INTRODUCTION of Sheraz'Si Thesis

8/12/2019 INTRODUCTION of Sheraz'Si Thesis

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Chapter#1

INTRODUCTION

There has been serious effort from the last four decades to establish a single set of

international standards named IFRS and for that matter the role of the IASB and

International Accounting Standards could not be mitigated. As there is continuous rise

and fall in the capital market so as far as the access to financial information !hich could

reflect the economic position of the financial market !as a necessar" prereuisite. As far

as the companies of the !hole !orld are concerned !e do see strict compliance in the

corporate sector in gi$ing respect and being consistent in their performance.

There has been enormous effort on the part of the !orld to tackle this issue and the scale

of the effort is e%traordinar" high !ith fe! complications to resol$e the issue. The

abundant use of these scale ha$e some serious negati$e repercussions and !hich resulted

into the amendments in the International Accounting Standards as !ell as in the Financial

Instruments Recognition and its measurement.

In this regard !e do see remarkable de$elopment in &urope and !e do see that in 'une

()))The &uropean Commission published the document *&+ Financial Reporting

Strateg", the -a" For!ard and it !as desired that all the public listed companies

should prepare their consolidated accounts keeping in $ie! the standards set b" IAS b"

())/.As !e kno! that almost 0))) companies are registered and the" are emplo"ing

IFRS and the" are being assisted in this regard b" the consolidated financial statements.

Furthermore man" member states of the &uropean +nion are pri$ileged to use IFRS for

corporate income ta% statements. o! it is e%pected from most &uropean +nion

countries to make reports that fulfill the reuirements of 2AA3 for the purpose of

ta%ation but it is not necessaril" compulsor" for it to be in compliance !ith the IFRS.


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The success of &urope in implementing IFRS is no more hidden but presentl" !e do

see that concerted efforts are reuired to merge +S !ith international accounting

standards. There are 11))) companies !hose securities are no! registered !ith the +S.

Similarl" there is securit" and e%change commission !hich has membership of 11)) non

+S companies. If !e look at the past histor" of it !e come to kno! that since ())/ non

+S companies ha$e been allo!ed to submit their financial statements to the +.S Securit"

&%change Commission keeping in $ie! the constraints set b" 2AA3 or IFRS. There has

been remarkable change in this regard as in o$ember ())4 the +.S S&C $oted to drop

the reconciliation reuirement for financial statements for the present "ear. This has been

a $ital step in the long process as +.S 2AA3 and IFRS con$erge.

It is said b" Sir 5a$id T!eedie Chairman International Accounting Standards Board

that both standards can be merged till the "ear ()1(. Christopher Co% the Chairperson of

S&C said that *The SECs decision could put a shine on the image of the United States in

the global capital markets system, improve capital-raising opportunities for companies,

and provide better comparability of financial statements for investors.

A consideration change in accounting procedures and policies !as undertaken in Canada

!here Canadian Accounting Standards Board fa$or using IFRS instead of 2AA3 !hich

is +S based. All the companies and business organi6ations !here bound to adopt this

s"stem b" the end of "ear ()11. From the start of "ear ()11 all the public limited

companies need to prepare their interim and final statements in accordance !ith IFRSs. It

is !as allo!ed to pri$ate limited companies and non7profit making concerns that the"

ma" continue !ith the 2AA3 and are not bound to use IFRSs but the" are permitted to

do so. In the same !a" man" countries like Costa Rica 3eru Austrilia 8u!ait Armenia

and South Africa allo!ed the use of IFRS both for public and pri$ate limited companies.

9oreo$er the organi6ations that are operating internationall" and !orking !ith other

organi6ations are also suggested to use IFRS b" International :rgani6ation of Securities

Commissions to a$oid an" kind of differences and discrepancies. There ma" be a merger

of 2AA3 of 'apan and IFRS under the super$ision of IASB.

In order to deal !ith the ueries and problems !ith reference to stakeholders accounting

professionals should design accounting s"stems of their organi6ations in !a" that it can


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allo! changes that occur internationall". It depends on the compan" policies regarding

$ariance anal"sis; reconciliation of mao!e$er in the "ear ())1

both the organi6ations !ere merged as IASB take charge of IASC. Till that time IASB is

a sole authorit" to design International Accounting Standards and International Financial

Reporting Standards and e$aluate implementations on these standards.

The members of this board belong from different parts of the !orld and it is so that the"

can describe the reuirements of accounting standards in accordance !ith their areas and

business situations o$er there. 9oreo$er there are some other organi6ations also that

pro$ide assistance to IASB like International Financial Reporting Interpretations

Committee ?IFRIC@ !hich is responsible to o$ercome the issues in connection !ith

interpretations of accounting standards. International Financial Reporting Standards are

applicable uni$ersall" that safeguard the interest of all the stakeholders of an"

organi6ation.


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The standards de$eloped b" the IASB follo! an e%act process !hich is consist of $arious

Stakeholders accountants users of financial statements and regulators. The process

ensures through public debate e%posure and the $ie!s of the $arious stakeholders are

according to the reuirements mandated b" the IASB in the form of the final standards.

9an" countries follo! the ob


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man" other foreign organi6ations !hich !ill effect positi$el" on their business acti$ities.

9oreo$er companies !ill be in a position to set their targets for ne%t "ears being an

international entit" and there !ill be greater chances of gro!th and de$elopment.

So b" adopting International Financial Reporting Standard companies all o$er the !orld

!ill be in a better position to understand the financial statements of each other and there

!ill be positi$e impacts on the in$estments and capital inflo!s in the countries that are

accepting IFRS as standard for accounting purpose. All this is bringing international

uniformit" in respect of accounting standards.

Purpose of the Stud

3urpose of this stud" is primaril" to consider !hether this issue meets the reuired

criteria of IFRIC agenda. In ans!ering this uestion the stud" also sho!s !hether the

IFRIC !ill be able to get consensus on the issue in a limited timeframe. To aid the

discussion the paper proposes !a"s through !hich the IFRIC define the scope of its

!ork in order to ma%imi6e the likelihood for getting consensus.

!eneral purpose

9erel" IFRSs are !orkable !ith business entities !ith reference to normal financial

reporting. All the stakeholders of an" organi6ation !hether these are internal like

emplo"ees directors o!ners or e%ternal like customers banks income ta% officials and

pressure groups !ant to see the general purpose financial statements for the interests the"

ha$e in the business of the compan". So in this research researcher !ill focus generall"

on all those standards !hich are helpful in this general purpose financial reporting.

IFRS is essential for listed companies for enhancing the performance of o$erall cement

sector this stud" pla"s an essential role.

Specific purpose


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This stud" e%amines that selected cement industries are follo!ing the rules and

regulations made b" IASB or not.

Scope of the Stud

This research stud" !ill help Cement Industr" of 3akistan !ith reference to accounting

policies that these organi6ations ha$e alread" adopted and those la" do!n b" IFRS and

!ill highlight the benefits of using IFRS as a uniform procedure for accounting and

reporting. It !ill become a good addition in the literature of the studies connected !ith

the present issue. All the facts and figures !hich !ill be presented in the financial

statements of these companies under IFRSs !ill become reliable both nationall" and

internationall". 9oreo$er these financial statements !ill enable the users to understand

the true and fair financial positions of the companies.

"ustification

9" topic is logical because e$er" listed compan" follo!s the standards. The

financial statement of the compan" is based upon these standards. The in$estor of

the compan" check the position of the compan" annual financial reports of

compan" assets of the compan" compan" liabilities debtor or creditor of the

compan" and financial position of the compan" then in$est their capital in the

compan".

The stud" also checks that selected cement industries are follo!ing the rules and

regulations made b" IASB or not.

#ssumption


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There are si%teen cement companies listed in stock e%change I ha$e selected ten listed

companies and I !ill stud" financial reports of three "ears of these companies in stock

e%change. &$er" ten listed companies follo! same standards for three "ears some

companies applies different standards but I skip these standard I onl" select those

standards that compan"s used on regular basis. Follo!ings are these standards,

IAS 1 3resentation of financial statements

IAS ( In$entories

IAS 4 Statement of cash flo!s

IAS 1( Income Ta%es

IAS 1= 3ropert" plant and euipment

IAS 1 Re$enue

IAS (1 The effects of changes foreign rates

IAS (DRelated part" disclosures

IAS &arning per sher

IAS 4

3ro$isions contingent liabilities and contingent

assets


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IAS = Impairments

IAS Intangile assets


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Chapter No$ %

Chapter # (

&iterature Re'ie(

The members of the IASB ?International Accounting Standards Boards@ belong from all

o$er the !orld as Trustee for the organi6ation !hich is independent in its operations


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designs of the compan" !ere the result of the efforts of e%perts from inside the countr"

and there !ere some foreigners as !ell !ho assist the !hole process. Eater on

organi6ation made an agreement !ith 3ol"sius !hich !as a 2erman nati$e compan" that

helps in manufacturing and installing cement plant.

Another compan" that is engaged in the same business Attock Cement 3akistan

Eimited is a listed compan" at 8S& ?8arachi Stock &%change@. Cement !ith the

name Falcon is produced b" AC3E moreo$er organi6ation also manufactures

:rdianr" 3ortland Cement 3ortland Blast Furnace Slag Cement and Sulphate

Resistant Cements.

There are t!o ones in !hich the cement companies of 3akistan are operating one

is in the South of 3akistan and other is in the orth. Balochistan and Tehsil >ub

are the areas in South one !here Attock is a part of this area and AC3E is

operating in that part of 3akistan. Compan" has a ma%imum capacit" to produce 1.4

million tons of cement and clinker. A group !ith the name of 3haraon 2roup that is

engaged in generation of po!er in 3akistan also has close association !ith the

AC3E.

ishat 2roup of companies i s dea l ing d i f feren t k ind of bus iness

ac t i$ i t i es and one of these bus iness ac t i$ i t i es i s the format ion of 5.2

8han Cement Compan" Eimi ted ?528CC@ . 528CC can produce / /))

t on s o f c li nk er o n d ai l" b as is a n d c a n b e c on si de re d a s a m a< or

s up pl ie r i n t hi s c on n ec ti on . T he c o mp an " i s p ro du ci ng ua li t"

p roduct s !hich are famous not onl" !i th in the countr" bu t i t i s a

r epu ted b r and i n t he i n t e r nat i ona l mar ke t a s !e l l. 9or eo$er i t i s t he

c eme nt ma nu fa ct ur in g c om pa n" t ha t i s l is te d i n a ll t he s to ck

e%changes o f 3ak i s t an . I n 104 S t a t e Cement Cor por a t i on 3ak i s t an

?SCC3@ s t ar t ed i t s opera t ions !hich !as l a t er on turned to 528CC. In

1 0 = c o m p a n " s t a r t e d i t s o p e r a t i o n s i n t h e m o n t h o f A p r i l ! i t h a

p roduct ion capaci t" of ())) tons of cl inker on da i l" bas is . +B&


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i n du s tr " ' a pa n ! a s t h e s u pp l ie r o f a l l t h e m a ch i ne r ie s a n d p l an s

opera t ional in compan".

In 100( !hen man" other 2o$ernment organi6ations !ere pri$ati6ed 528CC !as also

purchased on ishat 2roup of Compan". The ma


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-ider Stakeholders in India and presented it to The Institute of Chartered Accountants

of India ?ICAI@. -ith reference to this stud" both the researchers adopt inter$ie!ing

techniue to collect data for their research and there !ere 41 participants and the main

ob


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Chapter #

Strateg

:ur stud" is based on secondar" data; content anal"sis is used as research tool. -e

collect data from these sources !hich are as follo!,

Internet

Books

9aga6ines

Articles


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Research )ethodolog

There are si%teen cement companies listed in stock e%change. I ha$e selected ten listed

companies and !ill stud" financial reports of three "ears of these companies. &$er" ten

listed compan" follo! same standards for three "ears some companies are using

different standards but I ha$e skipped those standards. I onl" select those standards !hich

are used b" companies on regular basis. I ha$e selected these t!el$e IAS that companies

are used.

Common I#S disclosure chart

sr no 5isclosure


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I#S

1. >ere there !ould be re$elation of $ital accounting practices !hich are conduci$e

for chalking out strateg" for making financial statements and !hich are helpful in

comprehending those financial statements also.

(. -hat so e$er entit" is in application it is essential for that entit" to emplo"

measurement basis !hich are mostl" emplo"ed !hile making financial

statements. -e ha$e to keep follo!ing things in consideration such as current

cost historical cost fair $alue as !ell as reco$erable amount as these are the

reuirements for making financial statements. Similarl" !hen an entit" has its


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all such facts. 9oreo$er there is a need to highlight those accounting policies

!hich are not used under the International Financial Report Standards but are in

accordance !ith IAS .

=. There is a need to highlight procedures adopted for some calculations ?see

paragraph 1(/@ !hich are base of certain figures !hich are reflected in the

financial statements of the entit".

4. There are some e$aluations that are undertaken b" the management of an" entit"

!ith reference to the accounting policies and their application and can influence

the $alues presented in the financial statements of the entit".

. There is a need of some different IFRSs in con


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I#S %

a@ All the calculations and policies that are adopted for the e$aluation of stock

b@ The amount of total stock !ith its di$ision in accordance !ith the nature of

business that entit" is doing.

c@ It is need to be mentioned that !hether entit" sho!n its in$entories on cost

$alues or market $alues in accordance !ith the conser$atism con$ention;

d@ The $alue of stock the benefit of !hich is utili6ed during the accounting

period and need to be considered as re$enue e%penditure.

e@ An" !ritten do!n amount !ith reference to the facts described in paragraph

D;

f@ According to the same paragraph D there can be some ad


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A report sho!ing flo! of cash !ith respect to operational financial

and in$estment acti$ities of the concern under separate heads ?see

IFRS perating Segments@.

There is a need to highlight the difference bet!een cash flo!s that

organi6ation is using for the increments in operational abilities and

those !hich it is using in respect of maintenance of these operational

abilities as the users of accounting information !ould like to check

the compan"s policies in this connection and their application.

0#S 0%

There is a need to sho( calculations of ta1 e1penses 2re'enue3 (ith clear difference4

Follo!ings are the ma


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I#S 5

As all these could not ha$e retrospecti$e accounting.

Followings are some items that require separate disclusure:

the aggregate current and deferred ta% relating to items that are

charged or credited directl" to euit" ?see paragraph =(A@; ae@ the

amount of income ta% relating to each component of other

comprehensi$e income ?see paragraph =( and IAS 1 ?as re$ised in

())4@@;

[deleted];

5escribe the link bet!een profit or loss stated b" the entit" and ta%

e%pense ?re$enue@ in this connection being e$aluated,

I#S 06

#ll the properties (hich are under o(nership of the entit like plant7

machiner and e/uipment need to *e disclosed$

a. The basis of e$alulations in respect of gross amount that is carried

far!ord;

b. 9ethod of depreciation that has been charged;

c. &%pected life of asset for !hich it !ill remain useable for the business and

rate of depreciation that !ill be charged;

d. the gross carr"ing amount and the accumulated depreciation ?aggregated

!ith accumulated impairment losses@ at the beginning and end of the

period; and

e. a reconciliation of the carr"ing amount at the beginning and end of the

period sho!ing,

i. addition


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ii. to meet the reuirements of IFRS / there is need to highlight separatel" all

those assets !hich are to be sold or disposed off;

iii. assets that are being acuired due to merger or combination of business;

i$. an" kind of changes in the $alue of these assets that are caused b"

re$aluation in accordance !ith paragraphs 1 0 and D) and an" kind of

re$ersing entries and ad


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In paragraphs 8, and 8898. references to :functional currenc; appl7

in the case of a group7 to the functional currenc of the parent4

An entit" shall disclose,

a@ the amount of e%change differences recogni6ed in profit or loss e%cept for those

arising on financial instruments measured at fair $alue through profit or loss in

accordance !ith IFRS 0; and

b@ et e%change differences recogni6ed in other comprehensi$e income and

accumulated in a separate component of euit" and a reconciliation of the

amount of such e%change differences at the beginning and end of the period.

-hen the presentation currenc" is different from the functional currenc" that fact

shall be stated together !ith disclosure of the functional currenc" and the reason for

using a different presentation currenc".

-hen there is a change in the functional currenc" of either the reporting entit" or a

significant foreign operation that fact and the reason for the change in functional

currenc" shall be disclosed.

-hen an entit" presents its financial statements in a currenc" that is different fromits functional currenc" it shall describe the financial statements as compl"ing !ith IFRSs

onl" if the" compl" !ith all the reuirements of IFRSs including the translation method

set out in paragraphs 0 and D(.

-hen an entit" displa"s its financial statements or other financial information in

currenc" that is different from either its functional currenc" or its presentation

currenc" and the reuirements of paragraph // are not met it shall,

disclose the currenc" in !hich the supplementar" information is

displa"ed;

5isclose the entit"s functional currenc" and the method of

translation used to determine the supplementar" information.


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INTRODUCTION of Sheraz'Si Thesis

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