jean-François Henri, PhD, CMA, is a professor in the school of
quantity of waste sent to landfills and in energy consumption or accounting at Université Laval and holder of the chair in cost and
from increased use of recycled materials in manufacturing. As part performance management. Marc Journeault, CMA, is an associ-
of this process, preventive actions must be put in place to reduce ate professor in the school of accounting at Université Laval. He is
the environmental impact at source, as opposed to an “end of- pursuing PhD studies in environmental accounting at the Univer-
pipe” approach that is simply a stopgap solution. Moreover, better sité Catholique de Louvain in Belgium.
Meritorious Article 19 Management A ccountant, May-June, 2011
IFAC Increases Support for SMPs
By Sylvie Voghel, Chair of the IFAC Small and Medium Practices Committee, Provides an Update on the SMP
Committee’s Implementation of the IFAC Board Recommendations
I t’s been nearly a year since the IFAC Board reviewed the activi-
ties of the International Federation of Accountants (IFAC) to sup-
port small- and medium-sized practices (SMPs), and made tar-
geted recommendations for improvements based on the changing
market environment and needs of our constituents. As a result of
the review, IFAC will increase its support for SMPs. In this inter-
view, Sylvie Voghel speaks about the SMP Committee’s role in im-
plementing the recommendations and provides an update on prog-
ress made so far.
Why is IFAC putting so much emphasis on
Put simply, we recognize that SMPs help support the health
and prosperity of the small and medium-sized entity (SME) sec-
tor, a sector that in most countries around the world accounts
for the majority of private sector employment and Gross Do-
mestic Product. In fact, many countries are relying on this sec-
tor to help their economies recover from the global economic
SMEs often, especially when they lack sufficient in-house ex- a position of leadership within the committee at this time, as we
pertise, look to SMPs to provide a broad range of professional pursue many exciting new initiatives that should greatly in-
services, from traditional accountancy-based services to busi- crease the committee’s ability to assist SMPs globally.
ness advisory services. In addition, a strong SMP constituency Our strategy is built upon four key objectives, which align very
can contribute to increased choice and competition in the mar- closely with the Board’s recommendations:
ket for professional services.
l Provide input to IFAC’s policy-making process and partici-
Meanwhile, SMPs are confronted by a range of operational, pate in its regulatory dialogue to ensure that SMP and SME
market, and regulatory challenges themselves. These chal- issues are fully considered;
lenges are nothing new, but what is new is their enormity. IFAC
and our members recognize that to provide effective support to l Help to shape the form and content of international stan-
the SME sector, SMPs need more help. The vast majority of the dards to ensure their stability, relevance, and proportional-
heads of IFAC member bodies (95 percent) told us, in their re- ity to SMEs and SMPs;
sponses to IFAC’s 2010 Global Leadership Survey that ad-
dressing the needs of SMEs and SMPs is crucial. (See the l Communicate the importance of the SME sector and the
press release.) role SMPs can play in supporting this crucial sector to en-
hance the visibility, voice, and recognition of SMPs; and
How have the IFAC Board recommendations
l Provide and promote practical support to SMPs to enhance
impacted the SMP Committee’s objectives and their ability to provide high-quality and relevant profes-
work plan for this year? sional services to their clients.
The Board’s recommendations have essentially become the What contributions has the SMP Committee
foundation of the SMP Committee’s objectives—not only for
this year, but for the next several years. The scope of the rec-
made recently to IFAC’s regulatory dialogue?
ommendations is exciting but also overwhelming as there is a The committee participated in the development of IFAC’s re-
lot of work to be done. At the same time, I feel fortunate to be in sponse to the European Commission’s Green Paper, Audit
Article 21 Management Accountant, May-June, 2011
Policy: Lessons from the Crisis. Our insights and views The SMP Committee has also issued three comprehensive
helped ensure the IFAC response was robust, balanced, and guides to help practitioners implement international standards
sufficiently focused on SME and SMP issues. The committee and proficiently manage their practices: Guide to Using Interna-
will continue to closely monitor IFAC’s regulatory dialogue and tional Standards on Auditing in the Audit of Small- and Medium-
participate when relevant. Sized Entities, 2nd ed., the Guide to Quality Control for Small-
and Medium-Sized Practices, 2nd ed., and the Guide to Practice
How does the SMP Com mit tee help shape Management for Small- and Medium-Sized Practices. All three
stan dards? were released in 2010. IFAC member bodies may translate, re-
produce, and adapt the guides as needed. The guides and ex-
The committee provides input on key standards and publica- isting translations are available free of charge on the IFAC web-
tions at all stages of their development. In April, the committee site under SMP Publications and Resources and in the Transla-
submitted a comment letter on the Proposed IAASB Strategy tions Database.
and Work Program for 2012-2014, issued by the International
Auditing and Assurance Standards Board (IAASB).We were Is there any thing else that you would like to add
happy to note that the work program gives due recognition to that we have not al ready cov ered?
the needs of SMPs and SMEs.
Clearly, SMP and SME issues are an integral part of IFAC’s
This year, with the formation of the its SME/SMP Working strategy. The independent standard-setting boards supported
Group, the International Ethics Standards Board for Account- by IFAC have made great progress in accommodating SMEs
ants (IESBA) is working to address the issues faced by SMEs and SMPs: the proposed IAASB strategy is testimony to this.
and SMPs in complying with the IESBA Code of Ethics for Pro-
fessional Accountants (the Code). Two SMP Committee mem-
bers serve on this Working Group. This year, with the formation of the its SME/SMP
How will the SMP Com mit tee en hance the Working Group, the International Ethics Standards
visi bil ity of SMPs?
Board for Accountants (IESBA) is working to address
One of the ways the committee hopes to enhance the visibility
of SMPs is by increasing speaking engagements by committee the issues faced by SMEs and SMPs in complying wit
members and staff at national, regional, and global events and
meetings, where they will discuss the value of SMPs and their the IESBA Code of Ethics for Professional Accountan
role in supporting SMEs.
(the Code). Two SMP Committee members serve on th
Each year, the committee holds an SMP Forum where practitio-
ners from IFAC member bodies convene to learn, share, and Working Group.
discuss the key issues facing the profession. The 2011 SMP
Forum in Istanbul attracted over 200 delegates. The event af-
The IFAC SMP Committee is here to champion the cause of
fords us an opportunity not only to promote the profession, but
also to gain feedback from our constituents, which we can use SMPs and represent the global SMP constituency. However, in
to fine tune our support for them. isolation, its influence is limited; effective and enduring imple-
mentation of the IFAC Board recommendations depends upon
How does the SMP Com mit tee sup port and a collective effort by IFAC, its member bodies, and the willing-
en gage SMPs? ness of SMPs to engage, get involved, and speak with a single
voice at the national, regional, and global level.
IFAC is a federation of professional accountancy organizations
and, as such, we primarily seek to support SMPs through our For More In for mation
member bodies, who serve several hundred thousand SMP
practitioners around the world. Increasing the engagement of To learn more about the SMP Committee, see IFAC’s Interna-
this global constituency is a priority for the committee. tional Center for Small and Medium Practices, where practitio-
ners can access a wide range of free resources and practical
This year, the committee is developing a range of materials that support, including the guides, the electonic SMP newsletter,
member bodies can use to communicate with their SMP mem-
links to tools and resources, a discussion board, and other SMP
bers, including articles with tools and tips to support practice
management and implementation of the International Stan-
dards on Auditing (ISAs). We also initiated a quarterly SMP
About the Author: Sylvie Voghel became chair of the IFAC
poll, which many of our member bodies have distributed to their
Small and Medium Practices Committee in January 2006.
Article 22 Management A ccountant, May-June, 2011
Financial and Business Service
Accountancy and Auditing
Standards and Benchmarks Accounting Standards
By Chandra Wadhwa
T he concept of
fair value has
been adopted for
investment, financial instrument, etc, due to fair value will be
booked as a part of Profit & Loss.
non-current assets Dual Standards
and liabilities and In the entire new structure of IFRS, the concept of fair value
not for current has been adopted for non-current assets and liabilities and
ones. There the same concept has been left out for current assets & liabili-
should have been ties. If we analyse this structure, the following issues have to
a complete shift from historical cost to the fair value concept in be addressed:
the global regime.
(a) Whether this will give the true picture of the financial state-
The implementation of International Financial Reporting Stan- ment to the stakeholders;
dard (IFRS), to be made mandatory in India for certain types of
companies from April 1, has been postponed India being an im- (b) Whether this will give the correct picture of sustainability;
portant emerging global economy, the Ministry Corporate Af- and
fairs, made the commitment that the convergence of Indian Ac- (c) Whether a comparison can be made between the two
counting Standard with IFRS will be in place with effect from companies, when one is following a concept of fair value
April 1, 2011. Gradually, it will be made mandatory to the listed and another is following cost concept for its non-current
Companies having net worth of Rs 500 crore or less. assets & liabilities
Indeed, this will bring uniformity and transparency in the finan- From the above, it is clear that the new structure will provide
cial reporting of the Indian companies and their performance ample scope to the companies to manoeuvre their accounts,
can be compared with the foreign companies and could bring a because it allows them to adopt the concept of fair value for
lot of investment to India. Finally, the IFRS will play an impor- non-current assets & liabilities as and when they feel.
tant role in contributing to the economic development of India.
That may be the reason for China to adopt IFRS at the very ini- In this process, the companies can select this scheme when
tial stage. planning for public issues and show the higher profits to the in-
vestors. Moreover, having a combination of two concepts, his-
Now the question arises whether the proposed framework of torical cost for current items and fair value for non-current
IFRS will give the true financial picture to the investors or other items, will not give the true picture to the shareholders.
In order to give true value of the business based on current cost
Major Shift accounting, there should have been complete shift from histori-
If we analyse the IFRS, it can be concluded that the major shift cal cost to fair value concept under IFRS. The concept of fair
is from historical cost to fair value of non-current items of the value should have been introduced for all the resources includ-
balance sheet. The companies have been given the freedom to ing human resources accounting, social accounting, inflation
go for the concept of fair valuation of its fixed assets and liabili- accounting, etc, which would have given the correct picture to
ties. In the absence of non-inclusion of the concept of fair value the shareholders and stakeholders. Such kind of reporting to
of current assets and liabilities in the proposed structure of shareholders would definitely have indicated the sustainability
IFRS, the question arises whether the financial results of a of business enterprise and have fulfilled one of the objectives of
company will present a correct picture to the stakeholders. shifting from historical cost to fair value concept under IFRS.
Under IFRS regime, the companies will be required to follow By giving hybrid type of model to the presentation of accounts
the historical cost for preparation of Profit & Loss and current through new structure will create confusion in the mind of stake-
assets and liabilities; fair value concept, if adopted, for non- holders. In addition, in the absence of valuation mechanism for
current items of balance sheet. In this process, if the property certifying the current market price of fixed assets, the correct-
prices changes drastically, the difference has to be booked in ness of the fair value of assets will be suspectedn
Profit & Loss statement and the depreciation and insurance,
worked out on the basis of fair value of fixed assets, will be (The author is a Past President, ICWAI.)
booked in the Income Statement. Similarly, the gain or loss on
Article 23 Management Accountant, May-Jun, 2011
By Qaisar Mufti, FCMA, FCIS
P erformance is
in relation to
an objective – in
tors including fluctuation in cost of goods for export at home, parity
of the home currency vis. a vis. importing country, terms of credit or
settlement of the transactions etc.
terms of a well de-
fined parameter. If a DFI earns a profit in monetary units, it is subsidiary or fall out of
Other achieve- its main activities, a secondary achievement. Rewards or repri-
ments of a venture mands to managers and other functionaries of the DFI have to be
are off-shoots of the in relation with their success stories in the sphere assigned to the
principal activity or institution these people are on the payroll of. Performance parame-
objective. A park is set-up to the end of community service. To ters laid down for a venture utilizing a DFI’s assistance can be
guard against entry of undesirable, an entry fee on outsiders may identified differently viz. by way of foreign funds flow in case it is a
be levied. This may generate some money. But success of the venture with the objective to mobilize foreign exchange.
community park venture does not have to be judged on the basis of Need for balancing an industrial venture is when outputs of two or
such money collection. more of its configurations are not symmetrical, not in harmony.
A Development Financial Institution (DFI)’s basic function is to help What a component turns out for subsequent processing can not
establishment and harnessing projects it is called upon to assist. absorbed by the next line of production. This happens when its pro-
Besides new projects, a DFI helps expansion or balancing and duction capacity in the subsequent process is lower than process-
modernization of already existing entities. Its success can also be ing capacity of the machines in the earlier set-up. For example, ca-
measured by way of other parameters. However, DFIs thrust is not pacity of the finishing department – at end of the processing pro-
on making money through profitable operations, net profit and cesses, may be lower than of the fabricating department – in the
profit after tax or earning per share (EPS) by milking the projects it earlier process. It used to be a feature in cotton spinning units
nurtures. Target of a DFI is not and can not be profit making in where blow rooms, at beginning of production process could offer
monetary units. Its basic task is development, building projects and to produce more than what the ring frames by way of yarn could
strengthening ventures. turn out. Reverse can also be the case. Capacity of configuration at
the end can be more than capacity of machines in an earlier pro-
DFIs achievement has to be measured in terms of success stories cess.
of the projects assisted, in keeping with the objects of such proj-
ects’ setting-up. Profits made by a DFI’s assisted project can of- Other things remaining the same, it is always considered incum-
course be in terms of monetary units as well. In most of the cases it bent to put the things on an even keel by augmenting capacity of
is so. However, success measurement is in relation with an al- the configuration failing or lagging behind in the industries unit.
ready provided paradigm for the venture. In the case of a hospital, This not only increases overall production. It eliminates the idle ca-
achievement or a gain / profit can be gauged by way of number of pacity costs. Elimination of or reduction in idle capacity, through re-
patients treated, decrease in loss of men days amongst the hospi- duction in fixed cost per unit, culminates into reducing overall unit
tal’s clientele or in the area where the hospital is set-up or some cost. Cost reduction leads to business strength, making the ven-
other territory catered by the hospital vis. a vis. the time when the ture more competitive - also by widening safety margin which in
facility as such was not there. In the case of a highway project, it turn adds to marketing vigour of the enterprise, adding to their sol-
can be passenger miles traveled or saving in time or cost of travel ace. DFIs facilitate such balancing. They are keen to remove a
or both. When the highway is put-up in an under developed region, subsisting dis-balancing particularly when the unit has earlier
one of parameters or the parameter can be increment in income availed their assistance.
levels of inhabitants of the areas through which the highway Modernization goes to update an industrial plant’s technology.
passes in contrast with the position when it was not on the scene. Through shift in the production process or change in inputs or re-
When the project is an educational institution it can be number of placement of existing machinery by another set modernization
students qualifying from the educational institution. A pharmaceuti- gets underway. It helps improve the quality of output, decrease the
cal research projects’ success can be with reference to the drugs it cost of production, reduces intake of utilities or result in slash of
had patented over a period of time. When the objective of a DFI or levies on production. At times a combination of these takes place.
a project financed by it is to provide gainful employment to people, Modernization also covers, putting a device in place which adds to
performance yardstick will be number of jobs created and per unit marketing potential of the produce. Expansion causes augmenting
cost of their creation. When a DFI’s objective is exports’ growth, or scaling-up production facilities in a way that overall output of the
performance of the DFI can be measured in terms of physical enterprise increases. This normally reduces per unit cost, increas-
quantum of exports it enabled. It may not necessarily be on the ba- ing profit margin per unit produced as also overall profit of the en-
sis of exports in terms of money which has ado with a host of fac- terprise.
Article 24 Management Accountant, May-June, 2011
Often balancing also gets going to modernize. Modernization in- plant offered from the shelf some other combination of the plant
creases overall production capacity. can be more effective, cost wise or productivity-wise or both. A
modest example of this can be had by visit to Shahrah-e-Liaqat of
A DFI evaluates projects submitted to it for accommodation. Pro- Karachi. Often machinery dealers suggest to a prospective cus-
jects may also be conceived by a DFI. DFIs’ examination as such is tomer that to lift water from the underground to the overhead tank,
multi-dimensional. Broad categories of its tests, examination or ap- instead of buying electric motor and its pump of the same mark
praisals are: more advisable would be to have a configuration of electric motor
— Technical. produced by A and pump fabricated by B.
— Economic & Marketing. There may be numerous ways / standards to express what ‘quality
— Financial. product’ would mean in relation to production of goods through a
A project suitable for a DFI accommodation should be equipped set of machines. Price of the machine at one time would be deter-
with wherewithal for production of the identified goods or services. minant. At other juncture, promoters of the projects may be
Getting into its wherewithal would include suitability of the land charmed by availability of financing for local machinery at better
where the project is located, appropriate plant and equipment to be terms viz. a viz. the foreign machinery. Obviously, a visionary en-
used to attain the objective, tested formula for production together trepreneur does not line with craze for ‘the best’, in disregard of the
with availability of other related infra structure, raw material and antecedents. An industrialist friend of this scribe did not believe in
manpower – technical, skilled and non-skilled. Above all is the de- top quality production. He shunned both low quality and high qual-
mand existing and which can be pushed into being for proposed ity biscuits. He believed that his customers would mainly be aver-
production. age Pakistanis, content with middle of the road quality and price of
In relation to land for the project not only price, properties of the
soil, proximity of water, power and other utilities, availability of raw
material and avenues for the finished goods marketing are to be
looked into. Not to be winked at is title available for the land and its
The DFI which helped setting-up this project had
payment schedule. Land may be available as free hold or on 5, 25
and on 99 years’ lease. Land may be available on spot cash basis
brilliant ideas on selection of machinery, which led to
and in installments payable upto a period of 20 years. These fac-
tors cast shadows on decisions relating to choice of land for a proj-
substitution of a goods number of foreign machines
ect. Financiers have a minute look on these points which go to de-
termine bank-ability or otherwise of the project. Financiers may not
included in proforma invoices of foreign suppliers by
be moved to touch a project with a five years’ lease period, if repay-
ment of their credits etc. is not assured well ahead of expiry of the
five years’ period. A highly startling observation was made after the
Fukosheema debacle in Japan. It was stated that a nuclear plant Accordingly, finalized was list of machinery consisting configura-
should not be set-up around seismic soil. The finding is highly in- tions from sources in and out of the country, much cheaper and yet
triguing when one is told that almost entire Japan is seismic. competitive than the compact plants quoted by foreign suppliers.
Before getting into this rigmarole, the entrepreneur should be cer- The DFI which helped setting-up this project had brilliant ideas on
tain also on the quality of production desired and planned. Class of selection of machinery, which led to substitution of a goods
customers projected to be catered and the potential demand is number of foreign machines included in proforma invoices of for-
gone into. This would take to size of the project and then the re- eign suppliers by local machinery. Thus on the hand it went into a
sources to be mustered and which can be mustered. Texts on proj- technically more viable plant. Reduction in depreciation and inter-
ect appraisal do not normally lay much emphasis on muscle power est costs enabled substantial lowering of the operational and finan-
of the entrepreneur in the matte of mustering resources. Probably cial costs. It was other side of the story. Through reduction in cost
with proven viability of a project, financing is not an issue in the of the project and diminution in debt servicing these lowered break-
world these texts are produced in. But certainly it is in our scenario. even point and upped safety margin of the enterprise. Reduction in
In our culture, contacts, financial, political and bureaucratic link- financial vulnerability this way, provided boost to the venture’s fi-
ages, this or that club’s membership and pedigree of the entrepre- nancial and marketing strength. Advantage to the nation was also
neur have more ado with one’s musing and with muscle contract- by way of saving in foreign exchange. Dollar tagged around Rs.
ing and expansion of arm. It would be too theoretical to believe that 4.80 was badly scarce. One can only imagine adversities to busi-
things may be done abstract or so to say only in a text book style – ness in the event of non-servicing the debt in foreign currency
professional way. This scribe’s finding is that in the matter of fi- while dollar marched forward against the home currency. You
nances things move same way everywhere. earned in local currency but had to repay in foreign currency be-
cause the loan amount was expressed in foreign currency.
Technical experts on the roll of DFIs not only go into capacity and
efficiency etc. of plant and equipment proposed for production of An interesting case was of a group desirous of setting-up a cement
the desired product. On the basis of their training and exposure plant. For the DFI requested to finance, foreign exchange compo-
otherwise it is usual for them to suggest that instead of going for ac- nent of the project was formidable. No one at that time had even
quisition of a composite plant offered and proposed by sponsors of thought of (substantial) local fabrication of a cement plant. The
the project, a proposed textile spinning unit should go for blow relevant DFI consulted the then well known ‘appropriate technol-
room machinery from X, ring frames from Y and air-conditioning ogy guru’, Ghulam Kibria. Plant designers as also fabricators, at
equipment from Z. It may be concluded that in place of a composite Lawrence Road in Karachi and Brandreth Road in Lahore, were
Article 25 Management A ccountant, May-June, 2011
sent for. The result was a cement plant with substantial locally fab- party should be liability, fully or partially, of the authority directing
ricated component turned out by Heavy Mechanical Complex, the DFI concerned to dole out. Because the choice of instrument
Taxila. That was the game played by the DFI. This game, besides for financing as also the party receiving money was on their be-
saving in cost of the project and foreign exchange, helped growth hest.
of technology and skills in the country.
Similarly, government appointed an overseer, gone-up in its hier-
Since this paper is not on the subject of ‘putting infra-structure for archy, to head a DFI. The man has all through lived away from cit-
an industrial venture in place’, suffice is to say that quality of land, ies’ business circles, confined to his abodes in the rural areas.
building, plant and machinery, production processes, human re- Never tested the language of business, of law, finance or banking.
sources lining-up etc. would mean to signify ‘selection on the basis It was experimentation on behalf of the government, to use the
of desired standard’. The standard desired is the outcome of strik- mildest expression. What and how went wrong at the DFI can only
ing an ‘agreement’ with reference to the same between the stakes be guessed.
holders. This scribe is witness to a situation in early 70s in which, to
beef-up volume of kick back from the machinery suppliers – ex- These commands of governments raise direct costs chargeable to
pressed as percentage of the price of machine to be procured out the beneficiary i.e. to the government, every students of manage-
of the loan, the sponsor got the most sophisticated and most ex- ment accounting or a logical person would bear out.
pensive plant, which they could not run. The concerned DFI techni- The above leads to following summations:
cal people did not support such a high quality acquisition also on
the ground of dearth of qualified people to man the plant around .
1. DFIs’ assistance results in multi-dimensional development.
the relevant location. Somehow or the other, the entrepreneur had They are agents and catalysts of development.
their way. The project became sick. The sickness was diagnosed
Just as public parks are harbingers of breeze, soothing, ener-
to be improper operation and upkeep of the installations.
gizing, stress relieving, DFIs are depositories and pavers of
A DFI has to be set with a clear purpose: ‘Development’ or ‘Profit’. uplift in general. Their impact is on economic environment.
Profit is relatively easy to prescribe and measure. But measure-
ments for development need to be more precisely laid down. When .
2. DFIs should be development oriented, not profit oriented.
export promotion is the target of a DFI, it has to be in physical Government may closely monitor their operations, not fiddle
terms. So much of cotton bales or so much of rice tons the DFI with them. However, it has to evolve criteria for their appraisal
should target. Because value of export or pricing for export takes not akin to evaluation of projects put in to make money.
one to a different ball game. In terms of money, volume of export
has ado with market mechanics and $ parity with home currency A DFI making profit did not carry the significance as it would
etc. Of curse there can be export targets expressed in monetary be in the case of a textile mill or a cement plant.
terms. However, when expressed in money terms, quantities ex- As agents of development, DFIs should not be expected to
ported are not be eyed, unless the target is both in terms of physi- excel in money making e.g. be, necessarily, a profit making
cal quantities and money values e.g. 1,000 tons of sugar @ not
proposition by themselves. If they make money it is an off-
less than $ X per ton.
shoot, of secondary importance.
In a real life situation, a DFI was indoctrinated into philosophy of
the ruler. He surmised gearing financial instruments accordingly. .
3. Since development is a state function like protection of life,
Plenipotentiary of the financial brain trust came-up with design of honour and property of the subjects, DFIs should be set-up by
an instrument of financing which was not in keeping with the law governments.
and rules of accounting. It was considered divorced of financial
Governments should separately pay to them for promotion of
crease, with no traces of its specie anywhere. As it would, despite
protests from down below and around, the instrument was put into their political agenda – not otherwise on schedules of DFIs.
play. Massive financing was done on the basis of that instrument of .
4. DFIs should be allowed to operate by themselves i.e. work by
financing. Orchestrated by its henchmen, it was really government themselves.
of the day’s doing.
5. DFIs should be subjected to ‘performance audit’ on quarterly
The governmental boss having gone, the financial instrument was
condemned and sent to dark memory lanes. So much so that even
law books do not now have its features. For its features one has to Public Accounts Committee of Pakistan’s National Assembly,
refer the relevant government gazette of 30 years back, down the meeting on 12 May, 2011, directed PIA management to hold
line. performance audit of the airlines. According to press report,
Governments and business, even charities, pay what comes due the committee regretted that the PIA management was play-
against them. National airline has to be paid for the tickets on ing with lives of passengers by having old age pilots in the
which government functionaries, on regular payroll or otherwise, crew.
travel on command of the man who approves appointment of the
airlines chief. Similarly, media plays (straight) governmental adver- Performance audit was directed, most likely, because PIA is
tisements or doctored programs. For these services the concerned not taken for just a money making company
governmental agency pays to the media.
About the Author: Now a corporate counsel, the author is
On the same analogy, a DFI’s accommodations with intent of politi- former V.P., ICMAP & ICSP and former Chairman of ICMAP and ICAP
cal gains on the part of the governmental boss or of the political Joint Committee.
Article 26 Management A ccountant, May-June, 2011
The Behavioral Aspects
of Internal Audit
By Abdul Wasey Khan, ACMA, CISA
P erforming In-
ternal Audit is
a thankless job,
3. While querying and seeking explanations from the
auditee about the exceptions identified to confirm his un-
derstanding and thus elevating the exceptions to the next
and it would re- level i.e. observations
main so unless it
takes at least a 4. When discussing the observations with the management
180 degree turn of auditee department and seeking their response before
from its current finalizing the report for the audit committee
purpose; who wants to be found fault with &still say thank you? To get required information and records from the auditee, in a
It certainly requires something more than sanity to say the timely manner, is in itself an uphill task, that leaves many audi-
least. tors gasping for air like a worn out marathon racer. Getting
For ease of understanding of the readers, the article has been agreed the identified loopholes pose the biggest challenge of
divided into two parts; 1st part describes the importance/ne- all. It is pertinent that the internal auditor must have a clear un-
cessity of the behavioral aspect and understanding the charac- derstanding of the behavior and the demeanor required of him,
teristics of the auditee department officials. The 2nd part de- as well as understands the personality traits of the auditee per-
scribes the desired behavioral qualities and traits the Internal sonnel so that he may perform his work with minimal friction
Auditor should possess. and complete the assigned task without unwarranted negative
sentiments from either side.
The Auditee Mindset The people in a department the Internal auditor goes to may fall
It is the duty of the internal auditor to check the controls identify into characteristically 4 broad categories
missing controls and report inefficiencies; whether he reports it
specifically or not, there is always someone to be blamed, — The Chums
someone who is found negligent, someone who couldn’t iden-
tify the risks, and someone who couldn’t think out of the box…. — The Wise Ass
Well well, and though the intensity of the action taken by high — The Busy Bee; and
ups varies from company to company but it mostly results in
reprimands, show cause, no salary raise, bar on promotion, de- — The Devil May Care
motion, charge sheet, suspension or even lay off; Whew! No
Moreover you could also find people having a blend of two or
wonder the entry of the internal auditor in other departments is
more of the above mentioned categories, which makes the mat-
taken as akin to “vampire on the prowl”, though lately the role of
ter more complicated than it already is.
even vampires have taken a glamorized turn, and suddenly we
are finding ourselves looking at such vampires who are more An elaboration of the above categories is interesting.
humane and handsome than most of us, thanks to western
movies on that subject; The Chums: Got variants, from lighter shade, i.e. sincerely
friendly & caring looking to the darker shade who make the
Like sales and marketing the internal audit has a behavioral as-
auditor feel like the newly throned king who just have returned
pect too, it performs various tasks across the organization. The
from a long exile to his rightful kingdom. These are the most in-
auditor has to deal with the auditee department people particu-
larly at 4 stages of audit teresting characters who try to do almost every bidding of the
auditors and seem to hang on to his every word. Remember
1. At the Kick off meeting, while discussing the brief scope these are the most insecure people, who fear that the auditor
and objectives of the assignment and getting himself intro- may get hold of something at the end of the day that may render
duced them incapable to come up with proper and satisfactory justifi-
cations; so they try to taint the neutral and objective mindset of
2. During process of audit, while asking for documents and
the auditor and impact his professional skepticism.
information required to be worked upon
Article 30 Management Accountant, May-Jun, 2011
The auditor must understand that he has only one true friend in Are considered the blue eyed boy of the management &
the sanctuary of the auditee department and that is his own self. thus indispensable
The Wise Ass: are the exact opposite of the chums. They try to Are at the end of their career
break the composure & concentration of the auditor by their irri-
tating behavior. (b) Or they fake it
Some of them are outrageously bullying. They try to exasperate The best way to get the desired information from them is by be-
the hell out of the auditor so that he may lose his cool and over ing friendly and polite and to create some kind of connection, to
react. It’s a ploy to turn the tables down on him by reporting to make them feel it is to their benefit. Success is not guaranteed!
management the quarrel or the heated argument they try to
drag the auditor through.
Audi tors’ Com po sure
Though pointing out behavioral deficiencies and putting people
Some of them try to out- smart the auditor. When asked a ques-
into pre-determined slots and terming them from “Wise Ass” to
tion, they answer in such a manner as if the auditor had raised a
“Devil May Care” is easy, to calibrate one’s own attitude and
foolish or childish query, hoping that the auditor gets irritated
looking for and adapting to the behavioral norms suitable for the
and begins to question his own judgment and stops asking
Internal Auditor is like untying the Gordian knot and is the main
purpose of this article.
An auditor may also find himself in a scene where he is advised,
Once a close friend told me about a bank (his father used to
that whatever he is doing is inconsequential and pure waste of
work there), where IA executives opted for golden handshake,
time. Further he is pursuing petty things while the big, juicy mat-
75% of them died within 3 years, unbelievable? Reason ex-
ters that should be audited are elsewhere (some other depart-
plained was that they were treated like VIPs at the bank, when
ment). Once in my career such a guy approached me and told
they retired nobody was ready to provide them with that dose of
me of a particular assignment that the audit department should
flattering words. The attitude at home and of ex-colleagues took
do to add value to its work. The assignment he referred to was
a noticeably reverse turn. It was something shocking. They got
not only beyond the scope of Internal Audit but also hilariously
dejected bringing death nearness. I intend here to suggest
impossible, so what I did? While maintaining a blank face I ap-
some useful tips that could be of some help to internal auditors
preciated his concern and asked him innocently if I could men-
to save them from heartache, minimize their office friction, and
tion that assignment to my HOD quoting his name? He immedi-
thus enable them to develop some respect and motivation in
ately backed out!.
the organization they work for.
Remember these are the most dangerous people and should
Be cour teous and friendly but not chummy It is best for the
be dealt with extreme caution and care.
internal auditor to have a courteous and friendly attitude but
The Busy Bee: They are always found going through deadlines
e getting chummy with the auditee is something they should re-
and pressures. Always in haste, papers and files strewn all over frain from; IA profession requires the auditor to carry on his
their desk, one hand on the mouse while the other through work with integrity, honesty and objectivity. He needs to work all
graying hairs, they try to act friendly, but at the same time keep the time keeping professional skepticism, and use his profes-
on narrating their problems. They try to divert the auditor one sional judgment; whenever an assignment is completed he
ladder down or two ladders up! Though they have tried to bore may produce observations that go against the people he got
the auditor for hours with the tales of their high blood pressure close to during the course of his audit. Such situation brings the
or sugar, yet seldom provide him with even five minutes to re- auditor at cross roads; either to keep his friendship intact and
spond to some query. say farewell to all integrity and honesty blah blah crap, or main-
tain upright professional behavior and report all deficiencies.
The Devil may care: They pride themselves by acting noncha- However he should always remember that he is paid by the
lantly trying to ignore the auditor as much as they can. They company for professional output. It is not fair to try to cover per-
consciously try to take no notice of the waves he has created, sonal interest at the cost of company interest.
when the auditor goes to them to ask for some document or in-
formation, they deliberately get unavailable, mostly these peo- Taking favors from auditee they so solicitously offer does also
ple are at a position higher than the auditor, these are very create problems for the auditor. Remember the old adage
tough people to deal with, it is to be taken notice that such peo- “there is no free lunch”, though such favors in reality may ex-
ple are either tend far from mere free lunches. It is obvious that if you take fa-
vors you would have to return favors, and if you refuse to return
(a) Not get affected by the audit findings; because favors, there would be grievances. The auditees while extend-
ing such favors validate their actions by stating it as custom and
They are not directly concerned with the subject matter of hospitality. May be some of them really mean it that way only,
the audit but it is not easy to distinguish between an honest offer and a
crooked one in advance.
Article 31 Management A ccountant, May-Jun, 2011
What internal auditor must fathom is that he is not the external may seem lowering your self esteem (Mein tay Mali Aan), but
auditor. Though from a different department, he is part of the as per my experience it is the wisest thing to do. An auditor if
same organization. So people who got chummy or shower fa- works diligently cannot expect to gain sincere well wishers. The
vors will sure shout foul when reported against. colleagues accuse that the auditor is marauding their career for
adding stars to his own shoulders. To avoid becoming the vic-
Be a good lis tener to listen to the comments and justifications tim of any such negative behavior the auditor should refrain
provided by the auditee as well getting a thorough understand- from publicity and should not drum his achievements in general
ing of the process requires both; a good pair of ears and a sen- public.
sible head over the shoulders. It must be noted that good listen-
ing doesn’t mean only listening and comprehending abilities, Main tain a just behav ior To do justice with his work, his as-
but also making meaningful interruptions and intelligent queries signment and his subject matter is a must for internal auditor.
about the subject matter, to keep the discussion on track and be What I intend here to point out is the behavioral aspect of jus-
guided to the next level. Misplaced interruptions can be time tice, which is justice with people. As already described earlier in
consuming, leading discussion to trivial matters, and can put the article the auditor should maintain an impersonal attitude.
halt to an otherwise meaningful discussion. While making en- An auditor may find people related with the subject matter of his
quiries the auditors tone should be friendly and polite. He must audit begin to dislike him, it gets reflected in their negative and
understand that he is not one of the fibbies (FBI people) in his irritating attitude, their creating hurdles in the performance of
profession undue rigidity is a crime. He must accept seemingly his work etc. the matter becomes more complicated when dis-
reasonable justifications for further review and maintain an likes get exhibited out of office too.
open mind. It is an art to go with the flow of discussion while fully
digesting and querying the new dimensions unfolded during the The auditor should realize that his position is of justice, neither
course of conversation. should he favor anyone nor unjustly victimize. His observations
should be based on facts and while elaborating facts, the fore-
An acquaintance of mine once confided that he tries to answer most aspect is the merit of the matter; his biased comments
as succinctly as possible in front of a certain senior official of may harm someone who is not at fault. The auditor himself is
audit department, because he has seen that any wrong or care- the best judge of his own biased views. The auditor shouldn’t let
lessly uttered statement leads to opening of a new Pandora his behavioral deficiencies taint his professional attitude and
box. judgment thus. Remember that integrity involves maintaining
an unbiased attitude, whether the bias goes for or against the
Main tain a calm & im per sonal com po sure an auditor must auditee.
not get excited at every juncture. People try to get him off-
balance all the time to have some escape. He should strive not A biased auditor is like a stray bullet which is as dangerous to
to get exasperated ever, or express negative emotions and the reputation of his own department as for others.
comment for others. Such utterances could take a personal di-
mension which is something to avoid at any cost. Though hav- Be Tact ful Tactfulness is the primary and one of the most use-
ing a non nonsense attitude is good, during the course of his ful weapons of the auditor. Among other things, the successful
work the auditor may have to put up with lots of irrelevant talk. completion of an assignment requires a healthy dose of tactful-
Maintaining an impersonal attitude always helps the auditor in ness. Tactfulness involves judging people right, have a knowl-
carrying his work peacefully while he strives diligently to edge how to deal with people having different personalities, and
achieve the objectives of his assignment. When confronted make them implement auditor’s recommendations. To get the
with someone getting annoyed with his queries or demands for required information, documents, soliciting replies from the
documents evidencing transactions, the IA must clarify that auditee and to get them agree to the audit findings are the main
what he is doing is all professional and there is nothing personal areas where tactfulness is required. However, remember that
in it. He is doing what his job responsibilities require of him just tactfulness is something other than hypocrisy, making false
as the auditee is doing what his job requires of him, and that claims, or raising wrong hopes.
both of them are performing in the best interest of the company
as a whole. The auditor must not be shy to appreciate the good Con clu sion
work done by the auditee both verbally and in his report. In the literature on Internal audit, the behavioral aspect in found
Main tain a Low pro file Though being in lime light and some- lacking or non –existent. However good and competent and
one to be talked about or feared seems a definite ego-booster well equipped the internal audit knowledge of an auditor may
and something some people crave for, such attributes could be, behavioral problems may render him ineffective and a bur-
harm the auditor in the long run. den on his department. This article is a humble reminder and a
wakeup call to those who are more knowledgeable, have more
When I was in the early stages of my career, a senior advised experience, have more insight to the human behavior and thus
me thus “always keep a low profile. Say you are doing what you better suited to the task, to step forward and contribute in this
are told, you have no say in the proceedings and you don’t neglected area where their endeavor could benefit thousands
know and can’t say how the matter would be reported at the end of internal auditors performing their work around the globe
as you are just an ordinary audit official”. On face these words
Article 32 Management A ccountant, May-Jun, 2011
European Social Welfare State
– A Dream World or Time Bomb
Inside Analysis and Alternative for Muslim Countries
By Muhammad Shahid Siddique, ACMA
I t is human nature that he/she cannot live alone and always
develops relationships to fulfill material and immaterial
needs. To manage their needs state plays a very vital role.
retire. So to compare taxes and benefits, we must compare the
value of taxes paid by people during their working years with
benefits received in their retirement years. To compare the
Western countries which are being managed under a capitalist value of an amount of money at one date with that at the later
system have implemented Social Security System to fulfill date, we use the concept of present value. A present value is an
medical and retirement issues. Now a days Muslims living in amount of money that, if invested today, will grow to equal a
under –developed countries are very much impressed with given future amount when the interest that it earns is taken onto
man-made social security system implemented by western account. We can compare dollars today with dollars in 2030 or
countries like USA, Canada, England etc. To digout the inside any other future year by using present values.
of the social security system, we will explain the system in four
stages which is implemented in USA; For example, if the interest rate is 5% a year, $1000 invested to-
In stage we will discuss how deficits shift from one gen- day will grow, with interest, to $11,467 after 50 years. So the
eration to 2nd generation and so on and its economic present value (in 2056) of $11,467 in 2006 is $1000.
By using present value, we can assess the magnitude of the
l In 2nd stage Generation imbalance and it impact on future government’s debts to older Americans in the form of pensions
generations and medical benefits.
l In 3rd stage way out suggested by Economists and it possi-
bility to achieve But the assumed interest rate and growth rate of taxes and
benefits critically influence the answer we get. For example, at
l In 4th and final stage solution given by Islam.
an interest rate of 3% per year, the present value (in 2006) of
Stage - 1 $11,467 in 2056 is $2,616 (=11,467/(1.03)^50). The lower the in-
terest rate, the greater the present value of given future
Generational Effects of Fiscal Policy amount.
Is a budget deficit a burden on future generations? If it is, how Because there is uncertainty about the proper interest rate to
will the burden be borne? And is the budget deficit the only bur-
use to calculate present values, plausible alternative numbers
den on future generations? What about the deficit in the Social
Security funds? Does it matter who owns the bonds that the are used to estimate a range of present value.
government sells to finance its deficit? What about the bonds
owned by foreigners? Won’t repaying those bonds impose a Using generational accounting and present value, economist
bigger burden than repaying bonds owned by Americans? have studied the situation facing government arising from its
social security obligation.
To answer these questions, we use the tool called genera-
tional accounting – an accounting system that measures the 2nd Stage
lifetime tax burden and benefits of each generation. This ac-
counting system was developed by Alan Auerbach of the Uni- The social welfare time bomb
versity of Pennsylvania and Laurence Kotlikoff of Boston Iniver-
sity. Generational accounts for the United States have been US case has been presented to analyze the situation. When se-
prepared by Jagadeesh Gokhale of Federal Reserve Bank of curity was introduced in New deal of the 1930s, today’s demo-
Cleveland and Kent Smetters of the University of Pennsylvania. graphic situation was not envisaged. The age distribution of the
U.S. population today is dominated by the surge in the birth rate
Generational Accounting and Present Value after World War – II that created what is called the “baby boom
generation”. There are 77 million “baby boomers”.
Income taxes and social security taxes are paid by people who
have jobs. Social security benefits are paid to them after they
Article 34 Management Accountant, May-June, 2011
In 2008, the first baby boomers have started collecting social erational imbalance is the division of fiscal imbalance between
security and in 2011, they will become eligible for Medicare the current and future generations, assuming that the current
benefits. By 2030, all the baby boomers will have retired and, generation will enjoy the existing levels of taxes and benefits.
compared to 2006, the population supported by social security
will have doubled. Major source of the imbalances is Medicare. Social security
pension benefits create a fiscal imbalance, but these benefits
Under the existing social security laws, the federal government will be more than fully paid by the current generation. But the
has an obligation to these citizens to pay pensions and Medi- current generation will pay less than 50 percent of its Medicare
care benefits on an already declared scale. These obligations costs, and the balance will fall on future generations. If we sum
are a debt owed by the government and are just as real as the all the items, the current generation will pay 43 percent and fu-
bonds that government issues to finance its current budget defi- ture generations will pay 57 percent of fiscal imbalance.
Because the estimated fiscal imbalance is so large it is not pos-
To assess the full extent of government’s obligations, econo- sible to predict how it will be resolved. But we can predict that
mist uses the concept of fiscal imbalance. Fis cal im bal ance is
e the outcome will involve both lower benefits and higher taxes.
the present value of the government’s commitments to pay One of these taxes could be inflation tax – paying bills with new
benefits minus the present value of its tax revenue. Fiscal im- money and creating inflation. But the Govt always resist infla-
balance is an attempt to measure the scale of the government’s tion being used to deal with imbalance.
4th Stage (Fi nal)
Gokhale and Smetters estimated that the fiscal imbalance was
$45 trillion in 2003. (using alternative assumptions about inter- From the above discussion it is concluded that there is only one
est rates and growth rates, the number might be as low $29 tril- way out i.e creation of new money at the cost of inflation. But
lion or as high as $65 trillion). To pay the $45 trillion in perspec- this solution will give nominal currency to the baby boomers not
tive, note that U.S. GDP in 2003 was $11 trillion. So the fiscal the purchasing power.
imbalance was 4 times the values the value of one year’s pro-
duction (Refer CFA Economics 2009 Level-1). Now the time has come when we have to change our thinking
paradigm which has been constructed under the capitalism
3rd Stage frame work. We cannot solve above problem with quantitative
numbers (money creation), we have to change the basic char-
How can the federal government meet its social security obliga- acteristic of society which at present has been developed with
tions? Gokhale and Smetters consider four alternative fiscal capitalist epistemology. In civil society every member having
policy changes that might be made: self interestedness behavior, so he/she bear the cost based on
what he/she will get in future (old age) after NPV analysis. A self
Raise income taxes interestedness behavior in civil society never developed a joint
Raise social security taxes family system (Khandan), therefore, in civil society every per-
son treated like UNIT. In civil society state has to develop a so-
Cut social security benefits cial security system to fulfill the needs of UNIT.
Cut federal government discretionary spending
To solve this issue we (Muslims) have to develop the society
They estimated that starting in 2003 and making only one of with the characteristic of Slavery to God rather than Freedom.
these changes, income taxes would need to be raised by 69 When we talk about slavery to God means construction of a so-
percent, or social security taxes raised by 95 percent, or social ciety based on principles on which Prophet Muhammad (PBU)
security benefits cut by 56 percent. Even if the government developed a society in 600th century and it lived till upto the 19th
stopped all its discretionary spending, including that on national century. Principles on which society was developed:
defense, it would not be able to pay its bills.
1) Objective—obedience Abdiat - accountable for his actions
Of course, by combining the four measures, the pain from each in front of God
could be lessened. But the pain would still be severe. And 2) Companionship and wel-being. Relationship are built for
worse, delay makes all these numbers rise. With no action, fis- the pleasure of God, not for any social or economic bene-
cal imbalance climbs from $45 trillion of 2003 to $54 trillion in fits
3) Patience and thankfulness.
Gen erational im bal ance 4) Self-annihilation, Qanat and Fana.
A fiscal imbalance must eventually be corrected and when it is, In Islamic society, built on above principles, there is no
people either pay higher taxes or receive lower benefits. The need for Generational Accounting because present gen-
concept of generational imbalance tells us who will pay. Gen- eration has no need to invest today for future days. It can be
Article 35 Management A ccountant, May-June, 2011
explained with the following dis-
Table – 1 (Terms are in Arabic)
cussion. Note that we will discuss
Economic aspect only. S. # Pri or ity in Dis tri bu tion In cluded
Islam developed a relationship 1 Ashabul Faraeez Mentioned in Quran Father, Mother, Husband, Wife, Daughters,
between Man and women through sons, brothers, sisters, Grand relations
Nikah (Marriage) 2 Asbiaat Based on close relationship with deceased
person after considering 1st
Then Husband is economically re-
sponsible to take care of the wife. 3 Muatiqu Related to Slaves
If there are children than hus- 4 Alrudo Ala Zavil faroodi Ghairiz Zojain Distribution to 1st after wife or husband
band/father is economically re- 5 Zavil Arham Maternal relationships
sponsible to take care of his wife 6 Moulal Mawalat Deep friendship with responsibility of Loss
and children. Father has to spend
all his energies for upbringing and 7 Al Mukralaho Binnusbi Aalul Ghair Deceased has admitted relationship with a
developing its children life as per person
prophet ruling (sharia). 8 Al-Mosalaho bima Zada aalus solosa Will (1/3) has been declared for a person
Family which started with two be- 9 Baitul Mal Goes to State if no relation exists
come Khandan (Brothers, sisters
and - - - - )
nally in Islamic society the fundamental principle among rela-
From 1st generation process, one may thing that what will hap- d
tionship is “ For the pleas ure of God ” rather than self interest-
pen when father and mother become old and having no eco- edness. Following major characteristics of Islamic society are:
nomic resource. The answer is very simple given by Quran and
Sinnah 1. Should like for others as one like for oneself.
“Kind with your parents” Quran 2. Do not tease each other by act and word
3. Deal with kindness and donot be proud
“Jannat is below the feet of mother”
4. Do not back bite
“God’s consent is revealed behind the father’s concent”
5. Must resolve misunderstanding / quarrel
It is unanimous interpretation of above quotes that sons are
(daughters to some extent) economically and socially responsi- 6. be kind and provide social and economic help whatever
ble for their parents. In this process 2nd generation automati- one can
cally become responsible for 1st generation with minimum state 7. When go for meeting, always get permission
8. Always be courteous and deal in accordance to mental
Remember, parents are assets (to get Jannat) rather than liabil- abilities
ity in contrast to western capitalist society where parents are li-
abilty. 9. Respect elders and kind with children
From above Islamic society frame work one might ask some 10. Fulfill promises
basic questions; 11. Always problem solver among Muslims
a) person has only daughters 12. Do not expose Muslim’s weaknesses
b) person has disobedient sons 13. Do not blame each others
c) person has no children 14. Always supportive to Muslims
The success of a system depends upon its ability to provide so- 15. Whenever meet Muslim say Assalamu – Alaikum
lution to every economic / non-economic issue. Islam solves 16. Respect and protect each Muslim’s life, wealth and status.
the above issues through the Mirath (inheritance) under the Is-
lamic System. From the table we can understand how a strong One should remember while performing the above activities
family (Khandan) structure has been developed and practiced that purpose must be only for the Pleas ure God.
in Islamic Society. Islam negates self interestedness and devel-
ops a society in which economic responsibilities among differ- God knows better
ent levels are in reciprocal basis, means heirs are held respon-
sible if deceased’s family failed to maintain economically. Fi-
Article 36 Management A ccountant, May-June, 2011
Gold an Outperforming
By Abdul Ghaffar, M.Com, ACMA
Faculty Member, Ibri College of Technology, Sultanate of Oman
Introduction: Top 10 Reasons
to Choose Gold
Everyone today appreciates the need to save whether for a as Investment
house, for children’s education, a wedding, to generate a for a Long Term
steady income stream for use after retirement, or for unfore-
seen eventualities. All these goals can be realized through ade- 1. Coming Inflation
quate financial planning. We all want our money to be safe and Inflation will prove to be a problem again at some point in
we would like to see it grow as well. But money is a very fluid as- the future once the economy picks back up again. Gold as
set. Inflation erodes its value. It demands constant attention. investment choices can help you protect against this infla-
Well-planned investment alone can ensure that it both retains tion when it happens.
its value and can be used to meet our particular financial re-
quirements. Investments can be made in various forms, like: 2. Holds Value over the Long Term
Business enterprises, Precious metals and stones, Real Es- A good reason for investing in gold with the long term in
tate, Financial instruments, etc. mind is the way that this metal holds value. This is true no
matter what the global or economic circumstances are in
In this article we would like to limit our discussion to the extent most cases.
of investment in Gold.
3. Limited Supply
Gold is the most popular as an investment in all the precious Many investors choose gold as investment choices be-
metals, Investors generally buy gold as a hedge or safe ha- cause this metal is only in a limited supply in the earth.
ven against any economic, political, social, or fiat currency Eventually this supply will run out, and when it does the
crises (including investment market declines, burgeoning price of gold will probably jump off the charts.
national debt, currency failure, inflation, war and social un- 4. Increased Manufacturing Use
rest). The gold market is also subject to speculation as other
commodities are, especially through the use of futures con- Gold is popular right now for many reasons, and one is
tracts and derivatives. that these metals are being used in manufacturing of orna-
ments and medals etc much more than in the past. This
helps increase the demand and raise the value of the
Similarly to gold price in India today, high national demand metal.
for gold in Pakistan controls gold rates in Pakistan. Gold
presence in Pakistan is an integral part of its cultural and 5. High Demand
historical heritage. World’s major economic downturn trig-
Choosing gold as investment holdings is often done be-
gered an even further increase for market price of gold in
cause of the high demand this metal sees. Jewelry, manu-
Pakistan. facturing, and other uses have caused the demand of gold
to hit record highs, and the situation will only increase in
Historical gold prices in Pakistan are directly correlated with the future.
gold rate in Dubai and UAE, Since Pakistan imports most of its
gold primarily from Dubai, Domestic Pakistani gold mining in- 6. Recession Friendly Investment
dustry is in severe distress due to lack of capital investments A gold investment are both perceived to be recession
and inefficient gold mining technologies, therefore, Pakistan re- proof choices, because even in tough economic times
lies heavily on gold imports from other countries causing gold these metals are still very valuable. In these situations pre-
rates in Pakistan to go up. cious metals are often better than cash, and will not lose
Article 37 Management Accountant, May-June, 2011
value like many other investments will if the economy Since the past few decades, whenever people sense that
tanks. the dollar is showing weak performance in the world and
stock market, they start investing in gold-funds or gold
7. Devaluation of the Dol lar and Other Cur ren cies
coins. Bullion is bound to give them more value for their
One reason that gold is a better choice to compensate the money, and this increases the demand in gold. As with all
risk of currency devaluation. other commodities, gold is also dependent upon the de-
mand and supply formula.
8. Can Be Used As Cur rency for Goods and Serv ices
2. Demand for jew el lery by the Asian and Chi nese mar -
One reason that choosing gold as investment option is so s
popular is that no matter what happens, this metal has cur-
rency value in any form. This is the reason that many mili- China and India are the biggest buyers of bullion for their
tary emergency kits include gold coins. jewellery market. In the year 2004, Chinese citizens were
granted the ownership of ingot for the first time in history.
9. Ac cepted Glob ally
This triggered a very high demand of bullion, which subse-
Gold bullion has a value everywhere in the world, and in quently affected the price of bullion worldwide. In 2009, a
almost every country. Gold stocks, mutual funds, and record 32% decrease in the demand for gold-jewellery
other options that do not give you possession of the gold was recorded, due to the global economic crisis, which re-
do not offer this benefit. sulted in a slight decline in the gold-price.
10. Past Per form ance 3. Cen tral Banks Reserves:
Gold as investment has been profitable for thousands of Central banks keep ingot reserves as a hedge against in-
years. In ancient times gold was seen as a sign of wealth flation. Other monetary policies of the central banks also
and prosperity, and this is also true today. The past per- affect the price of gold. Low interest rates discourage peo-
formance of gold is an indication of future performance, ple to invest in paper money; they turn towards the golden
and this is a big reason why gold has become so popular metal in the hope of better returns. If the central banks give
with investors. high interest rates, the chances are that the ingot price will
Fun damen tal Analy sis of Gold Price
4. Pro duc tion of gold :
This question preoccupies the mind of everyone who is directly
or indirectly related to the investment in gold, in some or the Due to the rising cost of production in gold mining, strikes
other form. Gold has always occupied a prominent position in by gold-miners, worsening political situation, the sharp in-
determining the global economy. The price of gold is consid- crease in the oil prices after the Iraq war, and terrorist at-
ered as a major indicator of the status of global economy. tacks, a decline in the gold-mining production has been re-
There are some fundamental factors that affect the price of corded for the past 5 years.
gold. They are as follows: 5. Rise in in vest ments in gold
1. Value of US dol lar:
The world population is constantly rising, and so is the de-
The foremost factor that governs the price of gold is the mand of investment in bullion. Man has always believed in
value of US Dollar. A stronger US dollar will keep the price investing in bullion since ages. So, the prices of gold are
of gold controlled and low. A weak dollar will set the price also affected by the natural desire of man to hoard gold.
of gold spiraling to a very high price. US economy plays a
6. Oil Pric ing
major role in shaping the macroeconomics of the world.
When the dollar is strong, people invest, buy and trade in The oil price does not drive the gold price and the only rea-
dollars. son the two markets have similar long-term trends is that
However, in recent times, the US economy has suffered a they have one important long-term driver in common:
lot. Dollar has not remained as powerful and promising as monetary inflation. There is, however, an inverse relation-
ever; this is the reason why people and nations start in- ship between the oil price and the prices of gold shares,
vesting and hoarding in bullion. The high gold reserves but this relationship only comes to the fore during periods
strengthen the national economies and act as a hedge when the oil price is moving sharply lower or sharply
against inflation. higher relative to the gold price.
Article 38 Management A ccountant, May-June, 2011
Tech ni cal Analy sis of Gold
Price of Gold per Ounce (in USD)
Technical Analysis is the study of mar-
ket action (price changes), primarily
through the use of charts. The pur-
pose is to forecast future price trends.
Technical Analysis is based on three
premises: Market action reflects eve-
rything; Prices move in trends; History
Below mentioned diagram is witness
of outperforming gold’s investment.
It’s been a while since gold has given
us anything to write about but on the
first day of March 2011 it made not
only a new all time high, but a new all
time closing high of $1433.10. Volume
on GLD over 17M which is above aver-
age but not high enough to confirm a Com mon Mis takes to be avoided while
breakout even though the candle stick is a long one and the in vest ing in Gold
closing price is higher than the previous high.
1. Buying from any store. Finding reputable and trustworthy
Gold prices dur ing the un rest of Mid dle East stores will guarantee you avoid fake gold pieces. Ask lo-
and Japanese earth quake cals you trust where they go to get the best gold rates in
“Gold futures rallied and silver hit its highest point in
nearly 31 years Friday as jitters about rising oil prices amid .
2. Buying from multiple dealers. Once you find a reputable
Middle East tensions boosted the metals as refuge invest- gold or jewelry deal, it’s recommended you buy your gold
ments. from one source to avoid extra costs and it might perhaps
help you get a discount if you buy large quantities.
From Matt Whittaker, in a Dow Jones Newswires posting on .
3. Buying rare gold coins compared to gold bullion coins will
The Wall Street Journal on March 4th 2011: result in paying too much for the rarity factor of your pur-
14-18 March 2011, Japanese earth quake caused panic sell-
ing, gold price down from 1432 to l380.85. Gold price went .
4. Buying gold nuggets is perhaps the biggest mistake, if you
are not a gold expert, it’s almost entirely impossible to as-
through a week of high volatility; fell through 1420, 1410, 1400
sess a value of gold nuggets at a glance. In addition, gold
key supports, and touched 1380.85. Then gold price climbed
nuggets can have embedded impurities that might signifi-
back up as Libya and Middle East unrest increased, oil price cantly drive down their value once you decide to sell them.
was back up to USD102 from USD96, gold price went back up
to 1423. .
5. Buying gold in rural areas is also not recommended since
gold jewelry is likely to be more expensive and there’s al-
21-25 March 2011, As Libya tensions increased, UN air force ways concern for safety and authenticity of gold
has begun attacks on Gaddafi troops, gold price’s safe haven Sources:
demand increased, and gold price went back up to 1434. Mar-
kets will be watching closely the developments in the Middle 1- An Article Gold Fundamentals Adam Hamilton–December
East, if the situations worsened, gold price could see further up- 22, 2006, 4736 Words on http://www.zealllc.com
wards movements. This week, daily chart, KD shows slowing 2- Blanchard 909 Poydras Street Suite 1900 New Orleans,
down in decline, RSI moving around 50, gold price moving in LA 70112
the middle of Bollinger Bands. Gold price sees upside momen- 3- http://en.wikipedia.org/wiki/Gold_as_an_investment
tum. Gold price could be testing 1400 for support, and attempt 4- :
An article By Jack Wogan Word Count: 498, ezinearticles
to break above 1424, if gold price can break and stay above 5- http://www1.goldtrades.info
1424 then could attempt to break 1440 resistance. 6- http://www.kitco.com/
(ttp://www1.goldtrades.info) 7- http://www.goldprice.org/gold-price-history.html
Article 39 Management A ccountant, May-June, 2011
Collection of Quantitative Data through
By Dr. Muhammad Arshad Haroon
Abstract This article is, therefore, devoted to a discussion of the different
ways of secondary data collection, particularly, with the back-
Since long, Internet connectivity is being used in Pakistan. The ground of information technology or computer searches, so that
growth and usage of Information Technology—IT in public and pri- the investigators, researchers and managers may be able to
vate sectors Universities and Colleges are lagging in comparison choose the most appropriate way to solve complex business deci-
to the country’s business industry usage of IT. In this article, an at- sions.
tempt has been made to explore useful academic internet sources
so that the academic researchers, investigators and students par- Sources of Information
ticularly relating to finance may be able to collect relevant data ac-
cording to their requirements. This article refers to online academic There are two broadly approaches/ methods by which an investi-
resources, web references, CD-ROMs and textbooks referenced, gator may collect or gathered relevant information namely, Primary
etc. Empirical induction from the observation brought to the knowl- Data Sources and Secondary Data Sources. Primary data collec-
edge that IT is not extensively used in teaching and learning in tions methods are used to obtain data, specific to problem. It is the
Pakistan’s public Universities and colleges specifically at the Sindh data which have not already been collected by others (or if col-
College of Commerce and Post Graduate Center. lected, are not readily available or accessible). It is a first hand data
and refers to information that is generated to meet the specific re-
Introduction quirements of the investigation. Primary data is expensive and
time-consuming to obtain and should only be used if all other
According to W.I.Thomas, the scientific value of a fact depends on means of solving the problem prove futile. On the contrary, secon-
its connection which other facts, and in this connection the most dary sources contain data that were already collected originally for
common place facts are often precisely the most valuable ones, other purposes (e.g., industry statistics, census data, and compa-
which a fact that strikes the imagination or stirs the moral feelings nies’ reports). Secondary data is the information that is collected
may be either isolated or exceptional, or so simple as to involve for a purpose other than to solve the specific problems under in-
hardly any problem. In this modern world, information is the life- vestigation. Because of their low cost, the availability of secondary
blood of managerial decision making process, in recent days, al- data should be fully explored before committing funds for primary
most every managerial decision is based on factual, concrete and data collection. Secondary Data can be collected by two sources
reliable information. Information is the basic resource by which internally and externally and these sources are briefly discussed
management enables to take timely and effective business deci- as under:
sions. Information can be arranged and managed just as any other
way. Interest in this topic stems from two influences; first, the busi- Internal Source of Collecting Secondary Data
nesses, in the world today, have become more complex, and sec- Internal (secondary) data source refers to information that already
ond, the information technology has spread swiftly all over the exists within the organization in which the research is being con-
world which has not only enhanced the capabilities of computer but ducted such as records of sales, budgets, advertising and promo-
also has become an ample resource of acquiring, sorting and col- tion expenditures, previous research studies and similar reports.
lecting relevant information. Manager, non-manager, persons and
organizations within and outside the organization use information. External Source of Collecting Secondary Data
Managers perform functions and play a strong role, in this regard.
They certainly need skills in communication and problem solving External (secondary) data source refers to information, which is
capabilities in order to be successful. However, one should not be collected by a source external to the firm in which the research is
unduly impressed with a sweeping generalization of this nature. being conducted. External secondary data sources include pub-
Much of the available information that provides the basis of mana- lished information, such as journals, business reports, industry sta-
gerial decisions may not be of sufficient quality; nor may it be ap- tistics etc. it is pointed out here that it would not be feasible to list all
propriate to the decisions being made. Effectiveness of decisions the external secondary data sources because of the large number
based on use of such information, the results of their analysis can of such sources available.
only be as good as the reliability, quality and appropriateness of
External secondary data sources do not, in general, have the prob-
the information used. Every responsible researcher, however, can
lems associated with government publications. They are quite up
not pass the responsibility to anyone else. It is, therefore, the re-
to date in their reporting of information and the frequency of collec-
searchers must be responsible for the data or information they col-
tion and dissemination of information is usually quite high; consid-
lect and use.
erably less than the five-year frequency common to many govern-
Article 40 Management Accountant, May-Jun, 2011
ment data sources. There is considerable lack of flexibility in terms CD-ROM Searches
of finding the appropriate data to fit the problem. Perhaps, because
of the great variety and number of sources available, this limitation CD-ROM searches are becoming increasingly available at univer-
is not as severe as it was in the case of government sources. The sity libraries. CD-ROM refers to a compact disc that “plays” visual
major advantage of using secondary data sources is the low cost of information. In the case of a search, the information, which is
acquiring information; though this cost may be higher than it is for stored on, and played by, the CD, is the contents of one or more
government data, and definitely higher than it is for using internal databases. Such CDs are very efficient. A CD is “read” by a laser
data. player and the contents are displayed on a computer screen. ROM
stands for “read-only memory,” which basically means that re-
Com puter Databases as an Ex ter nal Sec on dary searcher can read the contents of the CD and can interact with the
Data Sources contents and can even print the contents but cannot change the
Even with the array of printed material such as bibliographies, di-
rectories, and indices, a search can be very time consuming. Re- Two major vendors of CD-ROM versions of databases are
cent advances in computer technology have resulted in more effi- DIALOG and SilverPlatter. Both provide the ERIC databases
cient methods of cataloguing, storing, and retrieving published (DIALOG On-Disc ERIC and SilverPlatter ERIC), and SilverPlatter
data. The growth in the number of databases available electroni- also provides the Psychological Abstracts database (PsychLit).
cally through computers has been dramatic. It is estimated that Both vendors include the related thesaurus on each CD. Thus, for
over 3500 “online” databases are available to researchers and example, DIALOG On-Disc ERIC has the ERIC Thesaurus as an
analysts working in almost every area of business, science, law, index option. The Education Index and Readers' Guide to Periodi-
education and the social sciences. Many of these databases are cal Literature databases are available from the WILSONDISC CD-
now accessible from personal computers, as well as terminals ROM retrieval system, and the Dissertation Abstracts International
equipped with an appropriate telephone linkage. Increasingly, the database is provided by University Microfilms International (Dis-
software developed for the user's communication with the data- sertation Abstracts On-Disc). CDs are typically updated quarterly;
base system is designed to be “user-friendly.” As a result, use of an advantage of using DIALOG On-Disc ERIC is that it allows us-
these electronic information sources has expanded rapidly to facili- ers to transfer to DIALOG online in order to search the most recent
tate almost any search for information and is no longer limited to entries in the ERIC databases, a feature which will probably be-
computer specialists. come a standard feature of CD-ROM systems.
The computer was initially applied as an accounting information On line Searches
system (AIS), but then it was recognized to have potential value as
a management information system (MIS). Subsequently, interest Online searches provide a network of numerous databases from
expanded into such areas as decision support systems (DSS), the one central access point. They evolved from the data processing
virtual office, and knowledge-based systems. All five of these ap- industry and attempt to provide users with increasingly simple and
plication areas compose the computer-based information system standardized methods for searching a number of databases using
(CBIS). one online vendor. There are several large networks of databases,
or online information vendors, offering the same databases as well
The researcher may acquire either primary data or secondary as “exclusive” information services. Information retrieval systems
data. To gather primary data the researcher may do so through provide institutions with access to the tapes in their system: some
conducting of surveys. Secondary data is gathered by someone institutions have some tapes themselves. The four leading ven-
else and made available to the investigator. Most of the secondary dors of online databases are as follows:
data is available in the form of commercial databases that are pro-
vided by database services for a fee. The investigator can access S
BRS Bibliographic Retrieval Service
the services central databases or obtain copies of the databases in
DIALOG: This system has the largest selection of databases,
a compact disk (CD-ROM) form. With relatively little effort, the re-
currently numbering over 200 in a broad array of technical and
searcher can use a computer to identify related data. Searching
general internal areas.
that would take days and days if it is done individually while
through the use of computers it can be done in a matter of minutes. :
NEXIS: The Nexis system contains entire articles, not just ab-
stracts, and offers a large selection of newspapers
Types of Com puter Searches
SDC/Or bit: is best known for its scientific and technical data-
Computer searches can be done online or by using CD-ROM. An bases.
online search is performed at a computer terminal, which is directly
connected via telephone lines to a central database system. A CD- The BRS (Bibliographic Retrieval Services Information Technolo-
ROM search involves using software onto which database infor- gies) and DIALOG (Dialog Information Services). While, specifics
mation has been transferred. All of the related sources can be ac- for their utilization differs both contain the Dissertation Abstracts
cessed using online and CD-ROM searches and can be down- International, Psychological Abstracts (PsycINFO) and ERIC data-
loaded onto diskette. Depending on the retrieval system being bases (among others). The Education Index and Readers' Guide
used, various support services are available. to Periodical Literature databases are available from the
Article 41 Management A ccountant, May-Jun, 2011
WILSONLINE online retrieval system (H. W. Wilson). Databases PTS Prompt (Predicasts Over view of Mar kets and Tech -
are updated frequently and can be accessed by virtually all types of :
nol ogy): Primary source of information on product introduc-
computer terminals. It is even possible to do online searches in tions, market share, corporate directors, and ventures in every
your own home using your personal microcomputer and a modem Industry with detailed summaries of articles from trade and in-
(telephone hook-up). There is at least one software program, End- dustry sources. Citations of business literature on market and
Note, which allows you to download (transfer to diskette) refer- strategic planning new techniques and products and regula-
ences, abstracts, and articles and then puts your reference list into tion in major industries.
proper American Psychological Association format (WOW).
ABI/INFORM: A widely used database providing extensive
Com mer cial Database Serv ices summaries of selected articles from 550 English-language
business and management journals, including indices and ab-
There are thousands of commercial databases that can provide in- stracts of all articles in 300 journals.
formation on practically any subject. Two major players in this field
are DIALOG and LEXIS-NEXIS. DIALOG, a subsidiary of Knight- :
Man agement Con tents: indices and abstracts of articles in
Ridder, Inc., provides access to approximately 450 databases in a over 700 English-language business/management periodi-
variety of disciplines. You can select one or more DIALOG files cals, and proceedings.
pertinent to your area of interest and then conduct searches.
Ad-track: Description of advertisements from 150 U. S. con-
LEXIS-NEXIS, a division of Reed-Elsevier, Inc., is an excellent
sumer magazines—provides competitive tracking and product
multi-database source for accessing business, legal, and govern-
mental information. Both DIALOG and LEXIS-NEXIS databases
are accessible through either a modem connection to one of the :
FIND/SVP Reports and Stud ies In dex: Summaries of indus-
vendor's computers or through the Internet. try and market research reports, surveys from LJ.S and inter-
national sources, market, industry and company analyses.
Several other popular services are described below, and although
most provide information that has broad application, some are of :
Har fax In dus try Data Sources: Description of sources for fi-
special interest to managers of particular functional areas. The po- nancial and marketing data in major industries worldwide.
sitions of the following database services within a functional frame-
work, showing which databases can lay matched with the needs of :
AMI (Ad ver tis ing and Mar ket ing in tel li gence): A new data-
the functional areas for environmental information. This is only a base indexing recent articles and news in marketing maga-
sample and does not imply that other databases do not do an zine. It abstracts articles and news appearing in over 60 mar-
equally good job. keting and trade journals as well as several newspapers.
Ac cess ing and Us ing Databases :
ABI/INFORM: can be accessed from both DIALOG and
LEXIS-NEXIS. It provides full-text coverage for approximately
Databases are accessible both from their producers and increas- 500 publications, which cover subjects of interest to all manag-
ingly from online information services. Database producers origi- ers such publications as HR Focus, HR Magazine. Human Re-
nate the information in the database. Many are older Information sources Management and The Journal of Human Resources
suppliers, such as the Dow Jones Information Service or Mead make the database especially helpful to managers in the hu-
Data Central's Lexis database for lawyers. The U. S. government man resources area. ABI/INFORM is also an excellent re-
is a large-scale producer of data, which are accessed from com- source for information service manners that are interested in
mercial database services. gaining information on significant trends and individuals in
computing. It indexes a number of key journals in the informa-
Clas si fy ing Databases tion science area, including Communications of the ACM,
Computer Technology Review, CD-ROM Professional, and
The large number of databases can be overwhelming. A useful the Journal of the American Society of Information Science.
classification is that databases provide either reference or source
Busi ness Dateline: is included in both DIALOG and LEXIS-
NEXIS. It contains full-text articles from 400 business and gen-
Ref er ence Databases eral publications in the United States and Canada. These pub-
lications provide strong coverage of large- and medium-sized
Reference databases refer users to articles and news contained in metropolitan areas and lesser coverage of surrounding
other sources. They provide on-line indices and abstracts and are smaller communities.
therefore referred to as bibliographic databases. This is a quick
and efficient method for researching a subject before obtaining a :
Com merce Busi ness Daily: is a LEXIS-NEXIS database that
large amount of detailed information. References Databases are captures data from the Department of Commerce publication
widely used databases and include: by the same name. The database provides announcements of
federal procurement contracts, descriptions of foreign govern-
PTS (Predicasts Ter mi nal Sys tem) F&S In dex: Brief de- ment standards for importing commodities, and announce-
scriptive annotations of articles and publications covering U. ments of sales of government property. Between 400 and
S. international company, product, and industry information.
Article 42 Management A ccountant, May-Jun, 2011
1,000 records are added daily within twenty-four hours of pub- e
Tho mas Reg is ter On line: provides an index of over 150,000
lication of the Daily. U.S. and Canadian manufacturers and can be used to obtain
information on products and their suppliers. All records pro-
COMPNY Li brary: obtained from LEXIS-NEXIS, provides ac- vide the name, address, telephone number, and Industry code
cess to full-text annual reports and SEC filings, which are sub- for companies, as well as brand names, trademarks, and de-
mitted by U.S. public companies, along with information on se- scription of the company’s products. Also, many records pro-
lected U.S. private companies. Specific files within COMPNY vide such information as the number of employees and execu-
contain annual stockholder report information, 10-K filings, tive names and titles. It resides in DIALOG and is updated on a
and proxy statements. semiannual basis.
Com puter Select : is a relatively new CD-ROM resource that
contains information on hardware, software, and the comput-
ing industry in general. The information is in the form of full-text Source databases provide numerical data, a complete text, or a
articles from approximately eighty computer periodicals, ab- combination of both. These include the many economic and finan-
stract coverage from approximately forty additional publica- cial databases and the textual source databases, which contain
tions, hardware and software specifications, and Computer the complete texts of newspaper or journal articles. They can be
Company profiles for approximately 13,000 vendors and classified into (1) full text information sources. (2) Economic and fi-
manufacturers. nancial statistical databases, and (3) online data and descriptive
information on companies. NEXIS is a full text database, which in-
CURNWS: is a LEXIS-NEXIS file that compiles newspaper ar-
cludes the text of stories and articles in the major wire services, 10
ticles, magazine articles, news wire reports, broadcast tran-
newspapers including the New York Times and Washington Post,
scripts, and other resources that cover the most recent two
55 magazines and journals, and the Encyclopedia Britannica.
years. This database should be of interest to managers
throughout the firm. The economic and financial statistical databases were among the
first databases to be offered online. Several of the more widely
INVESTEXT: provides full-text reports, issued by over 180
known statistics vendors provide general economic information as
brokerage firms and investment institutions around the world.
well as specific industry analyses and forecasts. These include
Both DIALOG and LEXIS-NEXIS are providers. The
Chase Econometrics/Interactive Data Corp, Citicorp Economic Di-
INVESTEXT reports analyze performance of over 14,000 pub-
vision, Data Resources, and Merrill Lynch Economics. Wharton
lic companies and over fifty industry groups. INVESTEXT is
Econometric Forecasting Predicasts, forecast and predicast
available both in CD-ROM and online.
Worldcasts. General economics and business statistics can also
MARS (Mar ket ing and Ad ver tis ing Research Serv ice): pro-
) be accessed through the online information vendors. Examples
vides a combination of informative abstracts and full-text arti- are:
cles pertaining to the marketing of consumer products and
BI/Data Time Series: A computerized database containing 300
services, as well as to advertising agencies, advertising me-
economic, demographic, trade, and other time series for 131 coun-
dia, and markets. Available from both LEXIS-NEXIS and
DIALOG, it is updated daily.
Don nelly Demo graph ics: U. S. Demographic information in-
Moody's Com pany Data: contains business descriptions, of-
cludes 1980 census, current year estimates, and five-year pro-
ficer information, and complete financial reports for over
jections from zip code level to the U. S. summary.
10,000 U.S. public companies. The graphics capability of this
CD-ROM database is especially good. :
EIS (Eco nomic In for mation Sys tems): Industrial Plants and
EIS Non-manufacturing Establishment. These provide the fol-
NPA/Plus (New Prod uct An nouncements/Plus): available
lowing information for 150.000 industrial plants with over 20
from DIALOG makes available up-to-date information on new
employees and for 350,000 non-manufacturing establish-
products and services. It contains the full text of press re-
ments: address. SIC industry code, value of shipments, em-
leases. In addition to containing descriptive information, en-
ployment size class, share of market estimates, and head-
tries frequently identify the person to contact for additional in-
formation. NPA/Plus coverage is retrospective to 1988, and
approximately 800 records are added each week. It is an ex- :
D & B—Dun's Mar ket Iden ti fi ers: Directory of over one mil-
cellent source of information on competitors. lion public and private companies with 10 or more employees,
listing address, products, sales executives, corporate organi-
PROMT (Predicast Over view of Mar kets and Tech nol ogy): )
zation, subsidiaries, industry information, sales prospects.
consists of abstracts, full-text articles, and excerpts drawn
from over 1,000 business and financial publications, including
journals, trade publications, and newsletters. Its offering of in-
Ad van tages of Com puter Retrieval Meth ods
formation on all manufacturing issues, including materials, The following are the main advantages of computer retrieval meth-
suppliers, labor unions, and governmental policies makes it ods:
especially appealing to manufacturing managers. It is included
Article 43 Management A ccountant, May-Jun, 2011
They now cover several thousand U. S. and worldwide infor- volves using software onto which database information has been
mation sources. transferred.
The speed of information access and retrieval. Often, most of Online computer searches are made possible by the fact that vari-
the information is available from a computer before it is avail- ous databases are available on computer. Information retrieval
able in published form due to the time required for printing and systems provide institutions with access to the tapes in their sys-
mailing printed material. tems; some institutions have some tapes themselves. Tow major
vendors of online retrieval services are BRS and DIALOG.
Commercially available search procedures provide consider-
able flexibility and efficiency in cross-referenced searching. CD—ROM refers to a compact disc that “plays” visual information;
For example, by using the EIS Plants database, it is possible in the case of search, the information, which is stored on, and
to locate plants that simultaneously meet several criteria, such played by, the CD is the contents of one or more databases. A CD
as geographic location, industry code and market share. is “read” by a laser player and the contents are displayed on a com-
puter screen. ROM stands for “read-only memory,” which basically
Limi tations of Com puter Retrieval Meth ods means that user can read, interact with, and print the contents, but
cannot change the contents. The major vendors of CD—ROM ver-
The following are the main limitations of computer retrieval meth- sions of databases are DIALOG and SilverPlatter
The first limitation of the reference databases is the reliance on
Bib li og raphy
the accuracy of the abstract author the dependence on the Aakoff, Russell L., (1967), “Management Misinformation Sys-
journal and article selection policy of the database producer, tems.” Management Science, P—147-156.
and the idiosyncrasies of the search procedures of the differ-
ent databases as well as the different database network ven- Aher. Steven L., (1976), “How Effective Managers Use Information
dors. Systems.” Harvard. Business Review 54: P—97-104.
Because the computer search is based on finding certain key Amoroso, Donald L., and Cheney, Paul H., (1992), “Quality End
words within the abstract, there is the possibility that some im- User-Developed Applications: Some Essential Ingredients.”
portant information is missed if an abstract is missing a key DATA BASE 23: P—1-11.
word. On the other hand, a lot of irrelevant data may be gener-
ated if certain key words used to limit a search are not cited in Aron. Joel D., (1969), “Information Systems in Perspective.”. Com-
an abstract. For example, a manufacturer of minicomputers puting Surveys 1; P—213-236.
who is interested only in developments pertaining to minicom-
Bouvet, Stephen, (1996), “The Many Virtues of the Virtual Office.”
puters may not want to retrieve the entire database on comput-
Enterprise Reengineering 3: Iff;
ers. However, the abstract may contain the word “computer”
regardless of size, and accessing information on minicomput- Bergeron, Francois; Rivard, Suzanne; and Raymond, Louis.,
ers would also yield general computer information. (1993), “Assessment of End-User Computing from an
Organizational Perspective.” Information Resources Man-
Another limitation arises from the enormous amount of infor-
agement Journal 6, P—14-25.
mation now available online, it is often quite difficult to know
which of the myriad sources has the correct Information most Brooks, Frederick P., Jr., (1996), “The Computer Scientist as Tool
readily accessible. Finally, the researcher using online data- smith II.” Communications of the ACM 39: P—61-68.
base retrieval services must weigh the benefits of the research
procedure, including timeliness, speed, and scope of informa- Choe, Jong-Min., (1996), “The Relationships among Performance
tion retrieval, against the costs of searching and accessing of Accounting Information Systems, Influence Factors, and
computer-retrievable databases. Evolution Level of Information Systems.” Journal of Manage-
ment Information Systems 12, P—215-239.
Con clu sion
Dearden, John., (1972), “MIS Is a Mirage.” Harvard Business Re-
As the purpose of this article was to provide useful information re- view 50, P—90-99.
lating to collection of data form online resources particularly, with
the background of Pakistan where territory source of collecting Gill, T. Grandon., (1995), “Early Expert Systems: Where Are They
data is still at its preliminary stage. Now?” Management Information Systems Quarterly 19,
The researcher can use a computer to identify related desired
data. A computer searches check databases such as the ERIC Ginsberg, Michael J., and Baroudi, Jack J., (1992), “Career Orien-
system and provides a list of database. Computer searches may tations of I.S. Personnel.” Computer Personnel 14, P—15-29.
be done online or by using CD—ROM. An online search is per- Author is Lecturer in Commerce at Government Sindh College of Commerce &
formed at a computer terminal, which is directly connected via tele- Post Graduate Center, Hyderabad and Aduount Assistant Professor of
phone lines to a central database system. A CD—ROM search in- Accounting and Finance, Isra University, Hyderabad.
Article 44 Management A ccountant, May-Jun, 2011
Pakistan's Economic Horizons
Highlights: Pakistan Economic
Growth and Investment l Fixed investment has decreased to 11.8 percent of GDP from
13.4 percent last year.
l The Real GDP is estimated to grow at 2.4 percent on the back of
strong performance of services sector as against actual growth of l The national savings rate has decreased to 13.8 percent of GDP
3.8 percent last year and target of 4.5 percent. in 2010-11 as against 15.4 percent of GDP last year.
l The growth in the agriculture is estimated at 1.2 percent on the l Domestic savings has also declined substantially from 16.3 per-
back of 3.7 percent growth in the livestock sector. cent of GDP in 2005-06 to 9.5 percent of GDP in 2010-11.
l Major Crops accounting for 31.1 percent of agricultural value Agriculture
added registered negative growth of 4.0 percent compared to a
negative growth of 2.4 percent last year and a target of 3.7 per- l The agriculture growth this year is estimated at 1.2 percent as
cent. compared with 0.6 percent during 2009-10.
l Minor crops registered a growth rate of 4.8 percent compared to l Cotton production has decreased from 12,913 thousand bales in
the target of 3.0 percent and massive negative growth of 7.8 per- 2009-10 to 11,460 thousand bales in 2010-11, showing a de-
cent last year. crease of 11.3 percent.
l Output in the manufacturing sector has witnessed expansion of l Wheat production has increased from 23,311 thousand tons in
3 percent in 2010-11 as compared to expansion of 5.5 percent last 2009-10 to 24,214 thousand tons in 2010-11, showing an in-
year on the back of strong performance from small and medium crease of 3.9 percent.
l Rice production has decreased from 6,883 thousand tons in
l Large-scale manufacturing grew by 0.98 percent (July- 2009-10 to 4,823 thousand tons in 2010-11, showing a decrease
February 2010-11 incorporated in the national accounts but the of 29.9 percent.
growth is now 1.7 percent in July-March 2010-11) as against 4.9
l Sugarcane production has increased by 12 percent to 55.3 million
percent of last year.
tons in 2010-11 from 49.4 million tons last year.
l The services sector grew by 4.1 percent against the target of 4.7
l Gram production has increased from 562 thousand tons in 2009-
percent and actual outcome of 2.9 percent. Within services sector
10 to 523 thousand tons in 2010-11, showing a decrease of 6.9
Wholesale and retail trade sector grew at 3.9 percent as com-
pared to 4.6 percent last year and the target for the year of 5.1 per-
cent. Finance and insurance sector recorded negative growth l Maize production has increased from 3,262 thousand tons in
of 6.3 percent in 2010-11 as against contraction of 11.3 percent 2009-10 to 3,341 thousand tons in 2010-11, showing an increase
last year. Public administration and defense posted a stellar of 2.4 percent.
growth of 13.2 percent as compared to 2.5 percent in last year.
Social Services Sector grew by 7.1 percent which is slightly l In minor crops, the production of potato, onion and mash in-
higher than the target of 5.0 percent but lower than last year’s ac- creased by 18.6 percent, 11.2 percent and percent, respectively.
tual growth of 7.8 percent. However, the production of mung, chillies and mash decreased by
35.5 percent, 8.6 percent and 2.7 percent respectively.
l Pakistan’s per capita real income has risen by 0.7 percent in
2010-11 as against 2.9 percent last year. l Agriculture credit disbursement of Rs. 168.7 billion during July-
March 2010-11 is higher by 1.4 percent, as compared to Rs. 166.3
l Per capita income in dollar term rose from $ 1073 last year to $ billion over the same period last year.
1254 in 2010-11, thereby showing tremendous increase of 16.9
percent. This is mainly because of stable exchange rate as well as l The domestic production of fertilizers during the first nine months
higher growth in nominal GNP. (July-March 2010-11) of the current fiscal year was higher by 2.7
percent as compared with corresponding period last year. On the
l Real private consumption rose by 7.0 percent as against 4.0 other hand, the import of fertilizer decreased by 50.4 percent, the
percent attained last year. However, gross fixed capital formation off-take of fertilizer also decreased by 11.3 percent during the
lost its strong growth momentum and real fixed investment same period last year.
growth contracted by 0.4 percent as against the contraction of 6.1
percent in last fiscal year. Manufacturing & Mining
l The total investment has declined from 22.5 percent of GDP in l During the First nine months of the current Fiscal Year 2010-11,
2006-07 to 13.4 percent of GDP in 2010-11. production of Large Scale Manufacturing (LSM) increased by 1.71
Pakistan's Economic Horizons 46 Management Accountant, May-June 2011
percent which was mainly caused by the improvement in sub Revenue collections of FBR stood at Rs 1,156 billion during July-
groups of leather (30 percent), automobile (14.6 percent), Food, April 2010-11, thereby reflecting 12.6 percent growth over Rs
Beverages & tobacco (9.3 percent) and paper & board (2.9 per- 1,026.5 billion collected during the corresponding period last year.
cent). Among the four federal taxes, the highest growth 15.6 % has been
recorded in sales tax receipts, followed by customs (12.6 %), di-
The items which show an increase in their production during this rect tax (10.7 %) and federal excise (7.0%).
period were TV sets (28.6 percent), sugar (26.5 percent), LCVs
(23.3 percent) and cooking oil (9.7 percent). For July-April, 2011, direct taxes have been a major source of
FBR tax revenue collection, contributing 37.1 percent of total re-
During the current fiscal year (2010-11), cement production de- ceipts. Net collection was estimated at Rs. 430 billion.
creased to 20.8 million ton as against 23.1 million tons last year
showing a decrease of 9.6 %, whereas sugar production in- Indirect taxes including (Sales Tax, Federal Excise Duty and Cus-
creased by 3.8 million ton showing an increase of 26.5 percent. tom Duty) grew by 13.8 percent during July-April, 2011 and ac-
counted for 62.8 percent of the total FBR tax revenue. Net collec-
Exports earning of the Textile products in 2010-11 (July-March) tion was estimated at Rs.726.0 billion.
showing an increase of 29.9 percent.
Total expenditure of Rs. 3,257 billion was estimated for the full
During 2010-11 (July-March) in automotive industry cars, year, comprising of Rs. 2,641 billion of current expenditure
LCVs/Jeeps and two/three wheelers registered a positive growth (81.1% of total), and Rs. 617 billion of development expenditure
of 16.4 percent, 20.5 percent and 12.6 percent, respectively. (18.9% of total).
The mining and quarrying sector is estimated to grow by 0.4 per-
cent in 2010-11 as against 2.2 percent last year. Natural gas, Money and Credit
crude oil and dolomite posted positive growth rate of 1.9 percent, SBP has raised the discount rate to 14 percent on 30th November
1.1 percent and 5.9 percent, respectively. 2010, and decided to keep the rate unchanged at 14 percent.
Fis cal Devel op ment Net expansion in M2 increased by 9.62 percent during July-April,
2011 as compared to 8.1 percent during the same period last year
Tax collection by the FBR was targeted at Rs 1667 billion for fiscal
year 2010-11. However, the target was downward revised to Rs Net Domestic Assets (NDA) during July-April 2011 reached at Rs
1,588 billion, as a result of devastation caused by floods during 402.5 billion against Rs 446.1 billion during the same period last
July and August 2011. year. The expansion in NDA mainly attributed by a rise in demand
for private sector credit and government borrowings.
The catastrophic floods reduced growth and posed a further chal-
lenge to public finances by depressing budget revenues and addi- On the other hand the NFA of the banking system during the peri-
tional spending to meet the humanitarian and reconstruction od under review stood at Rs 153.2 billion after registering a signifi-
needs, thereby upward adjustment in the fiscal deficit target from cant decline of Rs 31.3 billion during the same period of last year.
4 percent of GDP at the time of budget announcement to 5.3 per-
cent of GDP have made. During July-April, 2011 Credit to private sector enterprises (PSEs)
registered a sharp decline from Rs72.5 billion in 2009-10 to Rs
The government is focused on prudent expenditure management 26.7 billion owing to the retirements by an oil refinery and a state
and better resource mobilization to create fiscal space for provid- owned oil marketing company.
ing support to growth. Major reforms like harmonization of tax ad-
ministration have taken place and strengthening of Risk Based The government borrowing from the banking system for budget-
Audit is under process. ary support and commodity operations stood at Rs 342.2 billion
during July-April, 2011. Government has borrowed Rs 196.3 bil-
Through a combination of Presidential Ordinance and withdrawal lion from the State Bank of Pakistan (SBP) , while Rs 275.9 billion
of SRO base exemptions, amendments have been made in the has been borrowed from the scheduled banks. In the month of
Sales Tax Act 1990, Income Tax Ordinance 2001 and Federal Ex- May 2011, the government has further reduced its borrowing
cise Act 2005. The additional revenues of Rs 53 billion are esti- stock from the SBP to attain the target of net zero borrowing from
mated during the last quarter of 2010-11. The following tax meas- the SBP.
ures have been taken through these amendments:-
During July-April 2010-11 the retirement of loans under commod-
i) Withdrawal of sales tax exemption on agriculture inputs like ity financing picked up sharply and reached at Rs 134.2 billion on
tractors, pesticides, and fertilizer both at domestic and import account of retirement of advances for wheat by provincial depart-
stages. Now these are subjected to 17 percent GST ments and Pakistan Storage and Supply Corporation (PAASCO)
and other provincial procurement agencies as compared to Rs
ii) A one time surcharge of 15 percent has been imposed on
35.6 billion during the same period last year.
withholding and advance taxes payable during financial year
2011; and The credit availed by the private sector during July-April, 2011
was Rs 156.7 billion is compared to Rs 144.2 billion in the corre-
iii) Special excise duty rate has been increased from 1 percent to
sponding period last year.
2.5 percent on non-essential items for the remaining period of
tax year 2010-11. A strong growth has been witnessed since January 2010 which
was due to an increase in seasonal demand for working capital.
The administrative measures and vigilance will be helpful in gen-
More than half of private sector credit went to the textile sector
erating another Rs 24 billion. These steps will also be helpful in
showing higher input prices, especially cotton. Sector wise
achieving the revised collection target of Rs 1588 billion.
breakup of private sector credit also shows that sugar and textile
industries were the major drivers to this increase, which respec-
Pakistan's Economic Horizons 47 Management A ccountant, May-June 2011
tively availed credit of Rs 105.6 billion and Rs 62 billion during Jul- The food inflation is estimated at 18.4 percent and non-food 10.4
March 2011. percent, against 12.0 percent and 11.0 percent in the correspond-
ing period of last year.
Liquidity conditions in the money market remained fairly comfort-
able during July-March 2010-11 underpinned by the reduced gov- The core inflation which represents non-food and non-energy
ernment borrowings from the SBP and growth in bank deposits. prices also decreased from 11.0 percent to 9.6 percent.
SBP drained this excess liquidity not only through auctions, but
also mopped up a significant amount through open market opera- The Wholesale Price Index (WPI) during July-April, 2010-11 have
tions (OMOs). increased by 23.3 percent, as against 11.3 percent of last year.
The Sensitive Price Indicator (SPI) has recorded an increase of
Capi tal Mar kets 18.2 percent during July-April, 2010-11, as against 12.4 percent
The KSE-100 index recorded a bullish trend during first half of the of last year.
current fiscal year (CFY) as the market was trading around 12,000 The increase in inflation rate during the current year 2010-11 is at-
at the end of December 2010. The KSE- 100 index however, re- tributable to the increase in food price inflation which has been
mained steady during the third quarter of 2010-11 and after touch- mainly due to increase in prices of sugar, milk, poultry, meat, fresh
ing at 12,682 on January 17, 2011 and at the end of March 2011 it vegetables and fruits owing to shortfall in production of these
traded at 11,810 points. items and significant increase in world food stuff prices.
The main reason of better performance in 3rd quarter of 2010-11,
in the stock market and gearing up the momentum in the KSE-100 Trade and Pay ments
is considerable foreign investment in the capital market. Over all ex ports recorded a positive growth of 27.8 percent dur-
Lahore stock exchange index-25 increased to 3,343 points on ing the first ten months (July-April) of the current fiscal year
March 2011 and its market capitalization is Rs. 2921.5 billion. against an increase of 8.0 percent in the same period of last year.
In absolute terms, exports have increased from $15,773.2 million
Islamabad stock exchange index-10 inched up from end-June to $20,154.2 million in the period.
2010 level of 2,445 points to 2605 points on end-March 2011 with
market capitalization of Rs. 2,531.5 billion. Im ports during the first ten months (July-April) of the current fiscal
year (2010-11) increased by 14.7 percent compared with the
Net inflow of foreign investment in Pakistan from July –March same period of last year, reaching to $32.3 billion. The overall im-
2010-11 was US$ 301.5 million which as compared to US$431.9 port bill is higher by $4.1 billion, reflecting the impact of higher
million in the last corresponding period, it is important to mention global crude oil & Commodity Prices.
that noteworthy contribution was made during the first two quarter
of 2010-11. The higher import bill during July-April 2010-11 is contributed by
food group ($1,528 billion), petroleum group ($678.3 million) con-
Corporate profitability has increased in 2011 but profitability con- sumer durables ($247 billion), raw material group ($ 1039 mil-
centrated in few large companies. The sectors of Oil and Gas lion), telecom ($245 million) and other item group ($ 951 million).
companies, Fertilizers and Chemical sector and Banks exhibit
considerable profits. Trade Bal ance The merchandise trade deficit improved by $240
million and declined from $12.3 billion in July-April 2009-10 to $
Seven auctions of Pakistan Investment Bonds (PIBs) were carried 12.1 billion in July-April 2010-11. The substantial increase of 14.7
out in July-March2010-11 and government collected Rs.83.4 bil- percent in imports is more than neutralized by 27.8 percent growth
lion. Three and ten years maturities contributed a large proportion in exports which caused the trade deficit to improve.
by resulting in an amount of Rs.76.2 billion.
Work er’s Remit tances totaled $ 9.1 billion in July-April 2010-11
Three 3-years Ijara Sukuk were issued from July-March2010-11. as against $ 7.3 billion in the comparable period of last year, de-
Rs.136.6 billion was raised against the total target of Rs. 125 bil- picting an increase of 23.8 percent.
Cur rent Ac count Bal ance improved significantly during the last
During the fiscal year July-March 2010-11, net deposits with Na- two years or so. Current account recorded a broad-based surplus
tional Saving Schemes (NSS) increased to Rs 1,822.4 billions. of $ 748 million in July-April 2010-11 as against deficit of $3456
Behbood Savings Certificates, Regular Income Certificates and million in the comparable period of last year. The improvement
came from all components of current account balance like trade
Special Saving Certificates were the precursor products. Profit
balance of goods and services, and current transfers.
Rates for some National Saving Sachems were revised.
Serv ices ac count defi cit shrank by 28.2 percent during July-
The Securities and Exchange Commission of Pakistan (SECP)
April 2010-11 to reach $ 1.4 billion as compared to $1.9 billion dur-
formulated a comprehensive policy for dealing with companies in
ing the same period last year.
default of securities market laws to protect the investor, enhance
transparency and improve member listing. Fi nan cial ac count surplus deteriorated and reached to $ 412 mil-
lion as compared to $ 3533 million in corresponding period last
In flation year.
The inflation rate as measured by the changes in Consumer Price Ex change rate remained more or less stable as rupee depreci-
Index (CPI) stood at 14.1 percent during (July-April) of the current ated by just 2.2 percent in July-April 2010-11, however, Real Ef-
fiscal year 2010-11, as against 11.5 percent in the comparable pe- fective Exchange Rate (REER) appreciated by 0.8 percent in the
riod of last year. period.
Pakistan's Economic Horizons 48 Management A ccountant, May-June 2011
For eign di rect in vest ment (pri vate) stood at $1232 million dur- Education
ing the first ten months (July-April) of the current fiscal year as
against $1725 million in the same period last year thereby show- The over all lit er acy rate (10 years & above) which was 57.4 per-
ing a decline of 29 percent. cent in 2008-09 has increased to 57.7 percent in 2009-10, indicat-
ing 0.5 percent increase over the same period last year.
For eign Ex change Reserves amounted to $ 17.1 billion by the
end of April, 2011. Of which, reserves held by State Bank of Paki- Male literacy rate (10 years & above) remained 69.3 percent in
stan stood at $ 13.7 billion and by banks stood at $ 3.4 billion. 2008-09 and 69.5 percent in 2009-10 while it increased from 44.7
to 45.2 percent for females during the same period. Literacy re-
Ex ter nal and Do mes tic Debt mained higher in urban areas (73.2 percent) than in rural areas
(49.2 percent) during 2009-10.
During the first nine months of the current fiscal year 2010-11,
Pakistan’s total external debt increased from $55.9 billion at end- Province wise literacy data of PLFS (2009-10) shows Punjab
June 2010 to $ 59.5 billion by end-March 2011 — an increase of stood at 59.6 percent, Sindh (58.2 percent), Khyber Pakhtunkhwa
US $ 3.6 billion or 6.4 percent which is lowest growth in EDL in the (50.9 percent) and Balochistan (51.5 percent).
last five years.
According to the Ministry of Education, there are currently
In relative terms, EDL as percentage of GDP decreased from 31.6 228,376 institutions in the country. The overall enrolment is re-
percent at end-June 2010 to 28.2 percent by end-March 2011— a corded at 38.22 million with teaching staff of 1.41 million as com-
decrease of 3.4 percentage points. pared to 1.40 million last year showing an increase of 0.7 percent.
The country’s debt burden defined as external debt and liabilities Health and Nu tri tion
as percentage of foreign exchange earnings decreased from
At present, there are 972 hospitals, 4842 dispensaries, 5344 ba-
146.6 percent by end-June 2010 to 127.2 percent by end-March
sic health units and 909 maternity and child health centres in Paki-
Public Debt increased by Rs 1162 billion in the first nine months of With availability of 144,901 doctors, 10,508 dentists, 73,244
2010-11, reaching a total outstanding amount of Rs. 1,002,0 bil-
nurses and 104,137 hospital beds in the country by 2010-11, the
lion; an increase of 13.1 percent in nominal terms.
population and health facilities ratio works out at 1222 persons per
The primary source of increase in public debt during July-March, doctors, 16,854 persons per dentist and 1701 persons per hospi-
2011 has been a sharp rise in local currency component that ac- tal bed which compares well with the other developing countries.
counted for 69.7 percent of the total increase in total public debt.
During 2010-11, 35 basic health units and 13 rural health centres
The external debt component grew by Rs 275 billion or 6.4 per- have been constructed. While 40 rural health centres and 850 ba-
cent partially due to increased foreign public debt inflows and sic health units have been upgraded.
partly because of cross-currency translation effect.
Some 4500 doctors, 400 dentists, 3200 nurses and 5000 para-
Public debt as percent of GDP has decreased to 55.5 percent by medics have completed their academic courses and 4300 new
end-March 2011 after hovering around to 60 percent of GDP for beds have been added in the hospitals.
Some 96,000 Lady Health Workers (LHWs) have been trained
Domestic Debt stood at Rs 5462.2 billion at end-March 2011 and deployed mostly in the rural areas. Moreover, some 8 million
which implies net addition of Rs.803.9 billion in the nine months of children have been immunized and 24 million packets of ORS dis-
the current fiscal year. tributed.
In relation to GDP the domestic debt stood at 30.2 percent of GDP Various health programmes with a special focus on major public
which is lower than end-June 2010 level at 31.4 percent. health problems have been carried out. These include cancer
treatment, AIDS prevention and Malaria Control Programme.
The domestic debt grew by 17.3 percent which is lower than last
years’ growth of 20.7 percent. The focus on deficit financing The total outlay of health is budgeted at Rs.42.0 billion (Rs.18.7
through internal sources owing to non-availability of external re- billion development and Rs. 23.3 billion current expenditure)
ceipts has been the major cause. which is equivalent to 0.23 percent of GDP which is 79 billion as
The composition of major components shaping the domestic debt compared in 2009-10.
portfolio has undergone a complete transformation from a high
dominance of unfunded debt to an increasing dependence on Popu lation, Labour Force and Em ploy ment
floating component of domestic debt. According to the latest estimates population of Pakistan stood at
177.10 in 2011 and is sixth most populous country of the world. If
Since 2006-07, domestic debt witnessed a sharp rise with conse-
the existing trend remained unchanged, it will reach 191.7 million
quent build-up in the interest payments. Interest payments as per-
by the year 2015 and 242.1 million by 2030 (Estimates and projec-
cent of GDP has peaked to 4.4 percent of GDP in 2008-09 but
tion by Sub-Group II for the 10th five year People’s Plan 2010-15).
since then declined persistently to 2.5 percent of GDP in 2010-11.
This also incorporates impact of higher nominal GDP growth. Growth Rate is 2.05 percent and total Fertility Rate (TFR) is 3.5
Higher fiscal deficit and enormous slippages in the revenue and
expenditure targets remained key problems. Life expectancy in Pakistan is 64.18 for male and 67.9 for female.
Pakistan's Economic Horizons 49 Management A ccountant, May-June 2011
Pakistan has the total labour force of 54.92 million and is the 9th The government is also working on various microfinance initia-
largest country in the world with respect of the size of its labor tives in collaboration with the SBP and multilateral institutions to
force in 2010. generate employment and combat poverty.
About 3.05 million labour force is estimated as unemployed in Trans port and Com mu ni cation
2009-10, with an unemployment rate of 5.6%.
In 2010-11, Pakistan has a road network covering 259,463 kilo-
Agriculture dominates the distribution of employed persons meters including 180,866 KM of high type roads and 78,597 KM of
among all the major sectors leading at 45.0 during 2009-10; low type roads.
wholesale and retail trade has the share of 16.3 percent and
manufacturing with 13.2 percent. Since March 2008, NHA has launched/awarder 36 development
projects covering a length of above 1000 Km inclusive of a
To cope with the evolving demographic challenge the National number of bridges, flyovers and interchanges.
Population Policy 2010 seeks to attain replacement level fertility
i.e. 2.1 births per woman by 2030. During the year 2010-11 (July-March), in railway, there has been
fall in growth rate of passenger traffic by 17.6 percent but freight
Pov erty traffic grows at the rate of 17.7 percent.
The floods of 2010 have caused a significant loss to poverty re- During the calendar year 2010, PIA earned the revenue of around
duction efforts. The areas affected by floods were consistently Rs. 107 billion as compared to last year of Rs. 94.6 billion.
lagging behind in terms of socio-economic and educational indi-
cators as compared to the areas unaffected by floods. The loss to Karachi Port Trust handled a total of 20.2 million tones of cargo
infrastructure and livelihood sources will push them behind fur- during 2010-11 (July-Dec).
ther. Port Qasim Authority handled 13.1 million tones cargo during the
current financial year 2010-11 (July-Dec).
ADB’s recently issued study on “Global Food Price Inflation and
Developing Asia”, maintains that a 10 percent rise in domestic First ever largest ship in Pakistan having 63,000 M ton of wheat
food prices in Pakistan for one year could push an additional 3.47 was berthed at Gwadar Port in March 2008. Since then upto Janu-
million people below the $1.25-a-day poverty line or worsen pov- ary 2011, 120 ships have been handled at Gwardar
erty situation by 2.2 percentage points.
Total Cellular subscribers at the end of December 2010 crossed
Food inflation in Pakistan has averaged 18 percent for the last the 102.8 million mark, with over 97 percent prepaid subscription
four years which implies significant deterioration of purchasing in the mobile market and the post paid subscription in Pakistan is
power of the poor. The precise impact of this build-up in prices only 3 percent.
could not be determined until availability of results of the House-
hold Income Expenditure Survey (HIES) component of PSLM En ergy
Survey 2010-11 the work on which has already started. Crude Oil
An analysis of 3 year moving average of changes in per capita in- Production of crude oil per day has increased to 65,996.50 barrels
come and commensurate impact on reduction in poverty head- during July-March 2010-11 from 65,245.69 barrels per day during
counts suggests that large reductions in poverty headcount are the same period last year, showing an increase of 1.15 percent.
associated with substantial growth in per capita GDP during 2002-
2006. The transport sector consumed 47.82 percent of petroleum prod-
ucts, followed by power sector (42.84 percent), industry (6.66 per-
The Government has prioritized the 17 pro-poor sectors for budg- cent), other government (1.93 percent), household (0.49 percent)
etary intervention through the Medium Term Expenditure Frame- and agriculture (0.26 percent) during July-March 2010-11
work (MTEF) from 2008-09 to 2010-11 in the PRSP-II. An amount
of Rs.482.6 has been spent on these areas during July-December Natu ral Gas
2010 which is 15.8 percent higher than in the comparable period The average production of natural gas per day stood at 4050.84
of last year. million cubic feet during July-March 2010-11, as compared to
4,048.76 million cubic feet over the same period last year showing
The social safety nets are major initiatives to reinforce the govern-
an increase of 0.05 percent.
ment’s efforts to reduce the adverse effects of poverty on the
poor. The social safety nets program include Benazir In come The power sector consumed 23.81 percent of gas followed by in-
Sup port Pro gramme (BISP) envisages cash grants of Rs 1,000 dustrial (20.15 percent), household (16.75 percent), fertilizer
every month to the females of each qualifying household having a (15.04 percent), commercial (2.45 percent) and cement sector
monthly income of less than Rs 6,000 through banks/post offices (0.05 percent) during July-March 2010-11
with the aim to ameliorate the conditions of the poorest of the poor Elec tric ity
by directly accessing them and supplementing their sources of in-
come. The total installed capacity of PEPCO system is 20,681 MW as of
March 2011, compared to 20,190MW in first nine months of the
To enhance self-employment, some registered beneficiaries of last fiscal year.
BISP under the current targeting mechanism are selected through
a monthly draw under Waseela-e- Haq and each of them are pro- Total installed capacity of WAPDA stood at 11,439 MW during
vided with an interest-free loan worth Rs. 0.3 million, repayable in July-March 2010-11 of which hydel accounts 57.30 percent or
installments over a period of 15 years. 6,555 MW, thermal accounts for 42.70 percent or 4,884 MW.
Pakistan's Economic Horizons 50 Management A ccountant, May-June 2011
During the first nine month of current fiscal year 66,928 GWh of than 24 percent while motorcycles and scooters have more than
electricity has been generated by WAPDA as against 64,935 doubled since 2000-01.
GWh in the same period last year showing an increase of 3.07
percent. CNG is promoted as an alternate motor fuel for Pakistan’s market
to reduce pressure on petroleum imports and to curb air pollution.
The number of villages electrified increased to 160,110 by March Presently, 3329 CNG stations are operating in the country and
2011 from 147,038 recorded in March 2010. 2.50 million vehicles are using CNG as fuel. Use of CNG as fuel in
CNG transport sector has observed a quantum leap, replacing tradi-
Presently there are 3329 CNG stations operating throughout the
country. By March 2011 about 2.5 millions have been converted to National Environment Quality Standard (NEQS) for Motor Vehicle
CNG Exhaust & Noise (Amended), 2010 have been approved to control
the vehicular emissions. It has been decided that: (i) all petrol
Coal driven vehicles imported or manufactured locally will comply with
Supply of coal during July-March 2010-11 has been recorded at Euro-II emission standards with effect from July 2009. Existing
5.85 million tonnes compared to 5.304 million tonnes in the first models if not complying with Euro-II emission standards will have
nine months of last fiscal year. to switch over to Euro-II models by no later than three years, If not
immediately: (ii) all diesel driven vehicles imported or manufac-
Brick kilns and cement industry consumed 56.6 percent and 42.7 tured locally will comply with Euro-II emission standards with ef-
percent respectively of the supplied coal. fect from July, 2012. The Ministry of Petroleum and Natural Re-
The government is developing Thar Coalfield in order to increase sources will ensure availability of Euro-II diesel (with sulphur con-
the share of coal in energy mix and to reduce dependency on ex- tents 0.05 percent) with effect from January, 2012.
pensive imported fuel. Supply of drinking water and provision of sanitation are the most
important contributing factors for improving the health of the peo-
En vi ron ment ple in any country. Inadequate water supply results in high inci-
Pakistan recognizes the importance of environmental concerns dence of water related diseases which in turn increase morbidity
as a cross cutting theme in its sustainable development strategy. and mortality rates and pose major threat to the survival and de-
Hence its protection, renewal and enrichment is recognized as an velopment of children. The National Standards for Drinking Water
obligation towards the betterment of its citizens. The environ- Quality (NSDWQ) have been approved on 29th March, 2010 in or-
mental concerns of Pakistan are associated primarily with the ad- der to improve the water quality and to provide the public with the
verse impact of un-sustainable social and economic develop- safe drinking water.
ment. High population growth rate, lack of public awareness of en-
Pakistan is committed to achieve the MDG target of halving by
vironmental related education, mismanagement of natural re-
sources, widely unplanned urban and industrial expansions are 2015 the proportion of people without sustainable access to safe
the core hard issues. and improved sanitation. Strategic direction, capacity develop-
ment, and monitoring and evaluation, as well as investments, are
These are further compounded with the rapid urbanization. primarily the responsibility of the provincial governments through
the provincial line departments.
A nation with a population of 177 million with an average popula-
tion density of 222 persons per sq km, higher than many other de- Climate change is one of the most complex challenges of the new
veloping countries, whose 37% people live in urban areas and century; Pakistan like other developing countries remained ex-
63% in rural has a high rate of migration to urban centers which tremely vulnerable to the impacts of climate change. The most se-
has made the cities dysfunctional, overcrowded and very con- rious concerns are the threat to water and food security of the
gested. Rapid urbanization is putting the available insufficient in- country and the vulnerability of its costal areas. Other climate
frastructure under enormous pressure and causing environmental change related concerns include increased risks and extreme
debacles of great magnitude. Serious risks of irreversible dam- events (floods, droughts and cyclones) and adverse impact of for-
ages are present due to air and water pollution, mismanagement ests, biodiversity human health etc.
of solid waste and destruction of fragile ecosystems.
Implementation of the climate change programme under Tenth
With an estimated 37 percent of its population living in cities, Paki- Five Years Plan will be carried out through coordinated efforts of
stan is the highly urbanized country in South Asia. Its cities con-
the relevant ministries to secure ample resources and their effec-
tinue to grow, offering employment opportunities, but rapid urbani-
tive utilization The following areas will be targeted through mitiga-
zation has been accompanied by environmental problems such
tion and adaptation measures as well as studies to enhance our
as pollution, waste management, congestion and the destruction
of fragile ecosystems. Urban air pollution remains one of the most understanding for Pakistan specific needs.
significant environmental problems, facing the cities. Data information on Climatology
Motorcycles and rickshaws, due to their two stroke (2 strokes) en- Reducing climate change induced risks and vulnerabilities from
gines, are the most inefficient in burning fuel and contribute most Glacier Lake Outburst Floods (GLOF) in Gilgit Baltistan Area of
to emissions. 2-stroke vehicles are responsible for emission of Pakistan.
very fine inhalable particles that settled in lungs and cause respi-
ratory diseases. The 2-stroke vehicles industry is performing fast Enhancement of capacities to harness opportunities under Clean
in Pakistan and has increased by 142.6 percent in 2010-11 when Development Mechanism and Adaptation Fund.
compared with the year 2000-01. Rickshaws have grown by more
Source: Economic Adviser’s Wing, Finance Division, Government of Pakistan.
Pakistan's Economic Horizons 51 Management A ccountant, May-June 2011
Pakistan's Economic Horizons
Pak Economy Shows Signs of Recovery
D espite the devastation caused by floods of previous year and
the constrained availability of energy, the economy has been
showing distinct signs of recovery, according to Business Barome-
in production and sales volume, capacity utilization, employment
level, inventory level and prices of inputs.
ter released by the Pakistan Institute of Development Economics The barometer finds that almost half of the firms posted a modest
(PIDE). increase in their business volume during July-December 2010 and
the firms also remain moderately optimistic about the growth in
“The economy appears to have braved the devastating blow dealt business volume during January-June.
by the unprecedented floods of August last and a sense of moder-
ate optimism seems to have re-emerged despite the constrained Capacity utilization also shows changes that correspond to the
availability of energy,” the Business Barometer said. growth in production and sales volume while prices of the final
products of a large majority of the firms registered an increase of
However, the barometer warns that the consistent increase in the more than 10 percent primarily due to increase in the cost of pro-
cost of production has the potential to tame this optimism. duction and the firms expect that the trend of increase in prices will
continue during January-June.
This issue of the barometer covers the expectations of the firms for
January-June after a survey conducted by a research team of Though the firms have indicated the availability of energy as a con-
PIDE in March 2011. straint to doing business still this does not seem to have signifi-
cantly impacted the production volume at an aggregate level.
PIDE's Business Barometer, a biannual feature, captures the ex-
pectations of business enterprises regarding their business activ- One reason could be that the energy constraint having become
ity, prices faced and constraints encountered. persistent, the firms have made some alternate arrangements like
the use of generators and adjustment in working hours, it ob-
The view of distant economic recovery and its vulnerability serves.
emerged from responses of the firms regarding expected change
New Pakistani Program Promises Socio-Economic Uplift for Poor
T he Pakistani government has initiated grassroots projects for
economic uplift of the poor and looks forward to international
investment to multiply effects of the programs, a senior visiting offi-
In her presentation, Dr Iqbal, who is currently in the US as an Eis-
enhower Fellow, said the pilot projects have led to hopeful signs
cial said. with women in poverty-hit areas joining in big numbers, which, oth-
erwise, would not be the case in conservative segments of the so-
Dr Erfa Iqbal, who coordinates the Prime Minister's development ciety. The iniitial success in drawing women to skilled work have
program for Southern Punjab, made a strong case for socio- been possible due to women managers' heading workplaces and
economic empowerment of people being a key not only to prog- their reaching out to women as well as working towards realizing
ress of the people but also to international security in the intercon- babycare and healthcare facilities.
The government plans to extend the projects to remote and mili-
The development package, Dr Iqbal manages as Additional Princi- tancy -hit areas to bolster local development through maximum
pal Staff Officer to the Prime Minister, focuses on empowerment of participation of women.
women through establishment of industrial units and promotion of
medium enterprises in rural areas through public-private partner- Members of World Affairs Council, Washington and American So-
ships. ciety of Industrial Security attended the event co-sponsored by
Gateway Consortium Foundation and City of Sullivan, Missouri.
“Women account for 50 per cent of workforce and their participa-
tion at local level traditional projects including weaving, crafts, em- During her stay, Erfa Iqbal will also make presentations to
broidery and a host of other products helps lift families out of pov- Pakistani-American organizations to apprise them of the effective-
erty —— and offer young people and communities incentives to ness of the projects and encourage their participation through in-
use their energies for development and at the same time resist and vestment.
reject any extremist ideoligies,” she said.
The alternate arrangements, of course, add to the cost of produc-
Dr Iqbal also read out a message of Prime Minister Yusuf Raza Gi- tion and the firms also feel that weak demand and the high cost of
lani, who held out a firm commitment to facilitate foreign invest- capital are the other major constraints to doing business, the ba-
ment and drew attention of the American businesses to the tre- rometer added.
mendsous entrepreneurial opportunities existing in various sectors
of the Pakistani economy. Prime Minister Gilani keenly follows The conclusions drawn in the barometer are based on a randomly
progress in the grassroots development programs and the govern- selected sample of firms, mainly manufacturing, listed at Karachi
ment would diversify these programs but it needs support of inter- Stock Exchange. The full text of the barometer is available
national friends and businesses, she said. www.pide.org.pk.
Pakistan's Economic Horizons 52 Management Accountant, May-June 2011
Global Economic Briefs
Global Islamic Insurance Seen Growing 31 Percent in 2011
C ontributions of the global Islamic insurance, or takaful, are
expected to reach $12 billion in 2011, up from $9.15 billion
last year, with Saudi Arabia, Malaysia and the United Arab Emir-
said Ashar Nazim, executive director and Islamic financial services
leader at Ernst & Young, in a statement.
ates accounting for most, according to a report by accountants “Key takaful markets are characterised by low insurance penetra-
Ernst & Young. tion rates and comparatively high rates of economic growth.”
The Indian subcontinent has seen contributions — Takaful's Egypt is also seen growing at a rapid pace as the country could
equivalent of premiums — rise 85 percent, Indonesia had a growth stand to benefit from regional unrest. UAE-based Salama Islamic
rate of 67 percent and Bangladesh 58 percent, the report said. Arab Insurance's chief executive said turmoil in markets such as
Egypt have resulted in more claims but also raised awareness of
The takaful industry in the Gulf remains fragmented with smaller Islamic insurance, creating more opportunity for the market. Still,
players and low penetration rates with Saudi Arabia emerging as the industry faces challenges from intensified competition, short-
the sole growth market due to the rollout of compulsory medical in- age of expertise and lower return-on-equity in relation to conven-
surance. “The (Gulf Arab region) is a more competitive market with tional insurance companies, the report said.
a larger number of players and will drive growth for the industry,”
Turkey's Current Account Deficit Surges $6.127 Billion
T urkey's current account deficit surged 127 percent year-on-
year to $6.127 billion in February, less than forecast but illus-
trating the difficulties the country's authorities face in reining it in.
a sharp increase in unexplained capital inflows, said JP Morgan
economist Yarkin Cebeci.
“The widening of the current account deficit once again underlined
In a Reuters poll of 13 analysts the median forecast was for a $6.2 the need for tighter monetary and fiscal policies,” he said.
billion deficit in February.
The central bank launched an unorthodox policy last December
In the first two months of the year the deficit, the main vulnerability comprised of lower interest rates to deter flows of hot money, and
in Turkey's otherwise strong economic outlook, widened to higher required reserve ratios (RRRs) to dampen credit growth,
$12.073 billion from $5.758 billion a year earlier, central bank data which grew 34 percent last year. Although the policy has not trig-
showed. gered inflation shock as some analysts had feared, nor has it yet
managed to slow down the rate of credit growth to the 20-25 per-
“The foreign trade deficit, which jumped 151.4 percent to reach
cent pace sought by the central bank.
$5.937 billion in February, was the biggest factor in the current ac-
count deficit rise,” a statement from the bank said. The latest data Last year, the current account deficit widened 247 percent to a rec-
on the gap, widened partly by Turkey's dependence on increas- ord high of $48.557 billion, some 6.7 percent of gross domestic
ingly expensive energy imports, had a muted effect on financial product (GDP). In 2011 as a whole, the current account was ex-
markets. Higher oil prices and strong domestic demand continued pected to show a deficit of $59.2 billion and many predict the deficit
to widen the deficit, but total financing needs remain modest due to could hit 7.5-8 percent of GDP this year.
Crisis Strengthen Euro: EU chief
T he eurozone crisis will not spread to Spain, the EU’s top offi-
cial said on Tuesday as he argued that the European single
currency bloc will learn from its mistakes and emerge stronger.
the most radical revision of economic governance since the launch
of the euro,” he said in statements translated into Greek.
“The forces that bring us together are much stronger than those
“The threat of contagion has greatly diminished or has disap- keeping us apart. I have no doubt that the eurozone will emerge
peared entirely,” European Council President Herman Van Rom- stronger and more united from the crisis,” he said. But the EU chief
puy told Kathimerini daily in an interview published as he began a insisted that the bloc had to draw “the right lessons” from the crisis.
one-day visit to Athens.
He argued that member states had so far been loose with fiscal
“It is very clear from the fall in Spanish spreads,” he added. In con- policy and had failed to keep a close eye on their banks. In addi-
trast to Greece, Ireland and Portugal who have requested EU bail- tion, the EU's economic monitoring framework was until now too
outs over the past year, Spain is a major eurozone economy focused on deficits and not enough on debt sustainability and mac-
whose collapse would seriously threaten the single currency, ana- roeconomic threats.
lysts have warned. Rompuy, who is visiting Athens to give a
speech at a foreign policy think-tank and talk to the Greek prime “The framework proved insufficient, it was undermined because it
minister and president, insisted that Europe had the resources and was not applied when large countries trampled on the rules,” he
the determination to overcome the crisis. said.
“In ten years from now we will see the years 2010-2011 as a
“I can tell you that the EU will not 'waste' the crisis. We have begun turning point to something better,” Van Rompuy saidn
Global Economic Briefs 54 Management Accountant, Mar-Apr, 2011