Management Accountant 0506 - 11

From the Holy Qur-'n
Translation :
In the Name of ALLAH, the Most Magnificent, the Most Merciful.
O ye who believe! Eat not up your property
Among yourselves in vanities;
But let there be amongst you
Traffic and Trade By mutual good-will:
Nor kill (or destroy) Yourselves; for verily
Allah hath been to you most merciful.
Commentary:
Let me paraphrase this verse, for there is profound meaning in it.
(1)
All your property you hold is trust, whether it is in your name, or belongs to the community, or to
people over whom you have control. To waste is wrong.
(2)
In II-188 the same phrase occurred, to caution us against greed. Here it occurs to encourage us to
increase property by economic use (traffic and trade), recalling Christs parable of the Talents (Matt
xxv. 14-30), where the servants who had increased their masters wealth were promoted and the
servant who had hoarded was cast into darkness.
(3)
We are warned that our waste may mean our own destruction (nor kill nor destroy yourselves) But
there is a more general meaning also: we must be careful of our own and other peoples lives. We
must commit no violence. This is the opposite of trade and traffic by mutual good-will.
(4)
Our violence to our own brethren is particularly preposterous, seeing that God has loved and
showered His mercies on us and all his creatures
Surah IV: Al-Nisa (Woman), Verse 29
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Translation and Commentary by:

Abdullah Yousuf Ali
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National Council 2009-11

President
Members
Mr. Hasan A. Bilgrami, FCMA
Mr. Muhammad Rafi, FCMA
Members - Govt. Nominees

Mr. Mohammad Ayub Khan Tarin
Chairman, CPD and Seminars/Conferences

Committee & ICMAP Nominee on
ICAP-ICMAP Joint Committee
General Manager Finance
Oil & Gas Development Company Ltd.
Chairman, Executive, Education, Disciplinary

and Human Resources Committees
President & Chief Executive Officer
BankIslami Pakistan Limited
Vice President
Mr. Mohammed Hanif, FCMA
Chairman, Examination Committee
Director, Strategic Development
Getz Pharma (Pvt.) Limited
Honorary Secretary
Mr. Zia ul Mustafa Awan, FCMA
Chairman, Journal & Publications Committee
CFO & Business Administrator
Expo Lahore (Pvt.) Ltd.
ICMAP Nominee on
Former Additional Auditor General of Pakistan
Mr. S. Tariq Asaf Husain
Mr. Sajjad Ahmad, FCMA

ICMAP Nominee on PIPFA Board of Governors
Chairman, CMA Foundation
Chairman, CMA Act & Regulations

Review Committee
General Manager (Cost Accounts)

Pakistan Telecommunication Co. Ltd.
Former Commissioner (Legal Division), Securities

and Exchange Commission of Pakistan
Mirza Munawar Hussain, FCMA
Mr. Mansur-ur-Rehman Khan
Chairman, Career Development, Members &

Students Affairs Committees & ICMAP
Nominee on PIPFA Board of Governors
Chairman, Audit Committee
Banking Mohtasib Pakistan
President, PIPFA and Director, CFE College of

Accountancy and Finance
Honorary Treasurer
Mr. Masud Muzaffar, FCMA
Mr. Shahzad Ahmad Awan, FCMA
Mr. Ghulam Mustafa Qazi, FCMA

Chairman, Practicing Profession Development Committee
Partner, Tariq Mustafa Ramzan & Co. (TMRC)
Cost & Management Accountants
Director, TMR Consulting (Pvt.) Limited
Chairman, Research, Quality Assurance &

Ethics Committee & ICMAP Nominee on
ICMAP Nominee on PIPFA Board

of Governors
Chief Officer, Billing & Recovery,
Sui Northern Gas Pipelines Limited (SNGPL)
Former Controller General of Accounts (CGA)
Branch Councils 2011*

Karachi Branch Council
Name
Mr. Tariq Hussain
Mr. Ahsan Elahi Vohra
Mr. Anis-ur-Rehman
Mr. Muhammad Yousuf
Mr. Muhammed Amir Zaheer
Mr. Imran
Mr. Ahsan Ali Syed
Syed Adnan Hussain Shah
Membership #
F-770
F-717
F-1088
F-1136
A-3219
A-3329
A-3815
A-4194
Designation
Council's Members on the Branch
Chairman
Vice Chairman
Secretary
Treasurer
Member
Member
Member
Member
Mr.Hasan A. Bilgrami
Mr. Mohammad Hanif
Mr. Mansur-ur-Rehman Khan
F-757
F-330
Lahore Branch Council

Name
Mr. Aamer Ijaz
Mr. Abid Lateef Lodhi
Mr. Muhammad Yasin
Mr. Shahbaz Sarwar
Mr. Imtiaz Mahmood
Mr. Muhammad Zahid Maqbool
Mr. Kamran Mahmood Butt
Ms. Samia Ashraf Bhatti
Membership #
A-3312
F-891
A-3850
F-1105
F-1122
A-2613
A-3808
A-4101
Designation
Chairman
Vice Chairman
Secretary
Member
Member
Member
Member
Member
Mr. Zia ul Mustafa Awan

Mirza Munawar Hussain
Mr. Shahzad Ahmad Awan
F-980
F-811
F-976
Islamabad Branch Council

Name
Mr. Abdul Khalil
Mr. Riasat Khan
Mr. Waqar Ali Khan
Mr. Shehzad Ahmad Malik
Mr. Shahbaz Alam
Mr. Mohammad Ahmad
Mr. Adeel Faisal
Mr. Sohail Iqbal
Membership #
F-946
F-1247
A-1598
F-902
A-2716
A-3132
A-3886
A-4190
Designation
Chairman
Vice Chairman
Secretary
Member
Member
Member
Member
Member
Mr. Ghulam Mustafa

Mr. M. Ayub Khan Tarin
Mr. S. Tariq Asaf Hussain
Mr. Masud Muzaffar
Mr. Muhammad Rafi
Mr. Sajjad Ahmad
F-931
F-633
F-450
F-688
Multan Branch Council

Name
Mr. Hafeez Ahmad
Mr. Muhammad Waqas Khalid
Mirza Athar Baig Chughti
Mr. Ansar Mahmood
Membership #
F-889
A-2489
A-2999
F-985
Designation
Chairman
Vice Chairman
Secretary
Member
Name
Mr. Mukhtiar Hussain Kashif
Mr. Muhammad Abbas Sattar
Mr. Muhammad Rafiq
Ms. Mariam Chandni
Membership #
A-3240
A-3926
A-4150
A-4219
Designation
Member
Member
Member
Member
Membership #
F-774
A-3002
F-1055
F-881
Designation
Chairman
Vice Chairman
Secretary
Member
Name
Mr. Mahboob Ahmad
Mr. Muhammad Shahid
Mr. Shahid Irshad
Mr. Sajid Azmat
Membership #
F-896
F-1069
A-3352
A-3444
Designation
Member
Member
Member
Member
Membership #
F-1075
A-1457
A-1946
Designation
Member
Member
Member
Name
Mr. Muhammad Anwar
Mr. Khan Muhammad Baluch
Mr. Muhammad Zahid
Membership #
A-2612
A-3648
A-4067
Designation
Member
Member
Member
Faisalabad Branch Council

Name
Mr. Ashfaq Hussain
Mr. Riaz Ahmad
Mr. Naeem Haider
Mr. Muhammad Ashfaq Ahmad Naz
Quetta Branch Council

Name
Mr. Kashif Nadim Rashid
Mr. Mohamamd Yousuf
Mr. Muhammad Muneeb
* as per Institutes website
Volume : 20.3
May-June, 2011
The only Professional Journal in Pakistan with a circulation of over 10,500 copies per issue
Inside
From the Desk of President
Insurance Sector in Pakistan
27
36
An Overview
By Tariq Hussain, FCMA
From the Desk of Chief Editor/

Honorary Secretary
Budget 2011-12: Comparative Analysis

with Previous Budget
By Tariq Mustafa Ramzan & Co.

Brief Summary of Federal Budget 2011-12

Compiled by Asif Hussain Siddiqi, APA
Revenue Collection & Sustenance of

State and Economy of Pakistan
8
10
Financial and Business Service

Accountancy and Auditing
12
By Qaisar Mufti, FCMA, FCIS
By Muhammad Shahid Siddique, ACMA

Accountant, PPL
By Abdul Ghaffar, M.Com, ACMA
Collection of Quantitative Data through

Information Technology
37
36
40
36
By Dr. Muhammad Arshad Haroon
Updates
17
21
36
23
36
Standards and Benchmarks Accounting Standards

By Chandra Wadhwa
Performance Audit for DFIs
34
36
A Dream World or Time Bomb
Gold an Outperforming Investment
Articles
By Sylvie Voghel, Chair of the IFAC Small
and Medium Practices Committee,
European Social Welfare State

Inside Analysis and Alternative for Muslim Countries
By Jean-Franois Henri, CMA and Marc Journeault, CMA
IFAC Increases Support for SMPs
33
36
By Souvik Sanyal
Meritorious Article
Environmental and Financial Performance
Stricter Checks on 10,000 Companies

as Cost Audit Turns Must
Comments on Federal Budget 2011-2012

By Syed Shabbar Zaidi, Partner, A. F. Ferguson & Co
Harnessing Eco-Control to Boost
30
36
By Abdul Wasey Khan, ACMA, CISA
Focus Section
Budget Highlights 2011-12
The Behavioral Aspects of Internal Audit
24
40
Highlights: Pakistan Economic Survey 2010-11
46
Economic Horizons
52
Economic Indicators
53
Global Economic News
54
IFAC & FBR
55
News
ICMAP Salary Survey
57
The Management Accountant is the official journal of the Institute of Cost and Management Accountants of Pakistan (ICMAP).
Disclaimer: Views expressed herein are authors own thoughts/viewpoint and do not represent ICMAP policy unless so stated.
Publication of paid advertising and new product/service information does not constitute and endorsement by the ICMAP.
Our Next Issue

Prosperity through BBB: Breaking Begging Bowl
Journal & Publications Committee would welcome articles on the above-mentioned topic before Aug 31, 2011 for Journals forthcoming issue.
Message
From the Desk of
President
he 2011-12 federal budget was announced at a time when the country was facing
stringent challenges. We still have to recover from last year's floods which affected
agricultural output and drastically damaged road, transport and communication network.
On the other side, macros challenges such as inflation, revenue collection, foreign direct
investment, gorss capital formation, budget defecit and un-employment remians
worrisome. The bleeding from the public sector enterprise continues and power crisis
continues un-abated.
From business perspective, this is for the fourth consecutive year that there is a negative
trend in investment in large-scale manufacturing. It can be gauged from the fact that total
gross fixed investment has reduced to 11.8% in FY 2011 as compared to 20.5% in FY
2006. This declining trend reflects a serious concern of the local business community and
foreign investors that their trust on government's ability to provide enabling business
environment. It will have a major impact on future growth prospects. Due to increasing
inflation, key assets rates fail to keep the pace by either negligible or negative real returns
on private savings.
Despite of the above-mentioned challenges, the government is still optimistic and has set
GDP growth target of 4.2% in FY 2011-12 as compared to revised GDP growth of 2.4% in
the FY 2010-11. The Inflation (CPI) target is set as 12.0% as compared to 15.5% in the FY
2010-11. We are hopeful that the target to reduce fiscal deficit to 4% of GDP in FY 2011-12
as compared to 5.1% in FY 2010-11 will be achieved. The other optimistic measures
include target to increase the exports by 27% in first 10 months of FY 2011-12 whereas it
has been planned to bring remittances to $ 11 billion and to grow the foreign reserves to
above $ 17 billion. Out of total estimated resources availability of Rs.2,463 billion against
2,256 billion last year, net revenue receipts are estimated to Rs.1,529 billion, an 11%
increase over the last fiscal year which seems if I may use the term 'optimistic'.
As far as public incentives are concerned there is an increase in minimum threshold for
taxation for salaried individuals, reduction in withholding on cash withdrawal from banks,
reducing sales tax to 16%, and reduction in the excise duty of cement to boast
construction activity.
Underlining the federal budget 2011-12, the journal is focused on Way Forward towards
Economic Prosperity. We wish that this budget will soon start delivering its fruits to the
common man in general and business community in particular.
Hasan A. Bilgrami, FCMA
Message
Management Accountant, May-June 2011
Message
From the Desk of
Chief Editor/Honorary Secretary
The government has announced 2011-12 budget with total outlay of Rs.2, 767 billion which is
14.2% higher than the estimated outlay of for FY 2010-11. Keeping in view of major challenges
such as continued fiscal deficit, increasing inflation, energy shortage, investments, unemployment
and public debt, the government has committed to contain fiscal deficit to 4% whereas other steps
are as follows:
increase in FBR tax target to Rs.1,952 billion;
gradual elimination of tariff differential subsidy;
targeted food and fertilizer subsidies;
zero net financing from SBP each year;
implementation of 'New Growth Strategy';
continuation of ban on new recruitments and purchase of durable goods;
rationalization of other expenditures;
establishment of an independent commission to scrutinize all development and current
expenditure with a view to ensuring their necessity, efficacy and value to the public exchequer;
and
establishment of an independent commission to examine structure of pay and allowances
across the public services and bring equity and fairness across them.
As part of major relief measures, the government has increased pay by 15% of all civil servants and
armed forces, increase in the pensions, increase in the conveyance and miscellaneous allowances
of civil servants serving in BPS 1-15 and merger of previous ad-hoc relief allowances. It will help
government employees to overcome increasing cost of living and lead to a relatively respectable
life.
If we look into the budget from business perspective, we see there is a lack of through strategy to
give boost to the investment activities and to ensure development of industrial sectors. There is a
need for a comprehensive strategy in-line to the desires of business community to win the
confidence of corporate sector which would ultimately result in the development of real sector and
creation of employment within the country. There is also immense need to portray a positive soft
image of the country and for that purpose participation in global exhibitions and inviting foreign
investors and businessmen to major business hubs such as Karachi, Lahore, Faisalabad and other
industrial cities will be a step forward.
We hope that this budget will turn out to achieve whatever objectives it has set-in and inked fiscal
policy may be implemented in true spirit. The issue is providing comprehensive overview of budget
and fiscal policy which would help the members to conveniently access to various budgetary
decisions. We hope that the readers will find articles and write-up interested to enhance their
knowledge base.
We wish you a happy reading!
Zia-ul-Mustafa Awan, FCMA
Message
Focus
BUDGET 2011-12
Comparative Analysis with Previous Budget
Figures in Rs. Millions
(i)
Budget
2010-11
Revised
2010-11
Budget
2010-12
%
increase
2,410,994
2,235,889
2,732,150
22.2%
Capital Receipts (net)
163,890
319,061
299,977
-6.0%
External Receipts
386,620
289,824
413,929
42.8%
Public Accounts Receipts
216,144
201,238
164,232
-18.4%
Gross Federal Resources
3,177,648
3,046,012
3,610,288
18.5%
Less Provincial Share in Federal Taxes
1,033,643
997,701
1,203,321
20.6%
Net Federal Resources
2,144,005
2,048,311
2,406,967
17.5%
Cash Balance built up by Provinces
166,925
119,805
124,882
4.2%
Credit from Banking Sector
166,543
452,219
303,524
-32.9%
2,477,473
2,620,335
2,835,373
8.2%
2,052,542
2,356,887
2,383,416
1.1%
Development Expenditure (PSDP)
321,385
275,727
354,872
28.7%
Other Development Expenditure
123,545
45,517
97,085
113.3%
Estd. Operational Shortfall in Expenditure
(20,000)
(57,796)
--
-100.0%
2,477,472
2,620,335
2,835,373
8.2%
RESOURCES
Revenue Receipts (net)
TOTAL RESOURCES
(ii) EXPENDITURE:
Current Expenditure
Total Expenditure
Sources:
1. Federal Board of Revenue
2. Ministry of Finance
Focus Section
F O C U S
Way Forward towards Economic Prosperity
By Tariq Mustafa Ramzan & Co.

Brief Summary of Federal Budget 2011-12

Revenue Collection & Sustenance of State and Economy of Pakistan

Focus

By Tariq Mustafa Ramzan & Co.,
Sales Tax and Federal Excise

l
The rate of Sales Tax is proposed to be reduced from

17% to 16%.
The exemption of sales tax on Dump Trucks, Concrete Mixer, Agricultural Equipment/Machinery, CKD
kits, CNG kits, cylinders and valves for CNG kits,
Commercial catalogues, Rock Phosphate, Phosphoric Acid and Mineral oil has been withdrawn.
Exemption of Sales Tax on bricks, building blocks,

computer software, surgical tapes, aircraft, ambulances, fire fighting vehicles and other items of 6th
schedule to be withdrawn.
The exemption of sales tax on defence stores at import and local supply is proposed to be withdrawn.
Zero Rating of CNG Buses, Trucks, Dumpers, Trailers and Road Tractors has been withdrawn.
The value addition tax levied on commercial importers

is being enhanced from 2% to 3%.
The reduced rate of sales tax @8% on supply of sugar

has been withdrawn and now sugar will be taxable at
normal rates.
Further Crystaline Sugar has been exempted from

sales tax and would be subject to federal excise duty
@ 8% payable in sales tax mode.
The zero-rating regime has been rationalized to limit

its application only to selected sectors.
Inspector Inland Revenue is proposed to be included

as an authority under the sales tax act, 1990.
Officers with designation assistant commissioner and

above have been empowered to carry out investigative audit under 38b of the sales tax act, 1990.
Officers inland revenue is being empowered to reject

refunds filed under section 66 of the Sales Tax Act,
1990 where incidence has been passed on to the consumers.
Customs Act
Excise duty on cement is being reduced. Further, duty

on white cement is proposed to be withdrawn.
Regulatory duty on certain items including edible

items, is proposed to be removed.
Reclaimed lead, if supplied to recognized manufacturers of lead batteries has been exempted from Sales
Tax.
Duty on pharmaceutical raw materials is proposed to

be reduced to 5%.
SED @ 2.5% chargeable to importers and manufacturers has been abolished.
The budget proposes tariff rationalization on bars,

rods and profiles of refined copper and copper alloy.
FED leviable on aerated beverages is proposed to be

reduced from 12% to 6% to make it in line with its substitute juices.
To provide incentives to local manufacturers and suppliers of domestic goods against international tenders, finance bill proposes to treat these supplies as
exports to entitle them duty drawback.
FED levied on services provided by property developers or promoters is proposed to be abolished.
The following concessions have been proposed for industries:
FED on locally produced Cigarettes is proposed to be

increased by increasing the upper limit of duty slabs.
Butyl acetate industry through concession on import

of its raw materials (Sabutol)
The FED leviable on filter rods for cigarettes has been

rationalize from Rs.1/- per filter rod to 20% ad val.
The FED on unmanufactured tobacco is being enhanced from Rs.5/- per kg to Rs.10/- per kg.
Glass industry through concession on its two major

raw materials namely mirror backing paint and
waste / scrap of glass
Focus Section
Machinery and equipment used in oil exploration.
To encourage enlistment on stock exchange, the existing tax credit equal to 5% is proposed to be enhanced to 15%.
Income Tax
l
The federal budget 2011-12 seeks to enhance basic

exemption limit from Rs.300,000/- to Rs.350,000/-.
Individual taxpayers whose normal income is between Rs.300,000/- to Rs.350,000/- shall now be required to file return of income, for the purposes of
documentation.
Filing of withholding tax statements are proposed to

be filed on monthly basis before 15th of the subsequent month.
For Broadening of Tax Base and utilization of third

party databases, NTN and CNIC of eligible taxpayers
are proposed to be provided expressly along with
other particulars, in the withholding tax statements
filed by withholding agents.
For broadening of tax base, the requirement of mandatory filing of return of income by the commercial and
Industrial consumers of electricity with annual billing
above one million rupees, is proposed.
The rate of tax on return on receiving dividends from

Asset Management Companies by banks is proposed
to be enhanced from 10% to 20% to discourage the
practice of arbitrage by banks.
To encourage investments made by nonresidents in

Government Securities, the withholding tax on profit
on debt deductible @ 10% is proposed to be a final
tax. Now they will not be required to file return of income.
To encourage domestic investments in the Government Securities, the withholding tax on profit on debt
deductible @ 10% arising from investment in Government securities by individual is also proposed to be a
final tax. They will also be relieved from statutory filing
of return of income.
After imposition of capital gain tax on Modarba certificates and instruments of redeemable capital traded at
stock exchange through Finance Act 2010, the 0.01%
CVT on such instruments is proposed to be withdrawn
Exemption from income tax of the income of Computer Training Institutes is proposed to be withdrawn.
Individual Tax Payers would be required to file Wealth

Statement if income exceeds Rs.1,000,000 as compared to current limit of Rs.500,000/-
Tax on services, in case of companies which is currently adjustable is proposed to be the minimum tax.
To encourage equity financing, and to provide relief to

new corporate industrial undertakings established on
or after 1st July 2011, with 100% equity financing, a
tax credit equal to 100% of tax payable is proposed.
The existing companies may also take benefit under
this arrangement if investment in BMR is financed
through 100% equity, on or after by 1st July 2011.
The rate of tax on Cash Withdrawals from Banks is

proposed to be reduced to 0.2% from existing 0.3%.
In order to harmonize the existing tax credits available
to individuals for investment in shares and for premium paid to Insurance Company, the maximum cumulative limit for both the investments is fixed @ 15%
of the taxable income, with maximum upper limit for
investment up to Rs. 500,000 as compared to current
limit of Rs.300,000/- and the time period for holding
the investment to get the benefits of tax credit is enhanced from one year to three years
Tax relief is proposed to be provided to withdrawals
from a Voluntary Pension Fund exceeding Rs.
500,000/-.
Extract from TMRCs 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
Focus
Brief Summary of
Federal Budget 2011-12

Economic Situation
FBR Tax to Rs.1952 billion.
Gradual elimination of tariff differential subsidy.
Targeted food and fertilizer subsidies.
Zero net financing from SBP each year.
Implementation of New Growth Strategy.
Continuation of ban on new recruitments and purchase of

durable goods.
Rationalization of other expenditure.
Establishment of an independent commission to scrutinize

all development and current expenditure with a view to ensuring their necessity, efficacy and value to the public exchequer.
Establishment of an independent commission to examine

structure of pay and allowances across the public services
and bring equity and fairness across them.
The economy has

shown resilience despite severe challenges i.e. floods, security situation, energy shortages, rising international oil and commodity prices and higher interest rates.
l
GDP growth from 2.4% (revised) in 2010-11 to 4.2% (target) 2011-12.
Inflation (CPI) from 15.5% during 2010-11 to 12.0% in

2011-12(target).
Fiscal Deficit reduced from 6.3% in 2009-10 to 5.1% in

2010-11 and 4% of GDP in 2011-12 (target). During 201011 past arrears amounting to Rs.120 billion (0.6% of GDP)
were paid. Fiscal deficit 2011-12 including grants would be
at 3.4% of GDP.
Exports grew by 27% in the first ten months and will cross $
24.5 billion mark.
Remittances are likely to cross $ 11 billion.
The foreign reserves above $ 17 billion.
Pakistani Rupee is stable.
FBR tax collection at Rs.1320 billion for 11 months i.e. an

increase of 16% over the same period last year.
Current account in surplus July-April 2011 (US $ 748 million).
Salient Features of the Budget

The budget 2011-12 has the following main salient features:
l
The total outlay of budget 2011-12 is Rs 2767 billion. This

size is 14.2% higher than the size of budget estimates
2010-11.
The resource availability during 2011-12 has been estimated at Rs 2463 billion against Rs 2256 billion in the
budget estimates of 2010-11.
Net revenue receipts for 2011-12 have been estimated at

Rs 1529 billion indicating an increase of 11% over the
budget estimates of 2010-11.
The provincial share in federal revenue receipts is estimated at Rs 1203 billion during 2011-12 which is 16.4%
higher than the budget estimates for 2010-11.
The capital receipts (net) for 2011-12 have been estimated

at Rs 396 billion against the budget estimates of Rs 325 billion in 2010-11.
The external receipts in 2011-12 are estimated at Rs 414

billion.
The overall expenditure during 2011-12 has been estimated at Rs 2767 billion of which the current expenditure is
Challenges
l
Containing of Fiscal Deficit.
Reducing Inflation.
Overcoming energy shortage.
Increasing investments.
Creating employment.
Reducing Public Debt.
Proposed Budget Strategy

l
Containing Fiscal Deficit to 4% of GDP.
Focus Section
10
Rs 2315 billion. Current expenditure shows an increase of

less than 1% over the revised estimates of 2010-11, while
development expenditure will increase by 64.4% in 201112 over the revised estimates of 2010-11.
z
The share of current expenditure in total budgetary outlay

for 2011-12 is 84% as compared to 90% in revised estimates for 2010-11.
The expenditure on General Public Services (inclusive of
debt servicing transfer payments and superannuation allowance) is estimated at Rs.1660 billion which is 71% of the
current expenditure.
Transport and Communication Sector has been allocated

Rs.55 billion. NHA has been allocated Rs.40 billion and
Rs.15 billion has been allocated to Railways. This would
ensure economic integration and balance regional development.
Health sector will be devolved to the provinces by June,

2011, however, to implement CCI decision, Rs.15 billion
has been proposed to finance different vertical health programmes.
HEC and Population Welfare Programme will also be financed by federal government with an allocation of Rs.14
billion and Rs.4 billion respectively.
Allocation for Special Areas (AJK, GB and FATA) is at

Rs.28 billion with a view to accelerate development activities in less developed areas.
Allocation for special programmes (People Works

Programme-I and People Works Programme-II) an allocation of Rs.33 billion has been made.
The sali ent features of the PSDP 2011-12 are as un der:z
The size of Federal Public Sector Development Programme (PSDP) for 2011-12 is Rs. 300 billion. While for
Other Development Expenditure an amount of Rs.97 billion
has been allocated. The PSDP shows an increase of 53%
over the revised estimates 2010-11.
The provincial PSDP for 2011-12 has been approved at
Rs.430 billion against revised estimates of Rs.266 billion.
An amount of Rs.10 billion has been allocated to ERRA in

the PSDP 2011-12.
Within the resource available, allocations have been made

to maximize economic impact of the development programme and to achieve core objective of growth reducing
poverty and to ensure balanced development.
The proposed federal development programme places an

equal emphasis on physical infrastructure sector (55%)
and social sector (44%).
Water sector has been allocated Rs.36 billion i.e. 12% of total federal PSDP. Raising of Mangla Dam including resettlement Satpara Multipurpose Dam, Gomal Zam Dam,
Kachi Canal, Raini Canal and other water sector projects
have been provided appropriate funds.
Relief Meas ures

Following relief measures are proposed to be extended to the
Civil Servants and the Personnel of the Armed Forces with effect from 1st July, 2011:-
To overcome energy shortage, investment would be made

for power generation, distribution and conversation by the
government in WAPDA during 2011-12 at Rs.115 billion
which include Rs.32.5 billion through budget. This will help
in reducing power shortage in the country.
For Basha Diamer Dam, Rs.18 billion has been allocated
from budget while WAPDA will arrange Rs.2.5 billion from
the market. In addition, Neelam Jhelum Hydro Power Project, Gudu Steam Power Project and Combined Cycle
Power Plant at Chechoki Malian are being implemented by
WAPDA.
In addition to hydel projects, nuclear sources would also be
used for power generation. An amount of Rs.22 billion has
been allocated to Pakistan Atomic Energy Commission.
Fo cus Section
11
An increase of 15% in pay of all Civil Servants and Personnel of the Armed Forces with effect from 1st July, 2011.
Pensioners who retired on or after 01.07.2002 may be allowed an increase @ 15% and those who retired on or before 30.06.2002 may be allowed an increase @ 20% in pension.
Existing Conveyance Allowance may be increased by 25%

to all the employees in BPS 1-15 and their equivalent in the
Armed Forces.
All the Civil Servants and Personnel of the Armed may be

allowed Conveyance Allowance at the prescribed rates irrespective of their place of duty.
Increase in misc allowances mostly admissible to the employees in BPS 1-15.
All the ad-hoc relief allowances granted upto 01.07.2009

will be merged in the Basic Pay Scales-2008 and to introduce the new pay scales.
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
Government
Management A ccountant, May-June 2011
Focus
Revenue Collection & Sustenance

of State and Economy of Pakistan
Sustenance of Pakistan State and

Economy and the Revenue Collection (1)
o
Economic Inequality and Rebellion
In his recent book Pakistan-The Hard Country, Kings College, Londons

Professor Anatol Lieven observed that Pakistan is:
Divided, disorganised, economically backward, corrupt, violent, unjust, often
savagely oppressive towards the poor and women, and home to extremely
dangerous forms of extremism and terrorism.
It is easy to conclude, as many have, from this roll call of infirmities that Pakistan is
basically Afghanistan or Somalia with nuclear weapons. Or is this a dangerously
false perception, a product of wholly defective assumptions.
Prof. Lieven has very rightly concluded that present Pakistan is a geographical
entity and it is very unlikely that such a geographical entity would ever be split.
What we need to decide is to determine the basis of economic sustenance of 190
million people living in this area. The theory of disintegration is promoted to
demoralize the nation and to let them concentrate on non-issue.
Do we Pakistanis acknowledge this reality? Are we dealing with the main issue i.e.
Economic welfare of common man?
Taxes and Tariff Structure/

IMF/WTO-Misnomers About Free Markets (1)

o Lieven shows that, as in Latin America, anti-Americanism in

Pakistan is characterised less by racial or religious supermacism
than by a political bitterness about a supposed ally that is
perceived to be ruthlessly pursuing its own interests while claiming
virtue for its blackest deeds. And if many Pakistanis seem to prefer
Islamic or tribal legal codes, it is not because they love stoning
women to death but because the modern institutions of the police
and judiciary inherited from the British are shockingly corrupt, not
to mention profoundly ill-suited to a poor country.
o
o
Dr Ishrat Hussain in his book Pakistan the Economy of an Elitist State raised
almost the similar notion about a decade ago.
Our problem is very simple. Unless we collect tax, we cannot provide services;
nevertheless unless we provide services we can not build trust in a nation to pay
equitable taxes. Who will break this vicious circle?
Let us go back to our history and accept that economic equality and welfare of
common man has never been our subject.
At the moment, we are expected to collect around Rs. 1.8 trillion [Budget for
2011-2012 is Rs 1,952 billion]. This amount is totally insufficient to achieve the
desired objectives of a sustainable economy. The apparent shortfall is around Rs
700 to 800 billion for which we have potential and identified sectors; but we dont
find national economic and political will and desire for the same. Unless and untill
we make this as our priority number one and the only current objective, the very
sustenance of the state and economy will remain in danger. As Prof. Leiven said
let us not digress or demoralize the nation that our ills are incurable. Country and
the state is not in danger; peoples well being and their future is in danger.
Focus Section
An ordinary Pakistani has been made to believe that system is not working
because Americans and imperialist powers do not want it to be so. He may be
right in one sense; but totally wrong in other manner. This sense of National
Complacency is to be removed. Most of the problems and solutions are
homegrown.
There is national misconception about the role of IMF and other lending
agencies with regard to Pakistan economy. This matter is highly politicized.
Our problem is different. Universally, there is a clash in the economic interests
of western developed countries and economies like us. In this situation, what
we need to do is to keep the national economic [not always security interest] in
mind whilst deciding the Pakistans fiscal policies especially the duty and tariff
structure and compliance to free market economy.
Free market notion has different meaning for countries around the world. For
us, it means free for all favouring pressure groups and vested interests. Our
foremost priority is employment, poverty alleviation and creation of wealth
within the country.


o
Nobel Luerate Dr Amartya Sen in his book On Economic Inequality

observed:
The relation between inequality and rebellion is indeed a close one, and it
runs both ways. That a perceived sense of inequity is a common ingredient
of rebellion in societies is clear enough, but it is also important to recognize
that the perception of inequity, and indeed the content of that elusive
concept, depend substantially on possibilities of actual rebellion. The
Athenian intellectuals discussing equality did not find it particularly
obnoxious to leave out the slaves from the orbit of discourse, and one
reason why they could do it was because they could get away with it. The
concepts of equity and justice have changed remarkably over history, and
as the intolerance of stratification and differentiation has grown, the very
concept of inequality has gone through radical transformation.
The tragedy is that common man of Pakistan is treated like an Athenian
slave not to be taken into account whilst deciding the course of countrys
future in every sense.
12
This problem is not new. We supported feudalistic and elitist culture

since inception and could not bring about any meaningful change in
that system. No meaningful land reform has been introduced and
implemented.
This system suited the western and imperialistic powers and we were
and are their close allies in this process.
The question now is whether they are our allies or not in this new world
economic order.
Management Accountant, May-June, 2011
Estimated Collection &

Expected / Actual Shortfall (2)

o
I am not very concerned about this Rs 220 billion. Even if we achieve

the same, this collection of revenues cannot bring any incremental
improvement in economic well being of the people.
This effectively means that purchasing power of common man will

diminish by 12 percent without any corresponding improvement in
state facilities for education, health, security and infrastructure. We
need Rs 700 billion incremental funds to get out of vicious trap. slave
not to be taken into account whilst deciding the course of countrys
future in every sense.
Direct and Indirect Taxes Inequitable Distribution (1)

o
Tariff Structure and National Interest

o
o
o
This effectively means that a substantial portion of income tax is effectively

recovered as indirect tax creating serious distributional issues in wealth
creation and wealth distribution.
o There are serious distortions in sales tax system; Services are
effectively outside the regime.
o Agricultural income and agricultural trading is considered outside the
ambit of Pakistan taxation system.
o Tax system of the country can not improve in any meaningful way
unless:
Incidence of indirect taxes in reduced;
Presumptive taxation is abolished in gradual manner;
Avenues to whiten the money are plugged;
Assets records are maintained;
o Agricultural economic activities are examined in their correct
perspective.
Pakistan has disturbed its economic base and industrial competitiveness by

amending the duty and tariff structure on ad-hoc basis since inception without proper
economic studies, blind following of WTO requirements and pressure from vested
interests.
Licence Raj has been replaced by Duty Differential Raj.
We move the pendulum wrongly on both sides. At times we provide excessive
protection, apparently and discretely and in various situations kill our local industry on
the argument that any facilitative duty structure will be prone to smuggling and abuse
of Afghan Transit Trade. This side of our fiscal policy is in a mess.
Recent tariff study conducted by the Planning Commission led by a world renowned
expert has raised certain fundamental issues in this regard. This requires:
Complete reexamination of present duty structure;
Providing facilitation to local industry;
Not to be taken on a ride by the slogan of free market economy.
Reviewing Chinese trade in realistic manner.
In the budget for the year 2011-2012, there are minor amendments in the duty
structure, however, substantial changes have not been introduced.
Estimated Collection & Expected /

Actual Shortfall (1)
Overall Budget Collection
Rs in Billion
Projected collection for 2010-2011
1,588
Less: Expected short fall
38
Expected Collection
1,550
Effect due to reduction in overall rate of sales tax and abolition of SED
50
1,500
Base for next budget

Expected growth 4%
58
Estimated inflation 12%
74
232
1,732
Estimated Collection
Shortfall
Focus Section
Out of total collection of Rs 1.588 trillion around 70 percent [directly and

impliedly] represent indirect taxes. Projected collection for the year
2011-2012 of 1.952 trillion reflects the same trend. Salient features of
total composition of tax collection are:
Indirect taxes in Pakistan are levied on all products including
petroleum, electricity and gas. This creates inequity between
affluent and poor segments of the society;
Following six main segments of business activities are subject to
presumptive tax which for all purposes represent indirect taxes:
o Income of commercial importers;
o Income of exporters;
o Income from property;
o Income from interest on securities and dividend;
o Income of contractors;
o Income on local supplies, other than listed companies.
1,952
220
13
In the Finance Act 2011, one positive step has been undertaken by way
of reducing the rate of Sales Tax from 17 to 16 percent and a
proposition to eliminate Excise Duty on all non-luxury goods. However,
the other step being gradual switch to non-presumptive taxation has
not been done. This means that the issue of equity is not being
introduced. This system suits non-documentation and lack of asset
records.
No meaningful tax reform on the policy side can be placed, unless this
vicious circle is broken. The will or writ of the government is not the
issue. The real issue is identification of the problems and appreciation
by the common man and relevant pressure and movement to this effect
that taxation on net income basis is the only solution with proper asset
record.
Export Oriented Sectors (1)
Sales Tax
o
Let us admit that our system for this tax is not working in the manner we
want.
We have not been able to extend the system to Retailers and Service
sector.
The rate is exhorbitant (17 percent is a very high rate) and audit process
has not been able to support the structure.
There is complete misunderstanding about the nature of tax and its

working system.
We have to accept that our mode of implementation of Sales Tax, being

Top to Bottom, has not worked well. Top to Bottom approach means
starting from manufacturer and ending on consumers.
We would have to examine the possibility of other measures, whereby,

Retailers and Wholesalers issue needs to be independently examined.
Vicious Circle of Perverted Exchange Regime/

Under Invoicing/Smuggling and Afghan Transit Trade (1)
o
b) It has been observed that the objective of SRO 283 being

recovery of taxes on local supplies is not being made. That
inefficiency needs to be removed otherwise system will fail.
c)
Labour
Remittance
Sales Tax on Capital Goods is an important subject that needs to be

examined in its complete context. Under the complete VAT regime, in
principle, tax on capital goods is not against investment as all tax paid on
capital goods is claimable against output tax. By virtue of this provision input
tax for capital goods industries effectively becomes admissible. This
proposition, in practical sense, becomes impracticable for the following
reasons:
o A substantial part of our industries including major export sectors are
not subject to full VAT regime, therefore, input tax on capital goods in
not adjustable. It effectively becomes a cost.
o A substantial portion of service sector industries are not subject to VAT,
therefore, input becomes not adjustable;
o Notwithstanding the same, even if input tax on capital goods becomes
refundable because of defects in system, substantial amount of funds
are struck up;
Other sources
Cayman Bank
(12)
UAE
Bank
Correspondent
of Foreign
Company in UAE
(13)
FE 25
A/C
SBP
Official Forex
Regulator
(11)
(6)
Money
Changer/
Forex
(9)
(5)
(7)
Pakistan
Pakistani
Bank
(I) A/C
(8)
Pakistani
Importer
Pakistani
Bank A/C (II)
(3)
(2)
(4)
Pakistan
Market in Rupees
(10)
(1)
Chinese
Exporter
China
Indirect Taxes on Capital Goods Plant and Machinery (2)

(1)
Supply of goods at US$ 10- / invoice US$ 5.
(2)
Sale of goods in Pakistan market in Rupees US$ 10 & margin

[10 +2] = 12 x 85 = Rs 1,020
(3)
Inflow of white money in Pakistani bank account no. (I)
(4)
(5) & (6)
(7)
(8)
(9) & (10)
(11)
The objective of the scheme was to ensure Registration of

persons involved in this sector. That objective has to be
assured.
Indirect Taxes on Capital Goods Plant and Machinery (1)
Cayman & Others
Middle East / UAE /

Other Countries
with Pakistan
In the budget documents, it has been stated that sales tax at the rate of 5%
(without adjustment of input tax) may be introduced on certain products. In
the budget document, there is no reference to that issue which effectively
means that SRO 283 is still applicable.
a) Extra-cautious approach be adopted with regards to sales tax

on export oriented sectors;
PAKISTANI US$ / RUPEE FLOW - PERVERTED SYSTEM
(14)
o In this connection, it is suggested that:

Under invoiced
exports
Five Export Oriented Sectors being textile, leather, sports, carpets and
surgical were zero-rated. This effectively meant that even Local Supplies
were not subject to Sales Tax. The zero-rating was abolished in March
2011, however, after protracted negotiation with the stakeholders an
intermediary system of sales tax was instituted through SRO 283. Under
that system, sales tax without input adjustment was levied on supplies to
unregistered person at the rate of 4 and 6 percent for yarn and other
products respectively. This was a practical arrangement; There are
certain shortcomings in the SRO which need to be corrected.
Export Oriented Sectors (2)
No economy can sustain an equitable and facilitative structure if it is faced with the
problems which Pakistan has created for itself in the past decades. The salient
features of our system are:
A perverted exchange regime that effectively promotes under invoicing and

creates a parallel exchange system;
An organized structure for under invoicing of Chinese Products at the cost of

local industry and national exchequer by way of taxes and duties and
documentation;
Open border specially on the western side effectively disturbing the whole
tariff structure;
A perennial problem of Afghan Transit Trade

On the following page a chart has been presented to depict the machanism of this
whole system. No taxation system can be promoted if this collaborative corruption,
being infused in our system, is allowed to be perpetuated.
COUNTRY
o In the interim measures announced in May, exemption of tax on

capital goods was removed. In the Finance Act, 2011
amendments have been made in Section 8B of the Act to
facilitate the immediate allowability of input tax or refund.
Inflow of grey money in Pakistani bank account no. (II)

Using forex company / FE 25 in obtaining US$ of 5.
o There is a need to examine the issue in totality. At the moment,

this measure is inflationary in nature. In the meantime, it is
suggested that exemption for capital goods be retained after
proper evaluation of the case.
Payment of L/C by SBP.

Receipt of cash by Chinese.
Payment of US$ 5 by using FE 25.
Maintaining Parallel reserves - Inflow from sources identified, outflow as described.
(12) & (13) Labour remittance is diverted to unorganised sector where the money forms part of FE25 inflow and
available for exemption under section 111(4).
(14)
Other sources of inflow are: Under invoiced exports and other sources.
Focus Section
14
Federal Excise Duty
Sindh Sales Tax on Services Bill 2011
o In concept, excise are levied to curb consumption. In Pakistan,

this tax is used for revenue collection. The policy to remove all
Excise Duty over a period of time is a step in right direction.
Sindh Assembly has introduced a Sales Tax on Services Bill

2011.
Apparently this tax is not based on input / output based concept;
Thus, the tax is effectively single stage tax; Nevertheless, relevant
provisions would have to be introduced for services which are
collected under Federal System.
o The second abuse of excise duty was encroachments in the right

of taxation of the Provinces. This was excessively being done in
the case of services like telecommunication, banking, insurance
etc. Once excise will be abolished, the possibility of abuse will be
minimized.
Sales Tax Coercive Provision

Blacklisting and Suspension of Registration
Conclusion and Way Forward

No demoralization on economic front;
Problems are there; identified and curable;
External support will not resolve the issue;
Primary problem is increasing revenue collection by Rs 700
billion from Direct Taxes from elitist;
Complete overhaul of exchange regulation, duty structure,
Afghan Transit Trade, under invoicing; and
Taxation of agricultural activities and traders, retailers and real
estate.
A new provision has been introduced, whereby, during the period of

suspension of registration, the invoices issued by such person shall
not be entertained for the purposes of sales tax refund or input tax
credit, and once such person is blacklisted, the refund or input tax
credit claimed against the invoices issued by him, whether prior or
after such blacklisting, shall be rejected.
The validity of this provision with regards to retrospective application
is challengeable. Such provisions effectively create an environment
of harassment and coercion.
But why dont do it

The Answer is ?
Major Steps Not Undertaken (1)

Fiscal Policy requires immediate or medium term plan for the
following actions. Federal Budget does not provide road map for the
same. These are:
a) Gradual abolition of Presumptive Tax (Direct Taxes). (In fact the
situation is reverse, whereby, companies have been placed
under FTR in case of services rendered).
b) Abolition of ways for whiten the grey money [section 111(4) of the
Income Tax Ordinance, 2001].
c) Alignment of taxing right between Provinces and Federation with
regard to sales tax and Federal Excise Duty.
d) Extension of sales tax to wholesalers and retailers and suppliers
of services.
Major Steps Not Undertaken (2)

e) Recording and documentation of Assets including agricultural
assets.
f) Taxation of trading activities in agricultural sector (Arthis etc.).
g) Taxation of agricultural income and income from real estate
trading and capital gain.
These actions are inevitable for increasing the tax base.
This is a beautiful country. Its real beauty is yet to
be explored. Have we made any effort for it.
Thank you
Focus Section
15
MERITORIOUS ARTICLE
Harnessing Eco-Control to Boost Environmental
and Financial Performance
Meritorious Article
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.
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.
he most recent report by the Intergovernmental Panel on Climate Change (IPCC) asserts that climate change is attributable to human actions. It also describes the numerous repercussions of this phenomenon on the environment and underlines the
importance and urgency of reducing environmental impacts. As
one of the main ecological offenders, organizations have an undeniable role and responsibility to work toward a solution. Moreover,
the increase in environmental legislation and pressure from internal and external stakeholders unequivocally confirms the importance of this issue for organizations. The challenge for organizations is to undertake concrete actions to reduce the ecological impact of their operations while maintaining their economic objectives a crucial importance to shareholders and investors. Ecocontrol tools can play a pivotal role in this area by allowing organizations to attain their environmental objectives while ensuring the
profitability of their operations.
from the sale of waste materials used as an input by another company or from the reuse of recyclable materials. Environmental investments may include purchases of emission reduction technologies or construction of infrastructures that reduce the risk of ecological damage. Lastly, environmental incentives entail the integration of environmental criteria in companies bonus systems to motivate employees to endeavour to attain specific environmental objectives.
Eco-control and Environmental Performance

It is difficult to define the concept of environmental performance.
One of the definitions proposed rests on four dimensions: i) improvement of products and processes, ii) regulatory compliance
and financial impacts, iii) relations with stakeholders and iv) environmental impacts and corporate image. The first two dimensions
deal with internal processes in the organization whereas the last
two involve external processes. Environmental performance is
therefore defined as the simultaneous attainment of satisfactory
performance along these four dimensions.
What are Eco-Control Tools?

Organizations implement and use management control systems
(MCS) to monitor, control, measure and modify their strategic objectives. Performance, budget and incentive management systems are among the most widely used MCS. Eco-control refers to
the consideration of environmental aspects in each of these tools.
In general, eco-control tools can contribute to environmental performance by allowing organizations to procure reliable information
required for strategic decision making concerning the environment. Considering that the organization has limited resources and
faces a multitude of choices in day-to-day management, these
tools also represent a way to orient the actions of all employees toward the attainment of environmental objectives set by top management. Specifically, they let the organization establish, coordinate and communicate strategic priorities related to the environment; signal critical issues to managers; improve the allocation
of resources managed; measure its ecological actions and promote congruence between individuals and the organization.
The objective is not to create new management tools but rather to

integrate environmental aspects in existing tools and to isolate
their effect on the organization. The integration of ecological aspects in performance measurement systems entails the development of environmental performance indicators (EPI). Diverse EPI
allow organizations to monitor changes in internal environmental
aspects and measure the attainment of environmental objectives.
They may translate, in quantifiable measures (monetary or physical), the various environmental impacts of the activities of the organization. They may also measure the efficiency of internal processes and systems put in place to improve the organizations environmental performance.
Environmental Performance Indicators (EPI)

Specifically, four main uses of EPI are observed in organizations to
enhance environmental performance. First, EPI can be used to
monitor the level of compliance with laws and regulations. By setting the maximum levels of waste and emissions required by the
law as an objective, EPI can be used as a vigilance system to
monitor, control and correct any deviation from the targets. Second, EPI can be an important source of information that facilitates
Moreover, in an eco-control context, budgets can serve to identify

and plan objectives for spending, income and environmental investments and to monitor the attainment of these objectives. Environmental spending may include the cost of waste processing or
water purification, whereas environmental income may originate
Meritorious Article
17
usage index of EPI for the top 50 performing

firms in environmental matters versus the 50
worst performing firms.
Table 1: Usage Index of EPI
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 compliance 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 environmental matters is higher than that of the
worst performing firms. The average difference
is 50 per cent.
Budget
The integration of environmental aspects in the
budget can help organizations improve their environmental performance. First, the budget can
be used as an operational and strategic planning tool to allocate the resources required to
attain the environmental objectives of the organization. It also serves to communicate financial objectives related to the environment to all
employees. In addition, this eco-control tool can be used to monitor
objectives, to direct and motivate employees toward attainment of
these objectives and measure the results obtained. The organization has the ability to use the budget as a vehicle to ensure congruence between the employees actions and the organizations objectives. Lastly, similar to EPI, the budget can be used as an information base to favour organizational learning related to the environment. For example, it can compile data on expenses related to
the environment, allowing the organization to assess the sources
of these expenses and subsequently implement concrete actions
to decrease spending.
strategic decision making concerning the environment. By supplying accurate reliable data on processes and environmental impacts, EPI enable managers to acquire a clear vision of these issues and to take them into account in their strategic decisions.
Third, EPI can be used to favour continuous improvement by directing the organizations attention to environmental issues. EPI
continuously send signals to managers regarding environmental
issues and stimulates discussion, dialogue and debates on this
topic. This dynamic process contributes to the emergence of initiatives and innovations that modify the processes in place and mitigate the environmental impact of operations. This process also
clarifies the causes of these issues and contributes to organizational learning. This learning, in turn, allows the organization to formulate new policies or internal standards that specify how future
actions can be carried out in a more environmentally-friendly manner. Fourth, EPI can be used to supply the data required for external reporting purposes. This reporting is a means of responding to
various pressures from stakeholders (investors, clients, creditors,
shareholders, etc.) by presenting financial and non-financial information on the environmental impact of company operations. Reporting informs and promotes awareness among the stakeholders
of the environmental actions taken by the company. As environmental performance is a subjective issue conditioned by the expectations of each of the parties, reporting represents a key practice to legitimize the environmental actions of the organization.
Table 2 illustrates an index of the degree of integration of environmental aspects in budgets of manufacturing firms.
Table 2: In dex of In tegration of En vi ron mental

As pects in Budg ets and In cen tives
To support these assertions, a survey was administered to 303 Canadian manufacturers in order to assess their level of use of ecocontrol systems and their level of environmental performance. Table 1 illustrates the results related to the use of EPI in these companies. First, it presents an average index of usage of the EPI described above for all respondents. Second, the table compares the
Meritorious Article
18
Management A ccountant, May-June, 2011
environmental performance can translate by an increase in sales

to green consumers.
The results show that these companies integrate environmental

aspects in their budget to a moderate degree, with an average
global index of 61 per cent. Spending is the main environmental
aspect included in the budget of these companies. This table also
shows that the top performing firms with respect to the environment incorporate ecological aspects in their budget (82 per cent) to
a greater extent than do the worst performers (35 per cent).
By contributing to the brand image and the companys reputation,

stronger environmental performance can generate an important
strategic advantage vis-a-vis the market. By contributing to the environmental performance of companies, eco-control tools can also
enhance financial performance. First, they can help organizations
identify opportunities to reduce environmental impacts at source
and determine the associated financial gains. Second, these tools
can be used to supply information for reporting, namely by publicizing the environmental performance of the company to its various
stakeholders.
En vi ron men tal In cen tives

Integration of environmental aspects in bonus programs can also
help organizations improve their environmental performance. Bonus systems based on attaining environmental objectives represent a powerful tool to motivate employees to undertake the actions required to attain these targets. They therefore represent a
way to orient employees actions in the direction desired by the organization. A bonus system linked to the environment lets company management clearly convey to employees the importance of
these issues for the organization. In turn, the employees wishing to
optimize their compensation will prioritize actions related to the environmental objectives rewarded by the bonus system and will willingly exert more effort to achieve these objectives. Environmental
incentives promote concerted action by all employees and contribute to environmental performance. This proposition is affirmed by
the results in Table 2.
Table 3 underlines this contribution of eco-control tools to financial

performance via environmental performance. The 50 top performing firms in environmental aspects (linked above to a higher use of
eco-control tools) have a higher financial performance index (64
per cent) than do the 50 worst performing firms (58 per cent). This
variance between the two groups of firms might seem modest, but
it is non-negligible when one considers the multitude of elements
that influence organizational performance.
Table 3: In dex of Fi nan cial Per form ance
Among the manufacturers surveyed, the top 50 performers with respect 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 remains 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 supplying useful information for decision making, by directing and motivating managers and employees to attain environmental objectives 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 recognize that mobilization of businesses in this area is currently insufficient. One of the major obstacles to the implementation of environmental actions within organizations is the belief, still firmly entrenched among executives, that considering environmental aspects is costly and represents a substantial expense for the organization. Increasingly, however, experts are insisting that it is possible to couple environmental management and organizational profitability. How can this be achieved?
Eco-control tools represent a simple and accessible solution that

will let executives take escalating environmental challenges into
account in their organization. Because this environmental consideration is part of the organizations existing MCS, it does not require the development of new systems and is therefore less onerous. The results of this study of manufacturers show that ecocontrol tools can contribute to the environmental and financial performance of organizations. However, the findings also indicate that
awareness of the strategic advantages of the use of eco-control
tools needs to be raised considerably, to generalize their implementation in companies as a whole
First, the proponents of the win-win argument emphasize that improving environmental performance can help reduce environmentrelated costs. This reduction may originate from a decrease in the
quantity of waste sent to landfills and in energy consumption or
from increased use of recycled materials in manufacturing. As part
of this process, preventive actions must be put in place to reduce
the environmental impact at source, as opposed to an end ofpipe approach that is simply a stopgap solution. Moreover, better
Meritorious Article
Jean-Franois Henri, PhD, CMA, is a professor in the school of

accounting at Universit Laval and holder of the chair in cost and
performance management. Marc Journeault, CMA, is an associate professor in the school of accounting at Universit Laval. He is
pursuing PhD studies in environmental accounting at the Universit Catholique de Louvain in Belgium.
19
ARTICLES

By Sylvie Voghel, Chair of the IFAC Small and Medium Practices Committee
Financial and Business Service Accountancy and Auditing

By Chandra Wadhwa
Performance Audit for DFIs

Insurance Sector in Pakistan An Overview

The Behavioral Aspects of Internal Audit

Stricter Checks on 10,000 Companies as Cost Audit Turns Must

By Souvik Sanyal
European Social Welfare State A Dream World or Time Bomb


Accountant, PPL
Gold an Outperforming Investment

Collection of Quantitative Data through Information Technology

Article

By Sylvie Voghel, Chair of the IFAC Small and Medium Practices Committee, Provides an Update on the SMP
Committees Implementation of the IFAC Board Recommendations
ts been nearly a year since the IFAC Board reviewed the activities of the International Federation of Accountants (IFAC) to support small- and medium-sized practices (SMPs), and made targeted 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 interview, Sylvie Voghel speaks about the SMP Committees role in implementing the recommendations and provides an update on progress made so far.
Why is IFAC putting so much emphasis on

supporting SMPs?
Put simply, we recognize that SMPs help support the health
and prosperity of the small and medium-sized entity (SME) sector, a sector that in most countries around the world accounts
for the majority of private sector employment and Gross Domestic Product. In fact, many countries are relying on this sector to help their economies recover from the global economic
slowdown.
a position of leadership within the committee at this time, as we
pursue many exciting new initiatives that should greatly increase the committees ability to assist SMPs globally.
SMEs often, especially when they lack sufficient in-house expertise, look to SMPs to provide a broad range of professional
services, from traditional accountancy-based services to business advisory services. In addition, a strong SMP constituency
can contribute to increased choice and competition in the market for professional services.
Our strategy is built upon four key objectives, which align very
closely with the Boards recommendations:
Meanwhile, SMPs are confronted by a range of operational,

market, and regulatory challenges themselves. These challenges are nothing new, but what is new is their enormity. IFAC
and our members recognize that to provide effective support to
the SME sector, SMPs need more help. The vast majority of the
heads of IFAC member bodies (95 percent) told us, in their responses to IFACs 2010 Global Leadership Survey that addressing the needs of SMEs and SMPs is crucial. (See the
press release.)
How have the IFAC Board recommendations

impacted the SMP Committees objectives and
work plan for this year?
The Boards recommendations have essentially become the
foundation of the SMP Committees objectivesnot only for
this year, but for the next several years. The scope of the recommendations is exciting but also overwhelming as there is a
lot of work to be done. At the same time, I feel fortunate to be in
Article
Provide input to IFACs policy-making process and participate in its regulatory dialogue to ensure that SMP and SME
issues are fully considered;
Help to shape the form and content of international standards to ensure their stability, relevance, and proportionality to SMEs and SMPs;
Communicate the importance of the SME sector and the

role SMPs can play in supporting this crucial sector to enhance the visibility, voice, and recognition of SMPs; and
Provide and promote practical support to SMPs to enhance

their ability to provide high-quality and relevant professional services to their clients.
What contributions has the SMP Committee

made recently to IFACs regulatory dialogue?
The committee participated in the development of IFACs response to the European Commissions Green Paper, Audit
21
Policy: Lessons from the Crisis. Our insights and views

helped ensure the IFAC response was robust, balanced, and
sufficiently focused on SME and SMP issues. The committee
will continue to closely monitor IFACs regulatory dialogue and
participate when relevant.
How does the SMP Com mit tee help shape

stan dards?
The committee provides input on key standards and publications at all stages of their development. In April, the committee
submitted a comment letter on the Proposed IAASB Strategy
and Work Program for 2012-2014, issued by the International
Auditing and Assurance Standards Board (IAASB).We were
happy to note that the work program gives due recognition to
the needs of SMPs and SMEs.
This year, with the formation of the its SME/SMP Working
Group, the International Ethics Standards Board for Accountants (IESBA) is working to address the issues faced by SMEs
and SMPs in complying with the IESBA Code of Ethics for Professional Accountants (the Code). Two SMP Committee members serve on this Working Group.
The SMP Committee has also issued three comprehensive

guides to help practitioners implement international standards
and proficiently manage their practices: Guide to Using International Standards on Auditing in the Audit of Small- and MediumSized Entities, 2nd ed., the Guide to Quality Control for Smalland Medium-Sized Practices, 2nd ed., and the Guide to Practice
Management for Small- and Medium-Sized Practices. All three
were released in 2010. IFAC member bodies may translate, reproduce, and adapt the guides as needed. The guides and existing translations are available free of charge on the IFAC website under SMP Publications and Resources and in the Translations Database.
Is there any thing else that you would like to add

that we have not al ready cov ered?
Clearly, SMP and SME issues are an integral part of IFACs
strategy. The independent standard-setting boards supported
by IFAC have made great progress in accommodating SMEs
and SMPs: the proposed IAASB strategy is testimony to this.
This year, with the formation of the its SME/SMP
How will the SMP Com mit tee en hance the

visi bil ity of SMPs?
Working Group, the International Ethics Standards
One of the ways the committee hopes to enhance the visibility

of SMPs is by increasing speaking engagements by committee
members and staff at national, regional, and global events and
meetings, where they will discuss the value of SMPs and their
role in supporting SMEs.
the issues faced by SMEs and SMPs in complying wit
Each year, the committee holds an SMP Forum where practitioners from IFAC member bodies convene to learn, share, and
discuss the key issues facing the profession. The 2011 SMP
Forum in Istanbul attracted over 200 delegates. The event affords us an opportunity not only to promote the profession, but
also to gain feedback from our constituents, which we can use
to fine tune our support for them.
How does the SMP Com mit tee sup port and
en gage SMPs?
IFAC is a federation of professional accountancy organizations
and, as such, we primarily seek to support SMPs through our
member bodies, who serve several hundred thousand SMP
practitioners around the world. Increasing the engagement of
this global constituency is a priority for the committee.
This year, the committee is developing a range of materials that
member bodies can use to communicate with their SMP members, including articles with tools and tips to support practice
management and implementation of the International Standards on Auditing (ISAs). We also initiated a quarterly SMP
poll, which many of our member bodies have distributed to their
own members.
Article
Board for Accountants (IESBA) is working to address
the IESBA Code of Ethics for Professional Accountan
(the Code). Two SMP Committee members serve on th

Working Group.
The IFAC SMP Committee is here to champion the cause of
SMPs and represent the global SMP constituency. However, in
isolation, its influence is limited; effective and enduring implementation of the IFAC Board recommendations depends upon
a collective effort by IFAC, its member bodies, and the willingness of SMPs to engage, get involved, and speak with a single
voice at the national, regional, and global level.
For More In for mation

To learn more about the SMP Committee, see IFACs International Center for Small and Medium Practices, where practitioners can access a wide range of free resources and practical
support, including the guides, the electonic SMP newsletter,
links to tools and resources, a discussion board, and other SMP
Committee publications.
About the Author: Sylvie Voghel became chair of the IFAC
Small and Medium Practices Committee in January 2006.
22
Article
Financial and Business Service

Accountancy and Auditing
By Chandra Wadhwa
investment, financial instrument, etc, due to fair value will be

booked as a part of Profit & Loss.
he concept of
fair value has
been adopted for
non-current assets
and liabilities and
not for current
ones.
There
should have been
a complete shift from historical cost to the fair value concept in
the global regime.
Dual Standards
In the entire new structure of IFRS, the concept of fair value
has been adopted for non-current assets and liabilities and
the same concept has been left out for current assets & liabilities. If we analyse this structure, the following issues have to
be addressed:
(a) Whether this will give the true picture of the financial statement to the stakeholders;
The implementation of International Financial Reporting Standard (IFRS), to be made mandatory in India for certain types of
companies from April 1, has been postponed India being an important emerging global economy, the Ministry Corporate Affairs, made the commitment that the convergence of Indian Accounting Standard with IFRS will be in place with effect from
April 1, 2011. Gradually, it will be made mandatory to the listed
Companies having net worth of Rs 500 crore or less.
(b) Whether this will give the correct picture of sustainability;

and
(c) Whether a comparison can be made between the two
companies, when one is following a concept of fair value
and another is following cost concept for its non-current
assets & liabilities
Indeed, this will bring uniformity and transparency in the financial reporting of the Indian companies and their performance
can be compared with the foreign companies and could bring a
lot of investment to India. Finally, the IFRS will play an important role in contributing to the economic development of India.
That may be the reason for China to adopt IFRS at the very initial stage.
From the above, it is clear that the new structure will provide
ample scope to the companies to manoeuvre their accounts,
because it allows them to adopt the concept of fair value for
non-current assets & liabilities as and when they feel.
In this process, the companies can select this scheme when
planning for public issues and show the higher profits to the investors. Moreover, having a combination of two concepts, historical cost for current items and fair value for non-current
items, will not give the true picture to the shareholders.
Now the question arises whether the proposed framework of

IFRS will give the true financial picture to the investors or other
stakeholders?
In order to give true value of the business based on current cost

accounting, there should have been complete shift from historical cost to fair value concept under IFRS. The concept of fair
value should have been introduced for all the resources including human resources accounting, social accounting, inflation
accounting, etc, which would have given the correct picture to
the shareholders and stakeholders. Such kind of reporting to
shareholders would definitely have indicated the sustainability
of business enterprise and have fulfilled one of the objectives of
shifting from historical cost to fair value concept under IFRS.
Major Shift
If we analyse the IFRS, it can be concluded that the major shift
is from historical cost to fair value of non-current items of the
balance sheet. The companies have been given the freedom to
go for the concept of fair valuation of its fixed assets and liabilities. In the absence of non-inclusion of the concept of fair value
of current assets and liabilities in the proposed structure of
IFRS, the question arises whether the financial results of a
company will present a correct picture to the stakeholders.
Under IFRS regime, the companies will be required to follow
the historical cost for preparation of Profit & Loss and current
assets and liabilities; fair value concept, if adopted, for noncurrent items of balance sheet. In this process, if the property
prices changes drastically, the difference has to be booked in
Profit & Loss statement and the depreciation and insurance,
worked out on the basis of fair value of fixed assets, will be
booked in the Income Statement. Similarly, the gain or loss on
Article
By giving hybrid type of model to the presentation of accounts

through new structure will create confusion in the mind of stakeholders. In addition, in the absence of valuation mechanism for
certifying the current market price of fixed assets, the correctness of the fair value of assets will be suspectedn
(The author is a Past President, ICWAI.)
23
Management Accountant, May-Jun, 2011
Article
Performance Audit
for DFIs
erformance is
in relation to
an objective in
terms of a well defined parameter.
Other
achievements of a venture
are off-shoots of the
principal activity or
objective. A park is set-up to the end of community service. To
guard against entry of undesirable, an entry fee on outsiders may
be levied. This may generate some money. But success of the
community park venture does not have to be judged on the basis of
such money collection.
A Development Financial Institution (DFI)s basic function is to help
establishment and harnessing projects it is called upon to assist.
Besides new projects, a DFI helps expansion or balancing and
modernization of already existing entities. Its success can also be
measured by way of other parameters. However, DFIs thrust is not
on making money through profitable operations, net profit and
profit after tax or earning per share (EPS) by milking the projects it
nurtures. Target of a DFI is not and can not be profit making in
monetary units. Its basic task is development, building projects and
strengthening ventures.
DFIs achievement has to be measured in terms of success stories
of the projects assisted, in keeping with the objects of such projects setting-up. Profits made by a DFIs assisted project can ofcourse be in terms of monetary units as well. In most of the cases it
is so. However, success measurement is in relation with an already provided paradigm for the venture. In the case of a hospital,
achievement or a gain / profit can be gauged by way of number of
patients treated, decrease in loss of men days amongst the hospitals clientele or in the area where the hospital is set-up or some
other territory catered by the hospital vis. a vis. the time when the
facility as such was not there. In the case of a highway project, it
can be passenger miles traveled or saving in time or cost of travel
or both. When the highway is put-up in an under developed region,
one of parameters or the parameter can be increment in income
levels of inhabitants of the areas through which the highway
passes in contrast with the position when it was not on the scene.
When the project is an educational institution it can be number of
students qualifying from the educational institution. A pharmaceutical research projects success can be with reference to the drugs it
had patented over a period of time. When the objective of a DFI or
a project financed by it is to provide gainful employment to people,
performance yardstick will be number of jobs created and per unit
cost of their creation. When a DFIs objective is exports growth,
performance of the DFI can be measured in terms of physical
quantum of exports it enabled. It may not necessarily be on the basis of exports in terms of money which has ado with a host of fac-
Article
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.
If a DFI earns a profit in monetary units, it is subsidiary or fall out of
its main activities, a secondary achievement. Rewards or reprimands to managers and other functionaries of the DFI have to be
in relation with their success stories in the sphere assigned to the
institution these people are on the payroll of. Performance parameters laid down for a venture utilizing a DFIs assistance can be
identified differently viz. by way of foreign funds flow in case it is a
venture with the objective to mobilize foreign exchange.
Need for balancing an industrial venture is when outputs of two or
more of its configurations are not symmetrical, not in harmony.
What a component turns out for subsequent processing can not
absorbed by the next line of production. This happens when its production capacity in the subsequent process is lower than processing capacity of the machines in the earlier set-up. For example, capacity of the finishing department at end of the processing processes, may be lower than of the fabricating department in the
earlier process. It used to be a feature in cotton spinning units
where blow rooms, at beginning of production process could offer
to produce more than what the ring frames by way of yarn could
turn out. Reverse can also be the case. Capacity of configuration at
the end can be more than capacity of machines in an earlier process.
Other things remaining the same, it is always considered incumbent to put the things on an even keel by augmenting capacity of
the configuration failing or lagging behind in the industries unit.
This not only increases overall production. It eliminates the idle capacity costs. Elimination of or reduction in idle capacity, through reduction in fixed cost per unit, culminates into reducing overall unit
cost. Cost reduction leads to business strength, making the venture more competitive - also by widening safety margin which in
turn adds to marketing vigour of the enterprise, adding to their solace. DFIs facilitate such balancing. They are keen to remove a
subsisting dis-balancing particularly when the unit has earlier
availed their assistance.
Modernization goes to update an industrial plants technology.
Through shift in the production process or change in inputs or replacement of existing machinery by another set modernization
gets underway. It helps improve the quality of output, decrease the
cost of production, reduces intake of utilities or result in slash of
levies on production. At times a combination of these takes place.
Modernization also covers, putting a device in place which adds to
marketing potential of the produce. Expansion causes augmenting
or scaling-up production facilities in a way that overall output of the
enterprise increases. This normally reduces per unit cost, increasing profit margin per unit produced as also overall profit of the enterprise.
24
Often balancing also gets going to modernize. Modernization increases overall production capacity.
A DFI evaluates projects submitted to it for accommodation. Projects may also be conceived by a DFI. DFIs examination as such is
multi-dimensional. Broad categories of its tests, examination or appraisals are:
Technical.
Economic & Marketing.
Financial.
A project suitable for a DFI accommodation should be equipped

with wherewithal for production of the identified goods or services.
Getting into its wherewithal would include suitability of the land
where the project is located, appropriate plant and equipment to be
used to attain the objective, tested formula for production together
with availability of other related infra structure, raw material and
manpower technical, skilled and non-skilled. Above all is the demand existing and which can be pushed into being for proposed
production.
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
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
and in installments payable upto a period of 20 years. These factors cast shadows on decisions relating to choice of land for a project. Financiers have a minute look on these points which go to determine bank-ability or otherwise of the project. Financiers may not
be moved to touch a project with a five years lease period, if repayment 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
should not be set-up around seismic soil. The finding is highly intriguing when one is told that almost entire Japan is seismic.
Before getting into this rigmarole, the entrepreneur should be certain also on the quality of production desired and planned. Class of
customers projected to be catered and the potential demand is
gone into. This would take to size of the project and then the resources to be mustered and which can be mustered. Texts on project appraisal do not normally lay much emphasis on muscle power
of the entrepreneur in the matte of mustering resources. Probably
with proven viability of a project, financing is not an issue in the
world these texts are produced in. But certainly it is in our scenario.
In our culture, contacts, financial, political and bureaucratic linkages, this or that clubs membership and pedigree of the entrepreneur have more ado with ones musing and with muscle contracting and expansion of arm. It would be too theoretical to believe that
things may be done abstract or so to say only in a text book style
professional way. This scribes finding is that in the matter of finances things move same way everywhere.
Technical experts on the roll of DFIs not only go into capacity and
efficiency etc. of plant and equipment proposed for production of
the desired product. On the basis of their training and exposure
otherwise it is usual for them to suggest that instead of going for acquisition of a composite plant offered and proposed by sponsors of
the project, a proposed textile spinning unit should go for blow
room machinery from X, ring frames from Y and air-conditioning
equipment from Z. It may be concluded that in place of a composite
Article
plant offered from the shelf some other combination of the plant
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
Karachi. Often machinery dealers suggest to a prospective customer that to lift water from the underground to the overhead tank,
instead of buying electric motor and its pump of the same mark
more advisable would be to have a configuration of electric motor
produced by A and pump fabricated by B.
There may be numerous ways / standards to express what quality
product would mean in relation to production of goods through a
set of machines. Price of the machine at one time would be determinant. At other juncture, promoters of the projects may be
charmed by availability of financing for local machinery at better
terms viz. a viz. the foreign machinery. Obviously, a visionary entrepreneur does not line with craze for the best, in disregard of the
antecedents. An industrialist friend of this scribe did not believe in
top quality production. He shunned both low quality and high quality biscuits. He believed that his customers would mainly be average Pakistanis, content with middle of the road quality and price of
the biscuits.
The DFI which helped setting-up this project had
brilliant ideas on selection of machinery, which led to

substitution of a goods number of foreign machines
included in proforma invoices of foreign suppliers by

local machinery.
Accordingly, finalized was list of machinery consisting configurations from sources in and out of the country, much cheaper and yet
competitive than the compact plants quoted by foreign suppliers.
The DFI which helped setting-up this project had brilliant ideas on
selection of machinery, which led to substitution of a goods
number of foreign machines included in proforma invoices of foreign suppliers by local machinery. Thus on the hand it went into a
technically more viable plant. Reduction in depreciation and interest costs enabled substantial lowering of the operational and financial costs. It was other side of the story. Through reduction in cost
of the project and diminution in debt servicing these lowered breakeven point and upped safety margin of the enterprise. Reduction in
financial vulnerability this way, provided boost to the ventures financial and marketing strength. Advantage to the nation was also
by way of saving in foreign exchange. Dollar tagged around Rs.
4.80 was badly scarce. One can only imagine adversities to business in the event of non-servicing the debt in foreign currency
while dollar marched forward against the home currency. You
earned in local currency but had to repay in foreign currency because the loan amount was expressed in foreign currency.
An interesting case was of a group desirous of setting-up a cement
plant. For the DFI requested to finance, foreign exchange component of the project was formidable. No one at that time had even
thought of (substantial) local fabrication of a cement plant. The
relevant DFI consulted the then well known appropriate technology guru, Ghulam Kibria. Plant designers as also fabricators, at
Lawrence Road in Karachi and Brandreth Road in Lahore, were
25
sent for. The result was a cement plant with substantial locally fabricated component turned out by Heavy Mechanical Complex,
Taxila. That was the game played by the DFI. This game, besides
saving in cost of the project and foreign exchange, helped growth
of technology and skills in the country.
Since this paper is not on the subject of putting infra-structure for
an industrial venture in place, suffice is to say that quality of land,
building, plant and machinery, production processes, human resources lining-up etc. would mean to signify selection on the basis
of desired standard. The standard desired is the outcome of striking an agreement with reference to the same between the stakes
holders. This scribe is witness to a situation in early 70s in which, to
beef-up volume of kick back from the machinery suppliers expressed as percentage of the price of machine to be procured out
of the loan, the sponsor got the most sophisticated and most expensive plant, which they could not run. The concerned DFI technical people did not support such a high quality acquisition also on
the ground of dearth of qualified people to man the plant around
the relevant location. Somehow or the other, the entrepreneur had
their way. The project became sick. The sickness was diagnosed
to be improper operation and upkeep of the installations.
A DFI has to be set with a clear purpose: Development or Profit.
Profit is relatively easy to prescribe and measure. But measurements for development need to be more precisely laid down. When
export promotion is the target of a DFI, it has to be in physical
terms. So much of cotton bales or so much of rice tons the DFI
should target. Because value of export or pricing for export takes
one to a different ball game. In terms of money, volume of export
has ado with market mechanics and $ parity with home currency
etc. Of curse there can be export targets expressed in monetary
terms. However, when expressed in money terms, quantities exported are not be eyed, unless the target is both in terms of physical quantities and money values e.g. 1,000 tons of sugar @ not
less than $ X per ton.
In a real life situation, a DFI was indoctrinated into philosophy of
the ruler. He surmised gearing financial instruments accordingly.
Plenipotentiary of the financial brain trust came-up with design of
an instrument of financing which was not in keeping with the law
and rules of accounting. It was considered divorced of financial
crease, with no traces of its specie anywhere. As it would, despite
protests from down below and around, the instrument was put into
play. Massive financing was done on the basis of that instrument of
financing. Orchestrated by its henchmen, it was really government
of the days doing.
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
refer the relevant government gazette of 30 years back, down the
line.
Governments and business, even charities, pay what comes due
against them. National airline has to be paid for the tickets on
which government functionaries, on regular payroll or otherwise,
travel on command of the man who approves appointment of the
airlines chief. Similarly, media plays (straight) governmental advertisements or doctored programs. For these services the concerned
governmental agency pays to the media.
On the same analogy, a DFIs accommodations with intent of political gains on the part of the governmental boss or of the political
Article
party should be liability, fully or partially, of the authority directing

the DFI concerned to dole out. Because the choice of instrument
for financing as also the party receiving money was on their behest.
Similarly, government appointed an overseer, gone-up in its hierarchy, to head a DFI. The man has all through lived away from cities business circles, confined to his abodes in the rural areas.
Never tested the language of business, of law, finance or banking.
It was experimentation on behalf of the government, to use the
mildest expression. What and how went wrong at the DFI can only
be guessed.
These commands of governments raise direct costs chargeable to
the beneficiary i.e. to the government, every students of management accounting or a logical person would bear out.
The above leads to following summations:
1..
DFIs assistance results in multi-dimensional development.

They are agents and catalysts of development.
Just as public parks are harbingers of breeze, soothing, energizing, stress relieving, DFIs are depositories and pavers of
uplift in general. Their impact is on economic environment.
2..
DFIs should be development oriented, not profit oriented.

Government may closely monitor their operations, not fiddle
with them. However, it has to evolve criteria for their appraisal
not akin to evaluation of projects put in to make money.
A DFI making profit did not carry the significance as it would
be in the case of a textile mill or a cement plant.
As agents of development, DFIs should not be expected to
excel in money making e.g. be, necessarily, a profit making
proposition by themselves. If they make money it is an offshoot, of secondary importance.
3..
Since development is a state function like protection of life,

honour and property of the subjects, DFIs should be set-up by
governments.
Governments should separately pay to them for promotion of
their political agenda not otherwise on schedules of DFIs.
4..
DFIs should be allowed to operate by themselves i.e. work by

themselves.
5..
DFIs should be subjected to performance audit on quarterly

basis.
Public Accounts Committee of Pakistans National Assembly,
meeting on 12 May, 2011, directed PIA management to hold
performance audit of the airlines. According to press report,
the committee regretted that the PIA management was playing with lives of passengers by having old age pilots in the
crew.
Performance audit was directed, most likely, because PIA is
not taken for just a money making company
Now a corporate counsel, the author is

former V.P., ICMAP & ICSP and former Chairman of ICMAP and ICAP
Joint Committee.
About the Author:
26
Article
Insurance Sector in Pakistan

An Overview
Although, the market is fairly liberalized as 100% foreign

ownership and control of insurance companies was permitted
by the government in 2007, with the condition of bringing in a
minimum of US$ 2 million in foreign exchange and raising an
equivalent amount from the local market. There are two
dedicated foreign health insurance companies in the market,
along with two foreign life and non-life insurance companies.
Also, following the takeover of Adamjee Insurance by MCB
Bank in the year 2004, many major banks have setup their own
insurance companies.
n recent times, the Pakistan Insurance Industry has registered

an annual growth in Gross Written Premium of approximately
15%. As at June 2009 there are 39 insurance companies
(including 3 registered as General Takaful insurers) are actively
transacting non-life insurance business. There are 9 life
assurance companies (including 2 family takaful insurers) in
which there are two fully state-owned companies viz. State Life
Insurance Corporation (SLIC) and National Insurance
Company Limited (NICL), enjoys monopoly to insure all publicsector owned properties and interests, including statutory
corporations). The state-owned Pakistan Reinsurance
Company Limited (PakRe) provides reinsurance arrangements.
The minimum capital requirements are being increased in a

phased manner, though they still remain modest by international
standards, at Rs.300 million for non-life and Rs.500 million for
life in 2010. During last two years, 24 non-life companies have
been ceased mainly due to their inability to meet the capital and
solvency requirements. There are still 35 non-life insurers left
which underscores the need for further restructuring and
consolidation.
Life assurance is dominated by SLIC with 68% of the market

share in 2009 and 2010. Over 87.5% of the non-life insurance
market is held by private domestic companies. Insurance
premiums are market determined. Pakistan recorded in 2009
Insurance Penetration at 0.70% and insurance density at
USD6.5 per capita.
Article
27
Despite its small size, the sector is supported by strong

accounting and actuarial infrastructure. The leading listed
insurance companies produce transparent financial statements
which are available on the internet. The reinsurance
requirements for the sector are very stringent. A minimum of
80% treaty reinsurers must be A rated by internationally
reputable rating agencies and only 20% can be BBB rated.
reason for this sluggish growth was worsening law and order
situation and the resultant political instability. Additionally, the
global recession also had an adverse impact on Pakistan's
economy. Considering the small revenue base of the sector,
effective steps need to be taken to promote mergers and
acquisitions.
Life Insurance Sector

There are seven life insurance companies in the market
including 1 state owned corporation which enjoys 68% of the
market share. In 2009, the private life insurance sector grew by
11%. However, the total premium for the year 2009 stands at
only Rs.41.9 billion.
Takaful Sector
There are five Takaful operators in the market who have
commenced their business operations in the recent past and are
therefore still going through the initial phase of development.
Out of the total, three general takaful operators are offering nonlife insurance business and two family takaful operators are
offering life insurance. In 2009, the total premium of the takaful
sector was approximately Rs.1.4 billion.
Like all businesses, Takaful is also market driven and requires a
multi-channel distribution outreach to be sold effectively. Due to
its inherent Islamic and ethical element, Takaful has a stronger
appeal to an individual rather than to a business, therefore a
B2C selling approach should have been the right model, but
unfortunately, the concept of retail insurance is new to the
Muslim countries as even in Malaysia, Takaful is approximately
10 to 12% of the total insurance market.
The total revenue generated in the year 2009, was only Rs.86.9
billion, a little over US$ 1 billion. Considering the small revenue
base of the sector, effective steps need to be taken to promote
mergers and acquisitions. The market has witnessed
introduction of new products like health, crop and livestock
insurance. New distribution channels such as Bancassurance,
Websales and Telesales have also recently emerged.
Reinsurance
A government-owned reinsurer, PRCL, continues to benefit
from a mandatory minimum 35% share in the treaties of non-life
companies.
Market Development
Non-Life Sector
i.
Currently there are 35 non-life insurance companies operating

in the market including one state-owned company, National
Insurance Company Limited, which has a monopoly over
government business including semi-autonomous entities. In
non-life insurance business, approximately 65% of the market
share in the private sector rests with only 3 insurance
companies and approximately 93% with only 10 insurance
companies. In the year 2009, the non-life private sector grew by
mere 3.29%. In 2009, the total premium revenue of the non-life
insurance sector was approximately Rs.43.6 billion. The main
Focus Section
Microinsurance
Without servicing the insurance requirements of low-income

people, the risks to economic development cannot be
minimized. This has also been proved by the catastrophes
faced by the country in the recent past, including the devastating
earthquake of 2005 and the destructive floods of 2010, where, in
the absence of proper insurance coverage, the economic losses
suffered by the masses had adverse effect on the overall
economy in general, and financial stability of the population at
the bottom of the pyramid, in particular.
28
While realizing the needs of the microinsurance segment and

the huge potential economic impact on the target community,
the SECP is working to create a transparent and enabling
environment thereby increasing the insurance density and
affordable outreach to low-income people, and alleviation of
poverty, by the development of regulatory framework for
microinsurance and recommending sustainable business
model for microinsurance business.
ii.
companies, SECP, after detailed deliberations with the

Insurance association of Pakistan, had agreed on a
comprehensive proposal. After approval from the Ministry of
Finance, this was also conveyed to the respective provincial
governments to take any necessary steps to make amendments
in the law.
v.
'Fit and Proper' criteria for Management of

Insurance companies
Terrorism Insurance Pool

The 'Fit and Proper' guidelines are practiced & implemented by
Regulators globally, in order to promote good corporate
governance and to encourage the Managing Director/Chief
Executive and the Management team to play an effective role for
the capacity building of their Institution. It is vital to point out that
in order to prepare the insurance sector to face the impact of
globalization and shrinking margins and also to avoid
maladministration, the Insurance companies must be run by
competent executives with adequate know-how of insurance
business. Keeping in view the importance and urgency of the
matter, the SECP has developed a 'Fit and Proper Criteria' on
the insurance sector in line with the Insurance Ordinance, 2000
for the management of an insurance company, which will be
notified shortly.
The recent terrorist activities in major cities have made strikingly

clear that terrorism has developed into a threat that affects every
aspect of society and knows no national boundaries. The only
answer is a concerted effort in which governments work hand in
hand with insurers and reinsurers. Effective solutions involve a
risk partnership between insured's, insurers, reinsurers, capital
markets and governments. Most countries in the world have
developed Terrorism Pools as a result of public private
partnership. Pakistan also needs a Terrorism Pool on an urgent
basis.
Being the apex regulator of the Insurance industry, the SECP
feels that there is a need to ensure continued availability of
comprehensive insurance cover for investment flow in the
country and thus, to protect economic and financial sector
soundness. The SECP is working to develop the Terrorism
Insurance Pool in Pakistan by looking at the international best
practices and models in other jurisdictions.
vi. Amendment in Takaful Rules, 2005

The Takaful industry in Pakistan is still in its infancy. Like Islamic
banking, it is also going through a period of experimentation.
During this process of transition, it needs to be guided by the
Regulator in the right direction. Since the models of Takaful vary
depending on different interpretation of Shariah by various
countries, there is an urgent need for standardization. The
Takaful Rules 2005 are being reviewed with the objective of
removing the anomalies and addressing the areas which are
silent in Takaful Rules, 2005. A new set of Takaful Rules 2011 is
being formulated and will be issued shortly, repealing the Rules
of 2005.
iii. Amendment in Rule 35 of SEC (Insurance) Rules, 2002

The Rule relates to the payment of premiums by policyholders to
an insurance company. In Rule 35(1), it has been stated that no
insurance policy shall be avoided on the ground that the
premium has not been paid. However, the Rule 35(2) permits
insurance companies to specifically state in their policies that
cover under policy shall not commence until premium has been
paid in such manner as may be set out in the policy or otherwise
agreed by the insurer.
Conclusion
The huge outstanding amount on account of premium

receivable, poses a serious threat to the overall industry with a
high potential of default. The Insurance Industry has been
advised to address the issue by designing a mechanism to
ensure recovery of premiums. To this effect, an appropriate
system should be put in place to enable the insurers to recover
premium.
It is expected that the size of local insurance industry will double,

just as it has doubled over the last five years. With annual growth
exceeding 12 per cent, the industry has tremendous potential. It
also to be understood that in order to increase the penetration
and bringing to at par with other countries in the region all private
insurance companies need a trained workforce like State Life
which operates with a 100,000-member strong field force with
introduction of innovative products and delivery channels while
leveraging the use of technology. The biggest challenge for
insurance companies is to develop a trained field force that can
reach people and make them understand the importance of
savings and investments through insurance.
iv. Compulsory Motor Third Party Liability Insurance

To eliminate the issuance of bogus motor third party compulsory
insurance certificates by unauthorized persons/entities and to
ensure that all vehicles on the country's roads have proper
insurance cover issued by registered insurance/takaful
Focus Section
29
Article
The Behavioral Aspects

of Internal Audit
erforming Internal Audit is

a thankless job,
and it would remain so unless it
takes at least a
180 degree turn
from its current
purpose; who wants to be found fault with &still say thank you?
It certainly requires something more than sanity to say the
least.
3.
While querying and seeking explanations from the

auditee about the exceptions identified to confirm his understanding and thus elevating the exceptions to the next
level i.e. observations
4.
When discussing the observations with the management

of auditee department and seeking their response before
finalizing the report for the audit committee
To get required information and records from the auditee, in a

timely manner, is in itself an uphill task, that leaves many auditors gasping for air like a worn out marathon racer. Getting
agreed the identified loopholes pose the biggest challenge of
all. It is pertinent that the internal auditor must have a clear understanding of the behavior and the demeanor required of him,
as well as understands the personality traits of the auditee personnel so that he may perform his work with minimal friction
and complete the assigned task without unwarranted negative
sentiments from either side.
For ease of understanding of the readers, the article has been

divided into two parts; 1st part describes the importance/necessity of the behavioral aspect and understanding the characteristics of the auditee department officials. The 2nd part describes the desired behavioral qualities and traits the Internal
Auditor should possess.
The Auditee Mindset
The people in a department the Internal auditor goes to may fall

into characteristically 4 broad categories
It is the duty of the internal auditor to check the controls identify

missing controls and report inefficiencies; whether he reports it
specifically or not, there is always someone to be blamed,
someone who is found negligent, someone who couldnt identify the risks, and someone who couldnt think out of the box.
Well well, and though the intensity of the action taken by high
ups varies from company to company but it mostly results in
reprimands, show cause, no salary raise, bar on promotion, demotion, charge sheet, suspension or even lay off; Whew! No
wonder the entry of the internal auditor in other departments is
taken as akin to vampire on the prowl, though lately the role of
even vampires have taken a glamorized turn, and suddenly we
are finding ourselves looking at such vampires who are more
humane and handsome than most of us, thanks to western
movies on that subject;
The Chums
The Wise Ass
The Busy Bee; and
The Devil May Care
Moreover you could also find people having a blend of two or
more of the above mentioned categories, which makes the matter more complicated than it already is.
An elaboration of the above categories is interesting.
The Chums: Got variants, from lighter shade, i.e. sincerely
friendly & caring looking to the darker shade who make the
auditor feel like the newly throned king who just have returned
from a long exile to his rightful kingdom. These are the most interesting characters who try to do almost every bidding of the
auditors and seem to hang on to his every word. Remember
these are the most insecure people, who fear that the auditor
may get hold of something at the end of the day that may render
them incapable to come up with proper and satisfactory justifications; so they try to taint the neutral and objective mindset of
the auditor and impact his professional skepticism.
Like sales and marketing the internal audit has a behavioral aspect too, it performs various tasks across the organization. The
auditor has to deal with the auditee department people particularly at 4 stages of audit
1.
At the Kick off meeting, while discussing the brief scope

and objectives of the assignment and getting himself introduced
2.
During process of audit, while asking for documents and

information required to be worked upon
Article
30
The auditor must understand that he has only one true friend in
the sanctuary of the auditee department and that is his own self.
Are considered the blue eyed boy of the management &

thus indispensable
The Wise Ass: are the exact opposite of the chums. They try to
break the composure & concentration of the auditor by their irritating behavior.
Are at the end of their career
Some of them are outrageously bullying. They try to exasperate

the hell out of the auditor so that he may lose his cool and over
react. Its a ploy to turn the tables down on him by reporting to
management the quarrel or the heated argument they try to
drag the auditor through.
Some of them try to out- smart the auditor. When asked a question, they answer in such a manner as if the auditor had raised a
foolish or childish query, hoping that the auditor gets irritated
and begins to question his own judgment and stops asking
more questions.
An auditor may also find himself in a scene where he is advised,
that whatever he is doing is inconsequential and pure waste of
time. Further he is pursuing petty things while the big, juicy matters that should be audited are elsewhere (some other department). Once in my career such a guy approached me and told
me of a particular assignment that the audit department should
do to add value to its work. The assignment he referred to was
not only beyond the scope of Internal Audit but also hilariously
impossible, so what I did? While maintaining a blank face I appreciated his concern and asked him innocently if I could mention that assignment to my HOD quoting his name? He immediately backed out!.
Remember these are the most dangerous people and should
be dealt with extreme caution and care.
The Busy Beee: They are always found going through deadlines
and pressures. Always in haste, papers and files strewn all over
their desk, one hand on the mouse while the other through
graying hairs, they try to act friendly, but at the same time keep
on narrating their problems. They try to divert the auditor one
ladder down or two ladders up! Though they have tried to bore
the auditor for hours with the tales of their high blood pressure
or sugar, yet seldom provide him with even five minutes to respond to some query.
The Devil may caree: They pride themselves by acting nonchalantly trying to ignore the auditor as much as they can. They
consciously try to take no notice of the waves he has created,
when the auditor goes to them to ask for some document or information, they deliberately get unavailable, mostly these people are at a position higher than the auditor, these are very
tough people to deal with, it is to be taken notice that such people are either
(a) Not get affected by the audit findings; because
z
They are not directly concerned with the subject matter of

the audit
Article
(b) Or they fake it

The best way to get the desired information from them is by being friendly and polite and to create some kind of connection, to
make them feel it is to their benefit. Success is not guaranteed!
Audi tors Com po sure

Though pointing out behavioral deficiencies and putting people
into pre-determined slots and terming them from Wise Ass to
Devil May Care is easy, to calibrate ones own attitude and
looking for and adapting to the behavioral norms suitable for the
Internal Auditor is like untying the Gordian knot and is the main
purpose of this article.
Once a close friend told me about a bank (his father used to
work there), where IA executives opted for golden handshake,
75% of them died within 3 years, unbelievable? Reason explained was that they were treated like VIPs at the bank, when
they retired nobody was ready to provide them with that dose of
flattering words. The attitude at home and of ex-colleagues took
a noticeably reverse turn. It was something shocking. They got
dejected bringing death nearness. I intend here to suggest
some useful tips that could be of some help to internal auditors
to save them from heartache, minimize their office friction, and
thus enable them to develop some respect and motivation in
the organization they work for.
Be cour teous and friendly but not chummy It is best for the
internal auditor to have a courteous and friendly attitude but
getting chummy with the auditee is something they should refrain from; IA profession requires the auditor to carry on his
work with integrity, honesty and objectivity. He needs to work all
the time keeping professional skepticism, and use his professional judgment; whenever an assignment is completed he
may produce observations that go against the people he got
close to during the course of his audit. Such situation brings the
auditor at cross roads; either to keep his friendship intact and
say farewell to all integrity and honesty blah blah crap, or maintain upright professional behavior and report all deficiencies.
However he should always remember that he is paid by the
company for professional output. It is not fair to try to cover personal interest at the cost of company interest.
Taking favors from auditee they so solicitously offer does also
create problems for the auditor. Remember the old adage
there is no free lunch, though such favors in reality may extend far from mere free lunches. It is obvious that if you take favors you would have to return favors, and if you refuse to return
favors, there would be grievances. The auditees while extending such favors validate their actions by stating it as custom and
hospitality. May be some of them really mean it that way only,
but it is not easy to distinguish between an honest offer and a
crooked one in advance.
31
Management A ccountant, May-Jun, 2011
What internal auditor must fathom is that he is not the external

auditor. Though from a different department, he is part of the
same organization. So people who got chummy or shower favors will sure shout foul when reported against.
Be a good lis tener to listen to the comments and justifications
provided by the auditee as well getting a thorough understanding of the process requires both; a good pair of ears and a sensible head over the shoulders. It must be noted that good listening doesnt mean only listening and comprehending abilities,
but also making meaningful interruptions and intelligent queries
about the subject matter, to keep the discussion on track and be
guided to the next level. Misplaced interruptions can be time
consuming, leading discussion to trivial matters, and can put
halt to an otherwise meaningful discussion. While making enquiries the auditors tone should be friendly and polite. He must
understand that he is not one of the fibbies (FBI people) in his
profession undue rigidity is a crime. He must accept seemingly
reasonable justifications for further review and maintain an
open mind. It is an art to go with the flow of discussion while fully
digesting and querying the new dimensions unfolded during the
course of conversation.
An acquaintance of mine once confided that he tries to answer
as succinctly as possible in front of a certain senior official of
audit department, because he has seen that any wrong or carelessly uttered statement leads to opening of a new Pandora
box.
Main tain a calm & im per sonal com po sure an auditor must
not get excited at every juncture. People try to get him offbalance all the time to have some escape. He should strive not
to get exasperated ever, or express negative emotions and
comment for others. Such utterances could take a personal dimension which is something to avoid at any cost. Though having a non nonsense attitude is good, during the course of his
work the auditor may have to put up with lots of irrelevant talk.
Maintaining an impersonal attitude always helps the auditor in
carrying his work peacefully while he strives diligently to
achieve the objectives of his assignment. When confronted
with someone getting annoyed with his queries or demands for
documents evidencing transactions, the IA must clarify that
what he is doing is all professional and there is nothing personal
in it. He is doing what his job responsibilities require of him just
as the auditee is doing what his job requires of him, and that
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
work done by the auditee both verbally and in his report.
Main tain a Low pro file Though being in lime light and someone to be talked about or feared seems a definite ego-booster
and something some people crave for, such attributes could
harm the auditor in the long run.
When I was in the early stages of my career, a senior advised
me thus always keep a low profile. Say you are doing what you
are told, you have no say in the proceedings and you dont
know and cant say how the matter would be reported at the end
as you are just an ordinary audit official. On face these words
Article
may seem lowering your self esteem (Mein tay Mali Aan), but
as per my experience it is the wisest thing to do. An auditor if
works diligently cannot expect to gain sincere well wishers. The
colleagues accuse that the auditor is marauding their career for
adding stars to his own shoulders. To avoid becoming the victim of any such negative behavior the auditor should refrain
from publicity and should not drum his achievements in general
public.
Main tain a just behav ior To do justice with his work, his assignment and his subject matter is a must for internal auditor.
What I intend here to point out is the behavioral aspect of justice, which is justice with people. As already described earlier in
the article the auditor should maintain an impersonal attitude.
An auditor may find people related with the subject matter of his
audit begin to dislike him, it gets reflected in their negative and
irritating attitude, their creating hurdles in the performance of
his work etc. the matter becomes more complicated when dislikes get exhibited out of office too.
The auditor should realize that his position is of justice, neither
should he favor anyone nor unjustly victimize. His observations
should be based on facts and while elaborating facts, the foremost aspect is the merit of the matter; his biased comments
may harm someone who is not at fault. The auditor himself is
the best judge of his own biased views. The auditor shouldnt let
his behavioral deficiencies taint his professional attitude and
judgment thus. Remember that integrity involves maintaining
an unbiased attitude, whether the bias goes for or against the
auditee.
A biased auditor is like a stray bullet which is as dangerous to
the reputation of his own department as for others.
Be Tact ful Tactfulness is the primary and one of the most useful weapons of the auditor. Among other things, the successful
completion of an assignment requires a healthy dose of tactfulness. Tactfulness involves judging people right, have a knowledge how to deal with people having different personalities, and
make them implement auditors recommendations. To get the
required information, documents, soliciting replies from the
auditee and to get them agree to the audit findings are the main
areas where tactfulness is required. However, remember that
tactfulness is something other than hypocrisy, making false
claims, or raising wrong hopes.
Con clu sion

In the literature on Internal audit, the behavioral aspect in found
lacking or non existent. However good and competent and
well equipped the internal audit knowledge of an auditor may
be, behavioral problems may render him ineffective and a burden on his department. This article is a humble reminder and a
wakeup call to those who are more knowledgeable, have more
experience, have more insight to the human behavior and thus
better suited to the task, to step forward and contribute in this
neglected area where their endeavor could benefit thousands
of internal auditors performing their work around the globe
32
Article
Stricter Checks on 10,000 Companies

as Cost Audit Turns Must
By Souvik Sanyal
perational details of more than 10,000 companies across

14 industries will come under government scrutiny with the
ministry of corporate affairs making cost audits mandatory from
April this year.
In a communication issued earlier this week, the ministry has
ordered all manufacturing companies that meet a minimum
turnover threshold to submit their annual cost records to the
government. "The move will ensure that government is kept
updated on the cost involved in production for all companies
within a domain," said an official in the ministry.
A cost audit is a process of ascertaining whether the production,
marketing and sales processes of a business have been
managed in the most cost effective manner. The audits reveal
the extent of efficiency and profitability of a company as well as
the sector.
The expert panel had suggested that cost audits be made

mandatory. It had also sought to bring services under its fold.
The proposals, however, could not be implemented because of
stiff opposition from companies who were wary of disclosing
their cost structure to rivals.
A cost auditor scrutinizes records of material, labour, utilities,

overheads, depreciation, royalty, research & development
expenses, incentives on exports, borrowing costs and intercompany transactions to ensure that they give a fair picture of
the business.
The government uses the cost audit data to fix prices, excise
duty, income tax and other levies.
"More than the cost of compliance, it is cost of non-compliance

that makes the process necessary," said a cost auditor of a
public sector steel company.
The corporate affairs ministry's communiqu? says all

companies manufacturing bulk drugs, fertilisers, sugar,
industrial alcohol, electricity, petroleum and telecom equipment
and having an annual turnover of more than Rs 20 crore will
have to carry out a cost audit. For companies manufacturing
cement, tyres, steel, paper and insecticides, the annual turnover
threshold has been fixed at Rs 100 crore.
Detailed cost data is crucial in antidumping investigation,

determination of subsidies, and establishing predatory pricing
by a dominant player. The information is particularly significant
for the competition authority, which has to ensure that tariffs are
justified and there is no collusion or cartelisation to push up
prices.
Corporate India, however, is not convinced of the need for such
an audit. "Already there are too many audit requirements that a
company needs to meet like financial audit and internal audit,"
said N K Nolkha, chief financial officer of Kanoria Chemicals.
"Making cost audit mandatory will add to compliance cost of
companies."
Any company that has its debt or equities listed on stock

exchanges, or is in the process of doing so, will also have to
carry out a cost audit even if it does not fall within the turnover
criteria.
These companies will have to file cost audit reports for fiscal
2011-12. "This step will help regulators maintain a reliable
database on costing-related information based on which key
decisions affecting the economy and the common man are
taken," said A N Raman, president, South Asian Federation of
Accountants.
The Institute of Cost and Works Accountants of India, which

regulates the cost accounting profession in the country, has on
several occasions in the past demanded uniformity in cost audit
of companies engaged in similar business. The institute has
been seeking an expansion of the scope of cost audits in India
on the ground that the term "class of companies" in Section 209
(1) (d) of the Companies Act means the entire set of products
produced by manufacturing firms, not just a few sectors or
products specified by the central government.
Earlier, the government used to order cost audits of selective

companies and only about 2,000 companies used to file their
cost records in a year. These records were then assessed by an
expert committee, which was constituted by the corporate
affairs ministry in 2008.
Article
Courtesy: http://economictimes.indiatimes.com
33
Article
European Social Welfare State

A Dream World or Time Bomb
Accountant, PPL
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
value of an amount of money at one date with that at the later
date, we use the concept of present value. A present value is an
amount of money that, if invested today, will grow to equal a
given future amount when the interest that it earns is taken onto
account. We can compare dollars today with dollars in 2030 or
any other future year by using present values.
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.
Western countries which are being managed under a capitalist
system have implemented Social Security System to fulfill
medical and retirement issues. Now a days Muslims living in
under developed countries are very much impressed with
man-made social security system implemented by western
countries like USA, Canada, England etc. To digout the inside
of the social security system, we will explain the system in four
stages which is implemented in USA;
In stage we will discuss how deficits shift from one generation to 2nd generation and so on and its economic
measurement.
In 2nd stage Generation imbalance and it impact on future

generations
In 3rd stage way out suggested by Economists and it possibility to achieve
For example, if the interest rate is 5% a year, $1000 invested today will grow, with interest, to $11,467 after 50 years. So the
present value (in 2056) of $11,467 in 2006 is $1000.
1st
In 4th and final stage solution given by Islam.
Stage - 1
Generational Effects of Fiscal Policy
Is a budget deficit a burden on future generations? If it is, how
will the burden be borne? And is the budget deficit the only burden on future generations? What about the deficit in the Social
Security funds? Does it matter who owns the bonds that the
government sells to finance its deficit? What about the bonds
owned by foreigners? Wont repaying those bonds impose a
bigger burden than repaying bonds owned by Americans?
By using present value, we can assess the magnitude of the

governments debts to older Americans in the form of pensions
and medical benefits.
But the assumed interest rate and growth rate of taxes and
benefits critically influence the answer we get. For example, at
an interest rate of 3% per year, the present value (in 2006) of
$11,467 in 2056 is $2,616 (=11,467/(1.03)^50). The lower the interest rate, the greater the present value of given future
amount.
Because there is uncertainty about the proper interest rate to
use to calculate present values, plausible alternative numbers
are used to estimate a range of present value.
Using generational accounting and present value, economist
have studied the situation facing government arising from its
social security obligation.
To answer these questions, we use the tool called generational accounting an accounting system that measures the
lifetime tax burden and benefits of each generation. This accounting system was developed by Alan Auerbach of the University of Pennsylvania and Laurence Kotlikoff of Boston Iniversity. Generational accounts for the United States have been
prepared by Jagadeesh Gokhale of Federal Reserve Bank of
Cleveland and Kent Smetters of the University of Pennsylvania.
2nd Stage
The social welfare time bomb
US case has been presented to analyze the situation. When security was introduced in New deal of the 1930s, todays demographic situation was not envisaged. The age distribution of the
U.S. population today is dominated by the surge in the birth rate
after World War II that created what is called the baby boom
generation. There are 77 million baby boomers.
Generational Accounting and Present Value

Income taxes and social security taxes are paid by people who
have jobs. Social security benefits are paid to them after they
Article
34
In 2008, the first baby boomers have started collecting social

security and in 2011, they will become eligible for Medicare
benefits. By 2030, all the baby boomers will have retired and,
compared to 2006, the population supported by social security
will have doubled.
Under the existing social security laws, the federal government
has an obligation to these citizens to pay pensions and Medicare benefits on an already declared scale. These obligations
are a debt owed by the government and are just as real as the
bonds that government issues to finance its current budget deficit.
To assess the full extent of governments obligations, economist uses the concept of fiscal imbalance. Fis cal im bal ancee is
the present value of the governments commitments to pay
benefits minus the present value of its tax revenue. Fiscal imbalance is an attempt to measure the scale of the governments
true liabilities.
Gokhale and Smetters estimated that the fiscal imbalance was
$45 trillion in 2003. (using alternative assumptions about interest rates and growth rates, the number might be as low $29 trillion or as high as $65 trillion). To pay the $45 trillion in perspective, note that U.S. GDP in 2003 was $11 trillion. So the fiscal
imbalance was 4 times the values the value of one years production (Refer CFA Economics 2009 Level-1).
3rd Stage
How can the federal government meet its social security obligations? Gokhale and Smetters consider four alternative fiscal
policy changes that might be made:
z
Raise income taxes
Raise social security taxes
Cut social security benefits
Cut federal government discretionary spending
They estimated that starting in 2003 and making only one of

these changes, income taxes would need to be raised by 69
percent, or social security taxes raised by 95 percent, or social
security benefits cut by 56 percent. Even if the government
stopped all its discretionary spending, including that on national
defense, it would not be able to pay its bills.
Of course, by combining the four measures, the pain from each
could be lessened. But the pain would still be severe. And
worse, delay makes all these numbers rise. With no action, fiscal imbalance climbs from $45 trillion of 2003 to $54 trillion in
2008.
Gen erational im bal ance

A fiscal imbalance must eventually be corrected and when it is,
people either pay higher taxes or receive lower benefits. The
concept of generational imbalance tells us who will pay. Gen-
Article
erational imbalance is the division of fiscal imbalance between

the current and future generations, assuming that the current
generation will enjoy the existing levels of taxes and benefits.
Major source of the imbalances is Medicare. Social security
pension benefits create a fiscal imbalance, but these benefits
will be more than fully paid by the current generation. But the
current generation will pay less than 50 percent of its Medicare
costs, and the balance will fall on future generations. If we sum
all the items, the current generation will pay 43 percent and future generations will pay 57 percent of fiscal imbalance.
Because the estimated fiscal imbalance is so large it is not possible to predict how it will be resolved. But we can predict that
the outcome will involve both lower benefits and higher taxes.
One of these taxes could be inflation tax paying bills with new
money and creating inflation. But the Govt always resist inflation being used to deal with imbalance.
4th Stage (Fi nal)

From the above discussion it is concluded that there is only one
way out i.e creation of new money at the cost of inflation. But
this solution will give nominal currency to the baby boomers not
the purchasing power.
Now the time has come when we have to change our thinking
paradigm which has been constructed under the capitalism
frame work. We cannot solve above problem with quantitative
numbers (money creation), we have to change the basic characteristic of society which at present has been developed with
capitalist epistemology. In civil society every member having
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
interestedness behavior in civil society never developed a joint
family system (Khandan), therefore, in civil society every person treated like UNIT. In civil society state has to develop a social security system to fulfill the needs of UNIT.
To solve this issue we (Muslims) have to develop the society
with the characteristic of Slavery to God rather than Freedom.
When we talk about slavery to God means construction of a society based on principles on which Prophet Muhammad (PBU)
developed a society in 600th century and it lived till upto the 19th
century. Principles on which society was developed:
1)
Objectiveobedience Abdiat - accountable for his actions

in front of God
2)
Companionship and wel-being. Relationship are built for

the pleasure of God, not for any social or economic benefits
3)
Patience and thankfulness.
4)
Self-annihilation, Qanat and Fana.
35
In Islamic society, built on above principles, there is no

need for Generational Accounting because present generation has no need to invest today for future days. It can be
explained with the following discussion. Note that we will discuss

Economic aspect only.
z
z
z
Islam developed a relationship

between Man and women through
Nikah (Marriage)
Then Husband is economically responsible to take care of the wife.
If there are children than husband/father is economically responsible to take care of his wife
and children. Father has to spend
all his energies for upbringing and
developing its children life as per
prophet ruling (sharia).
Family which started with two become Khandan (Brothers, sisters
and - - - - )
Table 1 (Terms are in Arabic)

S. #
Pri or ity in Dis tri bu tion
In cluded
Ashabul Faraeez Mentioned in Quran Father, Mother, Husband, Wife, Daughters,

sons, brothers, sisters, Grand relations
Asbiaat
Based on close relationship with deceased

person after considering 1st
Muatiqu
Related to Slaves
Alrudo Ala Zavil faroodi Ghairiz Zojain Distribution to 1st after wife or husband
Zavil Arham
Maternal relationships
Moulal Mawalat
Deep friendship with responsibility of Loss
Al Mukralaho Binnusbi Aalul Ghair
Deceased has admitted relationship with a

person
Al-Mosalaho bima Zada aalus solosa
Will (1/3) has been declared for a person
Baitul Mal
Goes to State if no relation exists
From 1st generation process, one may thing that what will happen when father and mother become old and having no economic resource. The answer is very simple given by Quran and
Sinnah
Kind with your parents Quran
Jannat is below the feet of mother
Gods consent is revealed behind the fathers concent
It is unanimous interpretation of above quotes that sons are
(daughters to some extent) economically and socially responsible for their parents. In this process 2nd generation automatically become responsible for 1st generation with minimum state
intervention.
Remember, parents are assets (to get Jannat) rather than liability in contrast to western capitalist society where parents are liabilty.
nally in Islamic society the fundamental principle among relationship is For the pleas ure of Godd rather than self interestedness. Following major characteristics of Islamic society are:
1.
Should like for others as one like for oneself.
2.
Do not tease each other by act and word
3.
Deal with kindness and donot be proud
4.
Do not back bite
5.
Must resolve misunderstanding / quarrel
6.
be kind and provide social and economic help whatever

one can
7.
When go for meeting, always get permission
8.
Always be courteous and deal in accordance to mental

abilities
9.
Respect elders and kind with children
From above Islamic society frame work one might ask some
basic questions;
10. Fulfill promises
a) person has only daughters
12. Do not expose Muslims weaknesses
b) person has disobedient sons
13. Do not blame each others
c)
14. Always supportive to Muslims
person has no children
The success of a system depends upon its ability to provide solution to every economic / non-economic issue. Islam solves
the above issues through the Mirath (inheritance) under the Islamic System. From the table we can understand how a strong
family (Khandan) structure has been developed and practiced
in Islamic Society. Islam negates self interestedness and develops a society in which economic responsibilities among different levels are in reciprocal basis, means heirs are held responsible if deceaseds family failed to maintain economically. FiArticle
11. Always problem solver among Muslims
15. Whenever meet Muslim say Assalamu Alaikum

16. Respect and protect each Muslims life, wealth and status.
One should remember while performing the above activities
that purpose must be only for the Pleas ure God.
God knows better
36
Article
Gold an Outperforming
Investment
Faculty Member, Ibri College of Technology, Sultanate of Oman
Introduction:
Top 10 Reasons
to Choose Gold
as Investment
for a Long Term
Everyone today appreciates the need to save whether for a

house, for childrens education, a wedding, to generate a
steady income stream for use after retirement, or for unforeseen eventualities. All these goals can be realized through adequate financial planning. We all want our money to be safe and
we would like to see it grow as well. But money is a very fluid asset. Inflation erodes its value. It demands constant attention.
Well-planned investment alone can ensure that it both retains
its value and can be used to meet our particular financial requirements. Investments can be made in various forms, like:
Business enterprises, Precious metals and stones, Real Estate, Financial instruments, etc.
1.
Inflation will prove to be a problem again at some point in

the future once the economy picks back up again. Gold as
investment choices can help you protect against this inflation when it happens.
2.
Holds Value over the Long Term

A good reason for investing in gold with the long term in
mind is the way that this metal holds value. This is true no
matter what the global or economic circumstances are in
most cases.
In this article we would like to limit our discussion to the extent

of investment in Gold.
3.
Limited Supply
Many investors choose gold as investment choices because this metal is only in a limited supply in the earth.
Eventually this supply will run out, and when it does the
price of gold will probably jump off the charts.
Gold is the most popular as an investment in all the precious

metals, Investors generally buy gold as a hedge or safe haven against any economic, political, social, or fiat currency
crises (including investment market declines, burgeoning
national debt, currency failure, inflation, war and social unrest). The gold market is also subject to speculation as other
commodities are, especially through the use of futures contracts and derivatives.
4.
Increased Manufacturing Use

Gold is popular right now for many reasons, and one is
that these metals are being used in manufacturing of ornaments and medals etc much more than in the past. This
helps increase the demand and raise the value of the
metal.
Similarly to gold price in India today, high national demand

for gold in Pakistan controls gold rates in Pakistan. Gold
presence in Pakistan is an integral part of its cultural and
historical heritage. Worlds major economic downturn triggered an even further increase for market price of gold in
Pakistan.
5.
High Demand
Choosing gold as investment holdings is often done because of the high demand this metal sees. Jewelry, manufacturing, and other uses have caused the demand of gold
to hit record highs, and the situation will only increase in
the future.
Historical gold prices in Pakistan are directly correlated with

gold rate in Dubai and UAE, Since Pakistan imports most of its
gold primarily from Dubai, Domestic Pakistani gold mining industry is in severe distress due to lack of capital investments
and inefficient gold mining technologies, therefore, Pakistan relies heavily on gold imports from other countries causing gold
rates in Pakistan to go up.
Article
Coming Inflation
6.
Recession Friendly Investment

A gold investment are both perceived to be recession
proof choices, because even in tough economic times
these metals are still very valuable. In these situations precious metals are often better than cash, and will not lose
37
value like many other investments will if the economy

tanks.
7.
Since the past few decades, whenever people sense that

the dollar is showing weak performance in the world and
stock market, they start investing in gold-funds or gold
coins. Bullion is bound to give them more value for their
money, and this increases the demand in gold. As with all
other commodities, gold is also dependent upon the demand and supply formula.
Devaluation of the Dol lar and Other Cur ren cies

One reason that gold is a better choice to compensate the
risk of currency devaluation.
8.
Can Be Used As Cur rency for Goods and Serv ices

One reason that choosing gold as investment option is so
popular is that no matter what happens, this metal has currency value in any form. This is the reason that many military emergency kits include gold coins.
9.
2.
China and India are the biggest buyers of bullion for their
jewellery market. In the year 2004, Chinese citizens were
granted the ownership of ingot for the first time in history.
This triggered a very high demand of bullion, which subsequently affected the price of bullion worldwide. In 2009, a
record 32% decrease in the demand for gold-jewellery
was recorded, due to the global economic crisis, which resulted in a slight decline in the gold-price.
Ac cepted Glob ally

Gold bullion has a value everywhere in the world, and in
almost every country. Gold stocks, mutual funds, and
other options that do not give you possession of the gold
do not offer this benefit.
10. Past Per form ance
3.
Gold as investment has been profitable for thousands of

years. In ancient times gold was seen as a sign of wealth
and prosperity, and this is also true today. The past performance of gold is an indication of future performance,
and this is a big reason why gold has become so popular
with investors.
There are some fundamental factors that affect the price of

gold. They are as follows:
1.
4.
5.
Rise in in vest ments in gold

The world population is constantly rising, and so is the demand of investment in bullion. Man has always believed in
investing in bullion since ages. So, the prices of gold are
also affected by the natural desire of man to hoard gold.
6.
Oil Pric ing

The oil price does not drive the gold price and the only reason the two markets have similar long-term trends is that
they have one important long-term driver in common:
monetary inflation. There is, however, an inverse relationship between the oil price and the prices of gold shares,
but this relationship only comes to the fore during periods
when the oil price is moving sharply lower or sharply
higher relative to the gold price.
However, in recent times, the US economy has suffered a

lot. Dollar has not remained as powerful and promising as
ever; this is the reason why people and nations start investing and hoarding in bullion. The high gold reserves
strengthen the national economies and act as a hedge
against inflation.
Article
Pro duc tion of gold :

Due to the rising cost of production in gold mining, strikes
by gold-miners, worsening political situation, the sharp increase in the oil prices after the Iraq war, and terrorist attacks, a decline in the gold-mining production has been recorded for the past 5 years.
Value of US dol lar:

The foremost factor that governs the price of gold is the
value of US Dollar. A stronger US dollar will keep the price
of gold controlled and low. A weak dollar will set the price
of gold spiraling to a very high price. US economy plays a
major role in shaping the macroeconomics of the world.
When the dollar is strong, people invest, buy and trade in
dollars.
Cen tral Banks Reserves:

Central banks keep ingot reserves as a hedge against inflation. Other monetary policies of the central banks also
affect the price of gold. Low interest rates discourage people to invest in paper money; they turn towards the golden
metal in the hope of better returns. If the central banks give
high interest rates, the chances are that the ingot price will
fall.
Fun damen tal Analy sis of Gold Price

This question preoccupies the mind of everyone who is directly
or indirectly related to the investment in gold, in some or the
other form. Gold has always occupied a prominent position in
determining the global economy. The price of gold is considered as a major indicator of the status of global economy.
Demand for jew el lery by the Asian and Chi nese mar ketss :
38
Tech ni cal Analy sis of Gold

Price
Price of Gold per Ounce (in USD)
Technical Analysis is the study of market action (price changes), primarily

through the use of charts. The purpose is to forecast future price trends.
Technical Analysis is based on three
premises: Market action reflects everything; Prices move in trends; History
repeats itself.
Below mentioned diagram is witness
of outperforming golds investment.
Its 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 average but not high enough to confirm a
breakout even though the candle stick is a long one and the
closing price is higher than the previous high.
Com mon Mis takes to be avoided while

in vest ing in Gold
1..
Buying from any store. Finding reputable and trustworthy

stores will guarantee you avoid fake gold pieces. Ask locals you trust where they go to get the best gold rates in
Pakistan.
2..
Buying from multiple dealers. Once you find a reputable

gold or jewelry deal, its recommended you buy your gold
from one source to avoid extra costs and it might perhaps
help you get a discount if you buy large quantities.
3..
Buying rare gold coins compared to gold bullion coins will

result in paying too much for the rarity factor of your purchase.
4..
Buying gold nuggets is perhaps the biggest mistake, if you

are not a gold expert, its almost entirely impossible to assess a value of gold nuggets at a glance. In addition, gold
nuggets can have embedded impurities that might significantly drive down their value once you decide to sell them.
5..
Buying gold in rural areas is also not recommended since

gold jewelry is likely to be more expensive and theres always concern for safety and authenticity of gold
Gold prices dur ing the un rest of Mid dle East

and Japanese earth quake
Gold futures rallied and silver hit its highest point in
nearly 31 years Friday as jitters about rising oil prices amid
Middle East tensions boosted the metals as refuge investments.
From Matt Whittaker, in a Dow Jones Newswires posting on
The Wall Street Journal on March 4th 2011:
14-18 March 2011, Japanese earth quake caused panic selling, gold price down from 1432 to l380.85. Gold price went
through a week of high volatility; fell through 1420, 1410, 1400
key supports, and touched 1380.85. Then gold price climbed
back up as Libya and Middle East unrest increased, oil price
was back up to USD102 from USD96, gold price went back up
to 1423.
21-25 March 2011, As Libya tensions increased, UN air force
has begun attacks on Gaddafi troops, gold prices safe haven
demand increased, and gold price went back up to 1434. Markets will be watching closely the developments in the Middle
East, if the situations worsened, gold price could see further upwards movements. This week, daily chart, KD shows slowing
down in decline, RSI moving around 50, gold price moving in
the middle of Bollinger Bands. Gold price sees upside momentum. Gold price could be testing 1400 for support, and attempt
to break above 1424, if gold price can break and stay above
1424 then could attempt to break 1440 resistance.
(ttp://www1.goldtrades.info)
Article
Sources:
123456739
An Article Gold Fundamentals Adam HamiltonDecember

22, 2006, 4736 Words on http://www.zealllc.com
Blanchard 909 Poydras Street Suite 1900 New Orleans,
LA 70112
http://en.wikipedia.org/wiki/Gold_as_an_investment
An article By Jack Wogan Word Count:: 498, ezinearticles
http://www1.goldtrades.info
http://www.kitco.com/
http://www.goldprice.org/gold-price-history.html
Article
Collection of Quantitative Data through

Information Technology
Abstract
Since long, Internet connectivity is being used in Pakistan. The
growth and usage of Information TechnologyIT in public and private sectors Universities and Colleges are lagging in comparison
to the countrys business industry usage of IT. In this article, an attempt has been made to explore useful academic internet sources
so that the academic researchers, investigators and students particularly relating to finance may be able to collect relevant data according to their requirements. This article refers to online academic
resources, web references, CD-ROMs and textbooks referenced,
etc. Empirical induction from the observation brought to the knowledge that IT is not extensively used in teaching and learning in
Pakistans public Universities and colleges specifically at the Sindh
College of Commerce and Post Graduate Center.
This article is, therefore, devoted to a discussion of the different

ways of secondary data collection, particularly, with the background of information technology or computer searches, so that
the investigators, researchers and managers may be able to
choose the most appropriate way to solve complex business decisions.
Sources of Information
There are two broadly approaches/ methods by which an investigator may collect or gathered relevant information namely, Primary
Data Sources and Secondary Data Sources. Primary data collections methods are used to obtain data, specific to problem. It is the
data which have not already been collected by others (or if collected, are not readily available or accessible). It is a first hand data
and refers to information that is generated to meet the specific requirements of the investigation. Primary data is expensive and
time-consuming to obtain and should only be used if all other
means of solving the problem prove futile. On the contrary, secondary sources contain data that were already collected originally for
other purposes (e.g., industry statistics, census data, and companies reports). Secondary data is the information that is collected
for a purpose other than to solve the specific problems under investigation. Because of their low cost, the availability of secondary
data should be fully explored before committing funds for primary
data collection. Secondary Data can be collected by two sources
internally and externally and these sources are briefly discussed
as under:
Introduction
According to W.I.Thomas, the scientific value of a fact depends on
its connection which other facts, and in this connection the most
common place facts are often precisely the most valuable ones,
which a fact that strikes the imagination or stirs the moral feelings
may be either isolated or exceptional, or so simple as to involve
hardly any problem. In this modern world, information is the lifeblood of managerial decision making process, in recent days, almost every managerial decision is based on factual, concrete and
reliable information. Information is the basic resource by which
management enables to take timely and effective business decisions. Information can be arranged and managed just as any other
way. Interest in this topic stems from two influences; first, the businesses, in the world today, have become more complex, and second, the information technology has spread swiftly all over the
world which has not only enhanced the capabilities of computer but
also has become an ample resource of acquiring, sorting and collecting relevant information. Manager, non-manager, persons and
organizations within and outside the organization use information.
Managers perform functions and play a strong role, in this regard.
They certainly need skills in communication and problem solving
capabilities in order to be successful. However, one should not be
unduly impressed with a sweeping generalization of this nature.
Much of the available information that provides the basis of managerial decisions may not be of sufficient quality; nor may it be appropriate to the decisions being made. Effectiveness of decisions
based on use of such information, the results of their analysis can
only be as good as the reliability, quality and appropriateness of
the information used. Every responsible researcher, however, can
not pass the responsibility to anyone else. It is, therefore, the researchers must be responsible for the data or information they collect and use.
Article
Internal Source of Collecting Secondary Data

Internal (secondary) data source refers to information that already
exists within the organization in which the research is being conducted such as records of sales, budgets, advertising and promotion expenditures, previous research studies and similar reports.
External Source of Collecting Secondary Data

External (secondary) data source refers to information, which is
collected by a source external to the firm in which the research is
being conducted. External secondary data sources include published information, such as journals, business reports, industry statistics etc. it is pointed out here that it would not be feasible to list all
the external secondary data sources because of the large number
of such sources available.
External secondary data sources do not, in general, have the problems associated with government publications. They are quite up
to date in their reporting of information and the frequency of collection and dissemination of information is usually quite high; considerably less than the five-year frequency common to many govern-
40
ment data sources. There is considerable lack of flexibility in terms

of finding the appropriate data to fit the problem. Perhaps, because
of the great variety and number of sources available, this limitation
is not as severe as it was in the case of government sources. The
major advantage of using secondary data sources is the low cost of
acquiring information; though this cost may be higher than it is for
government data, and definitely higher than it is for using internal
data.
Com puter Databases as an Ex ter nal Sec on dary

Data Sources
Even with the array of printed material such as bibliographies, directories, and indices, a search can be very time consuming. Recent advances in computer technology have resulted in more efficient methods of cataloguing, storing, and retrieving published
data. The growth in the number of databases available electronically through computers has been dramatic. It is estimated that
over 3500 online databases are available to researchers and
analysts working in almost every area of business, science, law,
education and the social sciences. Many of these databases are
now accessible from personal computers, as well as terminals
equipped with an appropriate telephone linkage. Increasingly, the
software developed for the user's communication with the database system is designed to be user-friendly. As a result, use of
these electronic information sources has expanded rapidly to facilitate almost any search for information and is no longer limited to
computer specialists.
The computer was initially applied as an accounting information
system (AIS), but then it was recognized to have potential value as
a management information system (MIS). Subsequently, interest
expanded into such areas as decision support systems (DSS), the
virtual office, and knowledge-based systems. All five of these application areas compose the computer-based information system
(CBIS).
The researcher may acquire either primary data or secondary
data. To gather primary data the researcher may do so through
conducting of surveys. Secondary data is gathered by someone
else and made available to the investigator. Most of the secondary
data is available in the form of commercial databases that are provided by database services for a fee. The investigator can access
the services central databases or obtain copies of the databases in
a compact disk (CD-ROM) form. With relatively little effort, the researcher can use a computer to identify related data. Searching
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.
CD-ROM Searches
CD-ROM searches are becoming increasingly available at university libraries. CD-ROM refers to a compact disc that plays visual
information. In the case of a search, the information, which is
stored on, and played by, the CD, is the contents of one or more
databases. Such CDs are very efficient. A CD is read by a laser
player and the contents are displayed on a computer screen. ROM
stands for read-only memory, which basically means that researcher can read the contents of the CD and can interact with the
contents and can even print the contents but cannot change the
contents.
Two major vendors of CD-ROM versions of databases are
DIALOG and SilverPlatter. Both provide the ERIC databases
(DIALOG On-Disc ERIC and SilverPlatter ERIC), and SilverPlatter
also provides the Psychological Abstracts database (PsychLit).
Both vendors include the related thesaurus on each CD. Thus, for
example, DIALOG On-Disc ERIC has the ERIC Thesaurus as an
index option. The Education Index and Readers' Guide to Periodical Literature databases are available from the WILSONDISC CDROM retrieval system, and the Dissertation Abstracts International
database is provided by University Microfilms International (Dissertation Abstracts On-Disc). CDs are typically updated quarterly;
an advantage of using DIALOG On-Disc ERIC is that it allows users to transfer to DIALOG online in order to search the most recent
entries in the ERIC databases, a feature which will probably become a standard feature of CD-ROM systems.
On line Searches
Online searches provide a network of numerous databases from
one central access point. They evolved from the data processing
industry and attempt to provide users with increasingly simple and
standardized methods for searching a number of databases using
one online vendor. There are several large networks of databases,
or online information vendors, offering the same databases as well
as exclusive information services. Information retrieval systems
provide institutions with access to the tapes in their system: some
institutions have some tapes themselves. The four leading vendors of online databases are as follows:
z
BRS
S Bibliographic Retrieval Service
DIALOG:: This system has the largest selection of databases,

currently numbering over 200 in a broad array of technical and
general internal areas.
NEXIS:: The Nexis system contains entire articles, not just abstracts, and offers a large selection of newspapers
SDC/Or bit:: is best known for its scientific and technical databases.
Types of Com puter Searches

Computer searches can be done online or by using CD-ROM. An
online search is performed at a computer terminal, which is directly
connected via telephone lines to a central database system. A CDROM search involves using software onto which database information has been transferred. All of the related sources can be accessed using online and CD-ROM searches and can be downloaded onto diskette. Depending on the retrieval system being
used, various support services are available.
Article
The BRS (Bibliographic Retrieval Services Information Technologies) and DIALOG (Dialog Information Services). While, specifics
for their utilization differs both contain the Dissertation Abstracts
International, Psychological Abstracts (PsycINFO) and ERIC databases (among others). The Education Index and Readers' Guide
to Periodical Literature databases are available from the
41
WILSONLINE online retrieval system (H. W. Wilson). Databases

are updated frequently and can be accessed by virtually all types of
computer terminals. It is even possible to do online searches in
your own home using your personal microcomputer and a modem
(telephone hook-up). There is at least one software program, EndNote, which allows you to download (transfer to diskette) references, abstracts, and articles and then puts your reference list into
proper American Psychological Association format (WOW).
PTS Prompt (Predicasts Over view of Mar kets and Tech nol ogy):: Primary source of information on product introductions, market share, corporate directors, and ventures in every
Industry with detailed summaries of articles from trade and industry sources. Citations of business literature on market and
strategic planning new techniques and products and regulation in major industries.
ABI/INFORM:: A widely used database providing extensive

summaries of selected articles from 550 English-language
business and management journals, including indices and abstracts of all articles in 300 journals.
Man agement Con tents:: indices and abstracts of articles in

over 700 English-language business/management periodicals, and proceedings.
Ad-track:: Description of advertisements from 150 U. S. consumer magazinesprovides competitive tracking and product
announcements.
FIND/SVP Reports and Stud ies In dex:: Summaries of industry and market research reports, surveys from LJ.S and international sources, market, industry and company analyses.
Har fax In dus try Data Sources:: Description of sources for financial and marketing data in major industries worldwide.
AMI (Ad ver tis ing and Mar ket ing in tel li gence):: A new database indexing recent articles and news in marketing magazine. It abstracts articles and news appearing in over 60 marketing and trade journals as well as several newspapers.
ABI/INFORM:: can be accessed from both DIALOG and

LEXIS-NEXIS. It provides full-text coverage for approximately
500 publications, which cover subjects of interest to all managers such publications as HR Focus, HR Magazine. Human Resources Management and The Journal of Human Resources
make the database especially helpful to managers in the human resources area. ABI/INFORM is also an excellent resource for information service manners that are interested in
gaining information on significant trends and individuals in
computing. It indexes a number of key journals in the information science area, including Communications of the ACM,
Computer Technology Review, CD-ROM Professional, and
the Journal of the American Society of Information Science.
Busi ness Dateline:: is included in both DIALOG and LEXISNEXIS. It contains full-text articles from 400 business and general publications in the United States and Canada. These publications provide strong coverage of large- and medium-sized
metropolitan areas and lesser coverage of surrounding
smaller communities.
Com merce Busi ness Daily:: is a LEXIS-NEXIS database that

captures data from the Department of Commerce publication
by the same name. The database provides announcements of
federal procurement contracts, descriptions of foreign government standards for importing commodities, and announcements of sales of government property. Between 400 and
Com mer cial Database Serv ices

There are thousands of commercial databases that can provide information on practically any subject. Two major players in this field
are DIALOG and LEXIS-NEXIS. DIALOG, a subsidiary of KnightRidder, Inc., provides access to approximately 450 databases in a
variety of disciplines. You can select one or more DIALOG files
pertinent to your area of interest and then conduct searches.
LEXIS-NEXIS, a division of Reed-Elsevier, Inc., is an excellent
multi-database source for accessing business, legal, and governmental information. Both DIALOG and LEXIS-NEXIS databases
are accessible through either a modem connection to one of the
vendor's computers or through the Internet.
Several other popular services are described below, and although
most provide information that has broad application, some are of
special interest to managers of particular functional areas. The positions of the following database services within a functional framework, showing which databases can lay matched with the needs of
the functional areas for environmental information. This is only a
sample and does not imply that other databases do not do an
equally good job.
Ac cess ing and Us ing Databases

Databases are accessible both from their producers and increasingly from online information services. Database producers originate the information in the database. Many are older Information
suppliers, such as the Dow Jones Information Service or Mead
Data Central's Lexis database for lawyers. The U. S. government
is a large-scale producer of data, which are accessed from commercial database services.
Clas si fy ing Databases

The large number of databases can be overwhelming. A useful
classification is that databases provide either reference or source
information.
Ref er ence Databases

Reference databases refer users to articles and news contained in
other sources. They provide on-line indices and abstracts and are
therefore referred to as bibliographic databases. This is a quick
and efficient method for researching a subject before obtaining a
large amount of detailed information. References Databases are
widely used databases and include:
z
PTS (Predicasts Ter mi nal Sys tem) F&S In dex:: Brief descriptive annotations of articles and publications covering U.
S. international company, product, and industry information.
Article
42
1,000 records are added daily within twenty-four hours of publication of the Daily.
z
COMPNY Li brary:: obtained from LEXIS-NEXIS, provides access to full-text annual reports and SEC filings, which are submitted by U.S. public companies, along with information on selected U.S. private companies. Specific files within COMPNY
contain annual stockholder report information, 10-K filings,
and proxy statements.
Com puter Selectt : is a relatively new CD-ROM resource that

contains information on hardware, software, and the computing industry in general. The information is in the form of full-text
articles from approximately eighty computer periodicals, abstract coverage from approximately forty additional publications, hardware and software specifications, and Computer
Company profiles for approximately 13,000 vendors and
manufacturers.
CURNWS:: is a LEXIS-NEXIS file that compiles newspaper articles, magazine articles, news wire reports, broadcast transcripts, and other resources that cover the most recent two
years. This database should be of interest to managers
throughout the firm.
INVESTEXT:: provides full-text reports, issued by over 180

brokerage firms and investment institutions around the world.
Both DIALOG and LEXIS-NEXIS are providers. The
INVESTEXT reports analyze performance of over 14,000 public companies and over fifty industry groups. INVESTEXT is
available both in CD-ROM and online.
MARS (Mar ket ing and Ad ver tis ing Research Serv ice)): provides a combination of informative abstracts and full-text articles pertaining to the marketing of consumer products and
services, as well as to advertising agencies, advertising media, and markets. Available from both LEXIS-NEXIS and
DIALOG, it is updated daily.
Moody's Com pany Dataa: contains business descriptions, officer information, and complete financial reports for over
10,000 U.S. public companies. The graphics capability of this
CD-ROM database is especially good.
NPA/Plus (New Prod uct An nouncements/Plus)): available
from DIALOG makes available up-to-date information on new
products and services. It contains the full text of press releases. In addition to containing descriptive information, entries frequently identify the person to contact for additional information. NPA/Plus coverage is retrospective to 1988, and
approximately 800 records are added each week. It is an excellent source of information on competitors.
PROMT (Predicast Over view of Mar kets and Tech nol ogy)):
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 information on all manufacturing issues, including materials,
suppliers, labor unions, and governmental policies makes it
especially appealing to manufacturing managers. It is included
in DIALOG.
Article
Tho mas Reg is ter On linee: provides an index of over 150,000

U.S. and Canadian manufacturers and can be used to obtain
information on products and their suppliers. All records provide the name, address, telephone number, and Industry code
for companies, as well as brand names, trademarks, and description of the companys products. Also, many records provide such information as the number of employees and executive names and titles. It resides in DIALOG and is updated on a
semiannual basis.
Source Databases
Source databases provide numerical data, a complete text, or a
combination of both. These include the many economic and financial databases and the textual source databases, which contain
the complete texts of newspaper or journal articles. They can be
classified into (1) full text information sources. (2) Economic and financial statistical databases, and (3) online data and descriptive
information on companies. NEXIS is a full text database, which includes the text of stories and articles in the major wire services, 10
newspapers including the New York Times and Washington Post,
55 magazines and journals, and the Encyclopedia Britannica.
The economic and financial statistical databases were among the
first databases to be offered online. Several of the more widely
known statistics vendors provide general economic information as
well as specific industry analyses and forecasts. These include
Chase Econometrics/Interactive Data Corp, Citicorp Economic Division, Data Resources, and Merrill Lynch Economics. Wharton
Econometric Forecasting Predicasts, forecast and predicast
Worldcasts. General economics and business statistics can also
be accessed through the online information vendors. Examples
are:
BI/Data Time Series:: A computerized database containing 300
economic, demographic, trade, and other time series for 131 countries.
z
Don nelly Demo graph ics:: U. S. Demographic information includes 1980 census, current year estimates, and five-year projections from zip code level to the U. S. summary.
EIS (Eco nomic In for mation Sys tems):: Industrial Plants and
EIS Non-manufacturing Establishment. These provide the following information for 150.000 industrial plants with over 20
employees and for 350,000 non-manufacturing establishments: address. SIC industry code, value of shipments, employment size class, share of market estimates, and headquarters address.
D & BDun's Mar ket Iden ti fi ers:: Directory of over one million public and private companies with 10 or more employees,
listing address, products, sales executives, corporate organization, subsidiaries, industry information, sales prospects.
Ad van tages of Com puter Retrieval Meth ods

The following are the main advantages of computer retrieval methods:
43
They now cover several thousand U. S. and worldwide information sources.
volves using software onto which database information has been

transferred.
The speed of information access and retrieval. Often, most of

the information is available from a computer before it is available in published form due to the time required for printing and
mailing printed material.
Commercially available search procedures provide considerable flexibility and efficiency in cross-referenced searching.
For example, by using the EIS Plants database, it is possible
to locate plants that simultaneously meet several criteria, such
as geographic location, industry code and market share.
Online computer searches are made possible by the fact that various databases are available on computer. Information retrieval
systems provide institutions with access to the tapes in their systems; some institutions have some tapes themselves. Tow major
vendors of online retrieval services are BRS and DIALOG.
Limi tations of Com puter Retrieval Meth ods

The following are the main limitations of computer retrieval methods:
z
The first limitation of the reference databases is the reliance on

the accuracy of the abstract author the dependence on the
journal and article selection policy of the database producer,
and the idiosyncrasies of the search procedures of the different databases as well as the different database network vendors.
Because the computer search is based on finding certain key
words within the abstract, there is the possibility that some important information is missed if an abstract is missing a key
word. On the other hand, a lot of irrelevant data may be generated if certain key words used to limit a search are not cited in
an abstract. For example, a manufacturer of minicomputers
who is interested only in developments pertaining to minicomputers may not want to retrieve the entire database on computers. However, the abstract may contain the word computer
regardless of size, and accessing information on minicomputers would also yield general computer information.
Another limitation arises from the enormous amount of information now available online, it is often quite difficult to know
which of the myriad sources has the correct Information most
readily accessible. Finally, the researcher using online database retrieval services must weigh the benefits of the research
procedure, including timeliness, speed, and scope of information retrieval, against the costs of searching and accessing
computer-retrievable databases.
Con clu sion

As the purpose of this article was to provide useful information relating to collection of data form online resources particularly, with
the background of Pakistan where territory source of collecting
data is still at its preliminary stage.
The researcher can use a computer to identify related desired
data. A computer searches check databases such as the ERIC
system and provides a list of database. Computer searches may
be done online or by using CDROM. An online search is performed at a computer terminal, which is directly connected via telephone lines to a central database system. A CDROM search in-
Article
CDROM refers to a compact disc that plays visual information;

in the case of search, the information, which is stored on, and
played by, the CD is the contents of one or more databases. A CD
is read by a laser player and the contents are displayed on a computer screen. ROM stands for read-only memory, which basically
means that user can read, interact with, and print the contents, but
cannot change the contents. The major vendors of CDROM versions of databases are DIALOG and SilverPlatter
Bib li og raphy
Aakoff, Russell L., (1967), Management Misinformation Systems. Management Science, P147-156.
Aher. Steven L., (1976), How Effective Managers Use Information
Systems. Harvard. Business Review 54: P97-104.
Amoroso, Donald L., and Cheney, Paul H., (1992), Quality End
User-Developed Applications: Some Essential Ingredients.
DATA BASE 23: P1-11.
Aron. Joel D., (1969), Information Systems in Perspective.. Computing Surveys 1; P213-236.
Bouvet, Stephen, (1996), The Many Virtues of the Virtual Office.
Enterprise Reengineering 3: Iff;
Bergeron, Francois; Rivard, Suzanne; and Raymond, Louis.,
(1993), Assessment of End-User Computing from an
Organizational Perspective. Information Resources Management Journal 6, P14-25.
Brooks, Frederick P., Jr., (1996), The Computer Scientist as Tool
smith II. Communications of the ACM 39: P61-68.
Choe, Jong-Min., (1996), The Relationships among Performance
of Accounting Information Systems, Influence Factors, and
Evolution Level of Information Systems. Journal of Management Information Systems 12, P215-239.
Dearden, John., (1972), MIS Is a Mirage. Harvard Business Review 50, P90-99.
Gill, T. Grandon., (1995), Early Expert Systems: Where Are They
Now? Management Information Systems Quarterly 19,
P51-76.
Ginsberg, Michael J., and Baroudi, Jack J., (1992), Career Orientations of I.S. Personnel. Computer Personnel 14, P15-29.
Author is Lecturer in Commerce at Government Sindh College of Commerce &
Post Graduate Center, Hyderabad and Aduount Assistant Professor of
Accounting and Finance, Isra University, Hyderabad.
44
UPDATES
Updates
Highlights: Pakistan Economic Survey 2010-11
Economic Horizons
Economic Indicators
Global Economic News
IFAC, IFRS Foundation & FBR News
Pakistan's Economic Horizons
Highlights: Pakistan Economic

Survey 2010-11
Growth and Investment
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
3.8 percent last year and target of 4.5 percent.
Fixed investment has decreased to 11.8 percent of GDP from

13.4 percent last year.
The national savings rate has decreased to 13.8 percent of GDP

in 2010-11 as against 15.4 percent of GDP last year.
Domestic savings has also declined substantially from 16.3 percent of GDP in 2005-06 to 9.5 percent of GDP in 2010-11.
The growth in the agriculture is estimated at 1.2 percent on the

back of 3.7 percent growth in the livestock sector.
Major Crops accounting for 31.1 percent of agricultural value

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 percent.
Agriculture
l
The agriculture growth this year is estimated at 1.2 percent as

compared with 0.6 percent during 2009-10.
Minor crops registered a growth rate of 4.8 percent compared to

the target of 3.0 percent and massive negative growth of 7.8 percent last year.
Cotton production has decreased from 12,913 thousand bales in

2009-10 to 11,460 thousand bales in 2010-11, showing a decrease of 11.3 percent.
Output in the manufacturing sector has witnessed expansion of

3 percent in 2010-11 as compared to expansion of 5.5 percent last
year on the back of strong performance from small and medium
manufacturing sector
Wheat production has increased from 23,311 thousand tons in

2009-10 to 24,214 thousand tons in 2010-11, showing an increase of 3.9 percent.
Large-scale manufacturing grew by 0.98 percent (JulyFebruary 2010-11 incorporated in the national accounts but the
growth is now 1.7 percent in July-March 2010-11) as against 4.9
percent of last year.
Rice production has decreased from 6,883 thousand tons in

2009-10 to 4,823 thousand tons in 2010-11, showing a decrease
of 29.9 percent.
Sugarcane production has increased by 12 percent to 55.3 million

tons in 2010-11 from 49.4 million tons last year.
Gram production has increased from 562 thousand tons in 200910 to 523 thousand tons in 2010-11, showing a decrease of 6.9
percent.
Maize production has increased from 3,262 thousand tons in

2009-10 to 3,341 thousand tons in 2010-11, showing an increase
of 2.4 percent.
In minor crops, the production of potato, onion and mash increased by 18.6 percent, 11.2 percent and percent, respectively.
However, the production of mung, chillies and mash decreased by
35.5 percent, 8.6 percent and 2.7 percent respectively.
The services sector grew by 4.1 percent against the target of 4.7
percent and actual outcome of 2.9 percent. Within services sector
Wholesale and retail trade sector grew at 3.9 percent as compared to 4.6 percent last year and the target for the year of 5.1 percent. Finance and insurance sector recorded negative growth
of 6.3 percent in 2010-11 as against contraction of 11.3 percent
last year. Public administration and defense posted a stellar
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
higher than the target of 5.0 percent but lower than last years actual growth of 7.8 percent.
Pakistans per capita real income has risen by 0.7 percent in

2010-11 as against 2.9 percent last year.
Per capita income in dollar term rose from $ 1073 last year to $
1254 in 2010-11, thereby showing tremendous increase of 16.9
percent. This is mainly because of stable exchange rate as well as
higher growth in nominal GNP.
Agriculture credit disbursement of Rs. 168.7 billion during JulyMarch 2010-11 is higher by 1.4 percent, as compared to Rs. 166.3
billion over the same period last year.
The domestic production of fertilizers during the first nine months

(July-March 2010-11) of the current fiscal year was higher by 2.7
percent as compared with corresponding period last year. On the
other hand, the import of fertilizer decreased by 50.4 percent, the
off-take of fertilizer also decreased by 11.3 percent during the
same period last year.
Real private consumption rose by 7.0 percent as against 4.0

percent attained last year. However, gross fixed capital formation
lost its strong growth momentum and real fixed investment
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

2006-07 to 13.4 percent of GDP in 2010-11.
46
During the First nine months of the current Fiscal Year 2010-11,
production of Large Scale Manufacturing (LSM) increased by 1.71
percent which was mainly caused by the improvement in sub

groups of leather (30 percent), automobile (14.6 percent), Food,
Beverages & tobacco (9.3 percent) and paper & board (2.9 percent).
z
The items which show an increase in their production during this

period were TV sets (28.6 percent), sugar (26.5 percent), LCVs
(23.3 percent) and cooking oil (9.7 percent).
During the current fiscal year (2010-11), cement production decreased to 20.8 million ton as against 23.1 million tons last year
showing a decrease of 9.6 %, whereas sugar production increased by 3.8 million ton showing an increase of 26.5 percent.
Exports earning of the Textile products in 2010-11 (July-March)

showing an increase of 29.9 percent.
During 2010-11 (July-March) in automotive industry cars,

LCVs/Jeeps and two/three wheelers registered a positive growth
of 16.4 percent, 20.5 percent and 12.6 percent, respectively.
The mining and quarrying sector is estimated to grow by 0.4 percent in 2010-11 as against 2.2 percent last year. Natural gas,
crude oil and dolomite posted positive growth rate of 1.9 percent,
1.1 percent and 5.9 percent, respectively.
Revenue collections of FBR stood at Rs 1,156 billion during JulyApril 2010-11, thereby reflecting 12.6 percent growth over Rs
1,026.5 billion collected during the corresponding period last year.
Among the four federal taxes, the highest growth 15.6 % has been
recorded in sales tax receipts, followed by customs (12.6 %), direct tax (10.7 %) and federal excise (7.0%).
For July-April, 2011, direct taxes have been a major source of

FBR tax revenue collection, contributing 37.1 percent of total receipts. Net collection was estimated at Rs. 430 billion.
Indirect taxes including (Sales Tax, Federal Excise Duty and Custom Duty) grew by 13.8 percent during July-April, 2011 and accounted for 62.8 percent of the total FBR tax revenue. Net collection was estimated at Rs.726.0 billion.
Total expenditure of Rs. 3,257 billion was estimated for the full
year, comprising of Rs. 2,641 billion of current expenditure
(81.1% of total), and Rs. 617 billion of development expenditure
(18.9% of total).
Money and Credit

z
SBP has raised the discount rate to 14 percent on 30th November

2010, and decided to keep the rate unchanged at 14 percent.
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
Net Domestic Assets (NDA) during July-April 2011 reached at Rs

402.5 billion against Rs 446.1 billion during the same period last
year. The expansion in NDA mainly attributed by a rise in demand
for private sector credit and government borrowings.
On the other hand the NFA of the banking system during the period under review stood at Rs 153.2 billion after registering a significant decline of Rs 31.3 billion during the same period of last year.
During July-April, 2011 Credit to private sector enterprises (PSEs)

registered a sharp decline from Rs72.5 billion in 2009-10 to Rs
26.7 billion owing to the retirements by an oil refinery and a state
owned oil marketing company.
The government borrowing from the banking system for budgetary support and commodity operations stood at Rs 342.2 billion
during July-April, 2011. Government has borrowed Rs 196.3 billion from the State Bank of Pakistan (SBP) , while Rs 275.9 billion
has been borrowed from the scheduled banks. In the month of
May 2011, the government has further reduced its borrowing
stock from the SBP to attain the target of net zero borrowing from
the SBP.
ii) A one time surcharge of 15 percent has been imposed on

withholding and advance taxes payable during financial year
2011; and
During July-April 2010-11 the retirement of loans under commodity financing picked up sharply and reached at Rs 134.2 billion on
account of retirement of advances for wheat by provincial departments and Pakistan Storage and Supply Corporation (PAASCO)
and other provincial procurement agencies as compared to Rs
35.6 billion during the same period last year.
iii) Special excise duty rate has been increased from 1 percent to
2.5 percent on non-essential items for the remaining period of
tax year 2010-11.
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 corresponding period last year.
A strong growth has been witnessed since January 2010 which

was due to an increase in seasonal demand for working capital.
More than half of private sector credit went to the textile sector
showing higher input prices, especially cotton. Sector wise
breakup of private sector credit also shows that sugar and textile
industries were the major drivers to this increase, which respec-
Fis cal Devel op ment

z
Tax collection by the FBR was targeted at Rs 1667 billion for fiscal
year 2010-11. However, the target was downward revised to Rs
1,588 billion, as a result of devastation caused by floods during
July and August 2011.
The catastrophic floods reduced growth and posed a further challenge to public finances by depressing budget revenues and additional spending to meet the humanitarian and reconstruction
needs, thereby upward adjustment in the fiscal deficit target from
4 percent of GDP at the time of budget announcement to 5.3 percent of GDP have made.
The government is focused on prudent expenditure management
and better resource mobilization to create fiscal space for providing support to growth. Major reforms like harmonization of tax administration have taken place and strengthening of Risk Based
Audit is under process.
Through a combination of Presidential Ordinance and withdrawal
of SRO base exemptions, amendments have been made in the
Sales Tax Act 1990, Income Tax Ordinance 2001 and Federal Excise Act 2005. The additional revenues of Rs 53 billion are estimated during the last quarter of 2010-11. The following tax measures have been taken through these amendments:i) Withdrawal of sales tax exemption on agriculture inputs like
tractors, pesticides, and fertilizer both at domestic and import
stages. Now these are subjected to 17 percent GST
The administrative measures and vigilance will be helpful in generating another Rs 24 billion. These steps will also be helpful in
achieving the revised collection target of Rs 1588 billion.
47
tively availed credit of Rs 105.6 billion and Rs 62 billion during JulMarch 2011.
z
Liquidity conditions in the money market remained fairly comfortable during July-March 2010-11 underpinned by the reduced government borrowings from the SBP and growth in bank deposits.
SBP drained this excess liquidity not only through auctions, but
also mopped up a significant amount through open market operations (OMOs).
Capi tal Mar kets

z
The KSE-100 index recorded a bullish trend during first half of the
current fiscal year (CFY) as the market was trading around 12,000
at the end of December 2010. The KSE- 100 index however, remained steady during the third quarter of 2010-11 and after touching at 12,682 on January 17, 2011 and at the end of March 2011 it
traded at 11,810 points.
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
is considerable foreign investment in the capital market.
Lahore stock exchange index-25 increased to 3,343 points on

March 2011 and its market capitalization is Rs. 2921.5 billion.
Islamabad stock exchange index-10 inched up from end-June

2010 level of 2,445 points to 2605 points on end-March 2011 with
market capitalization of Rs. 2,531.5 billion.
Corporate profitability has increased in 2011 but profitability concentrated in few large companies. The sectors of Oil and Gas
companies, Fertilizers and Chemical sector and Banks exhibit
considerable profits.
Seven auctions of Pakistan Investment Bonds (PIBs) were carried
out in July-March2010-11 and government collected Rs.83.4 billion. Three and ten years maturities contributed a large proportion
by resulting in an amount of Rs.76.2 billion.
Three 3-years Ijara Sukuk were issued from July-March2010-11.

Rs.136.6 billion was raised against the total target of Rs. 125 billion.
During the fiscal year July-March 2010-11, net deposits with National Saving Schemes (NSS) increased to Rs 1,822.4 billions.
Behbood Savings Certificates, Regular Income Certificates and
Special Saving Certificates were the precursor products. Profit

Rates for some National Saving Sachems were revised.
The Securities and Exchange Commission of Pakistan (SECP)

formulated a comprehensive policy for dealing with companies in
default of securities market laws to protect the investor, enhance
transparency and improve member listing.
The food inflation is estimated at 18.4 percent and non-food 10.4

percent, against 12.0 percent and 11.0 percent in the corresponding period of last year.
The core inflation which represents non-food and non-energy

prices also decreased from 11.0 percent to 9.6 percent.
The Wholesale Price Index (WPI) during July-April, 2010-11 have

increased by 23.3 percent, as against 11.3 percent of last year.
The Sensitive Price Indicator (SPI) has recorded an increase of

18.2 percent during July-April, 2010-11, as against 12.4 percent
of last year.
The increase in inflation rate during the current year 2010-11 is attributable to the increase in food price inflation which has been
mainly due to increase in prices of sugar, milk, poultry, meat, fresh
vegetables and fruits owing to shortfall in production of these
items and significant increase in world food stuff prices.
Trade and Pay ments
Net inflow of foreign investment in Pakistan from July March

2010-11 was US$ 301.5 million which as compared to US$431.9
million in the last corresponding period, it is important to mention
that noteworthy contribution was made during the first two quarter
of 2010-11.
Over all ex ports recorded a positive growth of 27.8 percent during the first ten months (July-April) of the current fiscal year
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
to $20,154.2 million in the period.
Im ports during the first ten months (July-April) of the current fiscal
year (2010-11) increased by 14.7 percent compared with the
same period of last year, reaching to $32.3 billion. The overall import bill is higher by $4.1 billion, reflecting the impact of higher
global crude oil & Commodity Prices.
The higher import bill during July-April 2010-11 is contributed by

food group ($1,528 billion), petroleum group ($678.3 million) consumer durables ($247 billion), raw material group ($ 1039 million), telecom ($245 million) and other item group ($ 951 million).
Trade Bal ance The merchandise trade deficit improved by $240

million and declined from $12.3 billion in July-April 2009-10 to $
12.1 billion in July-April 2010-11. The substantial increase of 14.7
percent in imports is more than neutralized by 27.8 percent growth
in exports which caused the trade deficit to improve.
Work ers Remit tances totaled $ 9.1 billion in July-April 2010-11

as against $ 7.3 billion in the comparable period of last year, depicting an increase of 23.8 percent.
Cur rent Ac count Bal ance improved significantly during the last
two years or so. Current account recorded a broad-based surplus
of $ 748 million in July-April 2010-11 as against deficit of $3456
million in the comparable period of last year. The improvement
came from all components of current account balance like trade
balance of goods and services, and current transfers.
Serv ices ac count defi cit shrank by 28.2 percent during JulyApril 2010-11 to reach $ 1.4 billion as compared to $1.9 billion during the same period last year.
Fi nan cial ac count surplus deteriorated and reached to $ 412 million as compared to $ 3533 million in corresponding period last
year.
Ex change rate remained more or less stable as rupee depreciated by just 2.2 percent in July-April 2010-11, however, Real Effective Exchange Rate (REER) appreciated by 0.8 percent in the
period.
In flation
z
The inflation rate as measured by the changes in Consumer Price

Index (CPI) stood at 14.1 percent during (July-April) of the current
fiscal year 2010-11, as against 11.5 percent in the comparable period of last year.
48
For eign di rect in vest ment (pri vate) stood at $1232 million during the first ten months (July-April) of the current fiscal year as
against $1725 million in the same period last year thereby showing a decline of 29 percent.
Education
For eign Ex change Reserves amounted to $ 17.1 billion by the

end of April, 2011. Of which, reserves held by State Bank of Pakistan stood at $ 13.7 billion and by banks stood at $ 3.4 billion.
The over all lit er acy rate (10 years & above) which was 57.4 percent in 2008-09 has increased to 57.7 percent in 2009-10, indicating 0.5 percent increase over the same period last year.
Male literacy rate (10 years & above) remained 69.3 percent in
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 remained higher in urban areas (73.2 percent) than in rural areas
(49.2 percent) during 2009-10.
Province wise literacy data of PLFS (2009-10) shows Punjab

stood at 59.6 percent, Sindh (58.2 percent), Khyber Pakhtunkhwa
(50.9 percent) and Balochistan (51.5 percent).
According to the Ministry of Education, there are currently

228,376 institutions in the country. The overall enrolment is recorded at 38.22 million with teaching staff of 1.41 million as compared to 1.40 million last year showing an increase of 0.7 percent.
Ex ter nal and Do mes tic Debt

z
During the first nine months of the current fiscal year 2010-11,
Pakistans total external debt increased from $55.9 billion at endJune 2010 to $ 59.5 billion by end-March 2011 an increase of
US $ 3.6 billion or 6.4 percent which is lowest growth in EDL in the
last five years.
In relative terms, EDL as percentage of GDP decreased from 31.6

percent at end-June 2010 to 28.2 percent by end-March 2011 a
decrease of 3.4 percentage points.
The countrys debt burden defined as external debt and liabilities

as percentage of foreign exchange earnings decreased from
146.6 percent by end-June 2010 to 127.2 percent by end-March
2011.
Health and Nu tri tion

z
At present, there are 972 hospitals, 4842 dispensaries, 5344 basic health units and 909 maternity and child health centres in Pakistan.
With availability of 144,901 doctors, 10,508 dentists, 73,244

nurses and 104,137 hospital beds in the country by 2010-11, the
population and health facilities ratio works out at 1222 persons per
doctors, 16,854 persons per dentist and 1701 persons per hospital bed which compares well with the other developing countries.
During 2010-11, 35 basic health units and 13 rural health centres

have been constructed. While 40 rural health centres and 850 basic health units have been upgraded.
Some 4500 doctors, 400 dentists, 3200 nurses and 5000 paramedics have completed their academic courses and 4300 new
beds have been added in the hospitals.
Some 96,000 Lady Health Workers (LHWs) have been trained

and deployed mostly in the rural areas. Moreover, some 8 million
children have been immunized and 24 million packets of ORS distributed.
Public Debt increased by Rs 1162 billion in the first nine months of

2010-11, reaching a total outstanding amount of Rs. 1,002,0 billion; an increase of 13.1 percent in nominal terms.
The primary source of increase in public debt during July-March,

2011 has been a sharp rise in local currency component that accounted for 69.7 percent of the total increase in total public debt.
The external debt component grew by Rs 275 billion or 6.4 percent partially due to increased foreign public debt inflows and
partly because of cross-currency translation effect.
Public debt as percent of GDP has decreased to 55.5 percent by

end-March 2011 after hovering around to 60 percent of GDP for
three years.
Domestic Debt stood at Rs 5462.2 billion at end-March 2011

which implies net addition of Rs.803.9 billion in the nine months of
the current fiscal year.
In relation to GDP the domestic debt stood at 30.2 percent of GDP

which is lower than end-June 2010 level at 31.4 percent.
The domestic debt grew by 17.3 percent which is lower than last
years growth of 20.7 percent. The focus on deficit financing
through internal sources owing to non-availability of external receipts has been the major cause.
Various health programmes with a special focus on major public

health problems have been carried out. These include cancer
treatment, AIDS prevention and Malaria Control Programme.
The composition of major components shaping the domestic debt

portfolio has undergone a complete transformation from a high
dominance of unfunded debt to an increasing dependence on
floating component of domestic debt.
The total outlay of health is budgeted at Rs.42.0 billion (Rs.18.7

billion development and Rs. 23.3 billion current expenditure)
which is equivalent to 0.23 percent of GDP which is 79 billion as
compared in 2009-10.
Popu lation, Labour Force and Em ploy ment
Since 2006-07, domestic debt witnessed a sharp rise with consequent build-up in the interest payments. Interest payments as percent of GDP has peaked to 4.4 percent of GDP in 2008-09 but
since then declined persistently to 2.5 percent of GDP in 2010-11.
This also incorporates impact of higher nominal GDP growth.
According to the latest estimates population of Pakistan stood at

177.10 in 2011 and is sixth most populous country of the world. If
the existing trend remained unchanged, it will reach 191.7 million
by the year 2015 and 242.1 million by 2030 (Estimates and projection by Sub-Group II for the 10th five year Peoples Plan 2010-15).
Higher fiscal deficit and enormous slippages in the revenue and

expenditure targets remained key problems.
Growth Rate is 2.05 percent and total Fertility Rate (TFR) is 3.5
per woman.
Life expectancy in Pakistan is 64.18 for male and 67.9 for female.
49
Pakistan has the total labour force of 54.92 million and is the 9th
largest country in the world with respect of the size of its labor
force in 2010.
About 3.05 million labour force is estimated as unemployed in

2009-10, with an unemployment rate of 5.6%.
Trans port and Com mu ni cation
Agriculture dominates the distribution of employed persons

among all the major sectors leading at 45.0 during 2009-10;
wholesale and retail trade has the share of 16.3 percent and
manufacturing with 13.2 percent.
To cope with the evolving demographic challenge the National

Population Policy 2010 seeks to attain replacement level fertility
i.e. 2.1 births per woman by 2030.
In 2010-11, Pakistan has a road network covering 259,463 kilometers including 180,866 KM of high type roads and 78,597 KM of
low type roads.
Since March 2008, NHA has launched/awarder 36 development

projects covering a length of above 1000 Km inclusive of a
number of bridges, flyovers and interchanges.
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
traffic grows at the rate of 17.7 percent.
During the calendar year 2010, PIA earned the revenue of around
Rs. 107 billion as compared to last year of Rs. 94.6 billion.
Karachi Port Trust handled a total of 20.2 million tones of cargo

during 2010-11 (July-Dec).
Port Qasim Authority handled 13.1 million tones cargo during the
current financial year 2010-11 (July-Dec).
First ever largest ship in Pakistan having 63,000 M ton of wheat

was berthed at Gwadar Port in March 2008. Since then upto January 2011, 120 ships have been handled at Gwardar
Total Cellular subscribers at the end of December 2010 crossed

the 102.8 million mark, with over 97 percent prepaid subscription
in the mobile market and the post paid subscription in Pakistan is
only 3 percent.
Pov erty
z
The floods of 2010 have caused a significant loss to poverty reduction efforts. The areas affected by floods were consistently
lagging behind in terms of socio-economic and educational indicators as compared to the areas unaffected by floods. The loss to
infrastructure and livelihood sources will push them behind further.
ADBs recently issued study on Global Food Price Inflation and
Developing Asia, maintains that a 10 percent rise in domestic
food prices in Pakistan for one year could push an additional 3.47
million people below the $1.25-a-day poverty line or worsen poverty situation by 2.2 percentage points.
Food inflation in Pakistan has averaged 18 percent for the last
four years which implies significant deterioration of purchasing
power of the poor. The precise impact of this build-up in prices
could not be determined until availability of results of the Household Income Expenditure Survey (HIES) component of PSLM
Survey 2010-11 the work on which has already started.
En ergy
Crude Oil
An analysis of 3 year moving average of changes in per capita income and commensurate impact on reduction in poverty headcounts suggests that large reductions in poverty headcount are
associated with substantial growth in per capita GDP during 20022006.
The Government has prioritized the 17 pro-poor sectors for budgetary intervention through the Medium Term Expenditure Framework (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
2010 which is 15.8 percent higher than in the comparable period
of last year.
Production of crude oil per day has increased to 65,996.50 barrels

during July-March 2010-11 from 65,245.69 barrels per day during
the same period last year, showing an increase of 1.15 percent.
The transport sector consumed 47.82 percent of petroleum products, followed by power sector (42.84 percent), industry (6.66 percent), other government (1.93 percent), household (0.49 percent)
and agriculture (0.26 percent) during July-March 2010-11
Natu ral Gas
The social safety nets are major initiatives to reinforce the governments efforts to reduce the adverse effects of poverty on the
poor. The social safety nets program include Benazir In come
Sup port Pro gramme (BISP) envisages cash grants of Rs 1,000
every month to the females of each qualifying household having a
monthly income of less than Rs 6,000 through banks/post offices
with the aim to ameliorate the conditions of the poorest of the poor
by directly accessing them and supplementing their sources of income.
The average production of natural gas per day stood at 4050.84

million cubic feet during July-March 2010-11, as compared to
4,048.76 million cubic feet over the same period last year showing
an increase of 0.05 percent.
The power sector consumed 23.81 percent of gas followed by industrial (20.15 percent), household (16.75 percent), fertilizer
(15.04 percent), commercial (2.45 percent) and cement sector
(0.05 percent) during July-March 2010-11
Elec tric ity
To enhance self-employment, some registered beneficiaries of

BISP under the current targeting mechanism are selected through
a monthly draw under Waseela-e- Haq and each of them are provided with an interest-free loan worth Rs. 0.3 million, repayable in
installments over a period of 15 years.
The government is also working on various microfinance initiatives in collaboration with the SBP and multilateral institutions to
generate employment and combat poverty.
50
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
last fiscal year.
Total installed capacity of WAPDA stood at 11,439 MW during

July-March 2010-11 of which hydel accounts 57.30 percent or
6,555 MW, thermal accounts for 42.70 percent or 4,884 MW.
During the first nine month of current fiscal year 66,928 GWh of
electricity has been generated by WAPDA as against 64,935
GWh in the same period last year showing an increase of 3.07
percent.
than 24 percent while motorcycles and scooters have more than

doubled since 2000-01.
z
CNG is promoted as an alternate motor fuel for Pakistans market

to reduce pressure on petroleum imports and to curb air pollution.
Presently, 3329 CNG stations are operating in the country and
2.50 million vehicles are using CNG as fuel. Use of CNG as fuel in
transport sector has observed a quantum leap, replacing traditional fuels.
National Environment Quality Standard (NEQS) for Motor Vehicle

Exhaust & Noise (Amended), 2010 have been approved to control
the vehicular emissions. It has been decided that: (i) all petrol
driven vehicles imported or manufactured locally will comply with
Euro-II emission standards with effect from July 2009. Existing
models if not complying with Euro-II emission standards will have
to switch over to Euro-II models by no later than three years, If not
immediately: (ii) all diesel driven vehicles imported or manufactured locally will comply with Euro-II emission standards with effect from July, 2012. The Ministry of Petroleum and Natural Resources will ensure availability of Euro-II diesel (with sulphur contents 0.05 percent) with effect from January, 2012.
Supply of drinking water and provision of sanitation are the most

important contributing factors for improving the health of the people in any country. Inadequate water supply results in high incidence of water related diseases which in turn increase morbidity
and mortality rates and pose major threat to the survival and development of children. The National Standards for Drinking Water
Quality (NSDWQ) have been approved on 29th March, 2010 in order to improve the water quality and to provide the public with the
safe drinking water.
Pakistan is committed to achieve the MDG target of halving by

2015 the proportion of people without sustainable access to safe
and improved sanitation. Strategic direction, capacity development, and monitoring and evaluation, as well as investments, are
primarily the responsibility of the provincial governments through
the provincial line departments.
Climate change is one of the most complex challenges of the new

century; Pakistan like other developing countries remained extremely vulnerable to the impacts of climate change. The most serious concerns are the threat to water and food security of the
country and the vulnerability of its costal areas. Other climate
change related concerns include increased risks and extreme
events (floods, droughts and cyclones) and adverse impact of forests, biodiversity human health etc.
Implementation of the climate change programme under Tenth

Five Years Plan will be carried out through coordinated efforts of
the relevant ministries to secure ample resources and their effective utilization The following areas will be targeted through mitigation and adaptation measures as well as studies to enhance our
understanding for Pakistan specific needs.
Data information on Climatology
Reducing climate change induced risks and vulnerabilities from

Glacier Lake Outburst Floods (GLOF) in Gilgit Baltistan Area of
Pakistan.
Enhancement of capacities to harness opportunities under Clean

Development Mechanism and Adaptation Fund.
The number of villages electrified increased to 160,110 by March

2011 from 147,038 recorded in March 2010.
CNG
z
Presently there are 3329 CNG stations operating throughout the

country. By March 2011 about 2.5 millions have been converted to
CNG
Coal
z
Supply of coal during July-March 2010-11 has been recorded at

5.85 million tonnes compared to 5.304 million tonnes in the first
nine months of last fiscal year.
Brick kilns and cement industry consumed 56.6 percent and 42.7
percent respectively of the supplied coal.
The government is developing Thar Coalfield in order to increase

the share of coal in energy mix and to reduce dependency on expensive imported fuel.
En vi ron ment
z
Pakistan recognizes the importance of environmental concerns

as a cross cutting theme in its sustainable development strategy.
Hence its protection, renewal and enrichment is recognized as an
obligation towards the betterment of its citizens. The environmental concerns of Pakistan are associated primarily with the adverse impact of un-sustainable social and economic development. High population growth rate, lack of public awareness of environmental related education, mismanagement of natural resources, widely unplanned urban and industrial expansions are
the core hard issues.
These are further compounded with the rapid urbanization.

z
A nation with a population of 177 million with an average population density of 222 persons per sq km, higher than many other developing countries, whose 37% people live in urban areas and
63% in rural has a high rate of migration to urban centers which
has made the cities dysfunctional, overcrowded and very congested. Rapid urbanization is putting the available insufficient infrastructure under enormous pressure and causing environmental
debacles of great magnitude. Serious risks of irreversible damages are present due to air and water pollution, mismanagement
of solid waste and destruction of fragile ecosystems.
With an estimated 37 percent of its population living in cities, Pakistan is the highly urbanized country in South Asia. Its cities continue to grow, offering employment opportunities, but rapid urbanization has been accompanied by environmental problems such
as pollution, waste management, congestion and the destruction
of fragile ecosystems. Urban air pollution remains one of the most
significant environmental problems, facing the cities.
Motorcycles and rickshaws, due to their two stroke (2 strokes) engines, are the most inefficient in burning fuel and contribute most
to emissions. 2-stroke vehicles are responsible for emission of
very fine inhalable particles that settled in lungs and cause respiratory diseases. The 2-stroke vehicles industry is performing fast
in Pakistan and has increased by 142.6 percent in 2010-11 when
compared with the year 2000-01. Rickshaws have grown by more
Source: Economic Advisers Wing, Finance Division, Government of Pakistan.
51
Pak Economy Shows Signs of Recovery
in production and sales volume, capacity utilization, employment

level, inventory level and prices of inputs.
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 Barometer released by the Pakistan Institute of Development Economics
(PIDE).
The barometer finds that almost half of the firms posted a modest
increase in their business volume during July-December 2010 and
the firms also remain moderately optimistic about the growth in
business volume during January-June.
The economy appears to have braved the devastating blow dealt

by the unprecedented floods of August last and a sense of moderate optimism seems to have re-emerged despite the constrained
availability of energy, the Business Barometer said.
Capacity utilization also shows changes that correspond to the

growth in production and sales volume while prices of the final
products of a large majority of the firms registered an increase of
more than 10 percent primarily due to increase in the cost of production and the firms expect that the trend of increase in prices will
continue during January-June.
However, the barometer warns that the consistent increase in the

cost of production has the potential to tame this optimism.
This issue of the barometer covers the expectations of the firms for
January-June after a survey conducted by a research team of
PIDE in March 2011.
Though the firms have indicated the availability of energy as a constraint to doing business still this does not seem to have significantly impacted the production volume at an aggregate level.
PIDE's Business Barometer, a biannual feature, captures the expectations of business enterprises regarding their business activity, prices faced and constraints encountered.
One reason could be that the energy constraint having become

persistent, the firms have made some alternate arrangements like
the use of generators and adjustment in working hours, it observes.
The view of distant economic recovery and its vulnerability

emerged from responses of the firms regarding expected change
New Pakistani Program Promises Socio-Economic Uplift for Poor
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 official said.
In her presentation, Dr Iqbal, who is currently in the US as an Eisenhower Fellow, said the pilot projects have led to hopeful signs
with women in poverty-hit areas joining in big numbers, which, otherwise, would not be the case in conservative segments of the society. The iniitial success in drawing women to skilled work have
been possible due to women managers' heading workplaces and
their reaching out to women as well as working towards realizing
babycare and healthcare facilities.
Dr Erfa Iqbal, who coordinates the Prime Minister's development

program for Southern Punjab, made a strong case for socioeconomic empowerment of people being a key not only to progress of the people but also to international security in the interconnected world.
The government plans to extend the projects to remote and militancy -hit areas to bolster local development through maximum
participation of women.
The development package, Dr Iqbal manages as Additional Principal Staff Officer to the Prime Minister, focuses on empowerment of
women through establishment of industrial units and promotion of
medium enterprises in rural areas through public-private partnerships.
Members of World Affairs Council, Washington and American Society 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 participation at local level traditional projects including weaving, crafts, embroidery and a host of other products helps lift families out of poverty and offer young people and communities incentives to
use their energies for development and at the same time resist and
reject any extremist ideoligies, she said.
During her stay, Erfa Iqbal will also make presentations to

Pakistani-American organizations to apprise them of the effectiveness of the projects and encourage their participation through investment.
The alternate arrangements, of course, add to the cost of production and the firms also feel that weak demand and the high cost of
capital are the other major constraints to doing business, the barometer added.
Dr Iqbal also read out a message of Prime Minister Yusuf Raza Gilani, who held out a firm commitment to facilitate foreign investment and drew attention of the American businesses to the tremendsous entrepreneurial opportunities existing in various sectors
of the Pakistani economy. Prime Minister Gilani keenly follows
progress in the grassroots development programs and the government would diversify these programs but it needs support of international friends and businesses, she said.
The conclusions drawn in the barometer are based on a randomly

selected sample of firms, mainly manufacturing, listed at Karachi
Stock Exchange. The full text of the barometer is available
www.pide.org.pk.
52
Economic Indicators
Average Yearly KSE 100 Index

Years
Index
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Dec - 2008
Dec 2009
Aug 29, 2010
Apr 12, 2011
Jun 20, 2011
1,520.73
1,366.43
1,770.11
3,402.47
5,279.18
7,450.12
9,989.11
13,772.46
6,487.52
9,342.00
10,438.66
11,881.07
12,260.54
Source: 1. www.sbp.org.pk/departments/stats/Kse_Monthly.pdf
2. KSE
Average Structure of Interest Rates (%)
Years Demand
2003
13,007
Supply
14,336
Gap
1,285
14.0
2004
13,831
15,046
1,215
23 Jan 2002
9.0
2005
15,642
15,082
440
11 Apr 2005
9.0
2006
15,483
15,072
-411
22 Jul 2006
9.5
01 Aug 2007
10.0
2007
16,548
15,091
-1,457
30 Jul 2008
13.0
2008
17,689
15,055
-2,634
17 Aug 2009
13.0
2009
19,080
15,055
-4,025
02 Aug 2010
13.0
2010
20,584
15,055
-5,529
Apr 2011 todate
14.0
2011*
26,681
20,681
-6,000
Months/Years
Rate
19 Sep 2000
12.0
07 Jan 2001
SPI
Estimated by: PPIB
Source: SBP
Average Inflation Rate in Pakistan (%)

Period
Energy in Pakistan (MW)
Pakistan's Foreign Exchange Reserves (US$ bn) Average Petroleum Price Per Barrel in $
CPI
WPI
Years
2002
2003
2004
2005
2006
2007
2008
2009
Dec. 25, 5010
June 17, 2011
2002-2003
3.58
3.10
5.57
2003-2004
6.83
4.57
7.91
2004-2005
11.55
9.28
6.75
2005-2006
7.02
7.92
10.10
2006-2007
10.82
7.77
6.94
2007-2008
11.01
8.67
12.64
2008-2009
24.75
21.55
19.69
2009-2010
13.17
11.64
12.16
2010-2011
18.30
14.00
23.25
Source: FBS and www.statpak.gov.pk
* Estimated
Various Sources
Reserves
4.82
9.80
10.95
10.37
11.34
14.04
8.32
10.13
16.42
17.52
Years
2002
2003
2004
2005
2006
2007
2008
2009
2010
Jan. 2011
June 20, 2011
Prices
24.36
28.10
36.05
50.64
61.08
69.08
94.45
41.83
95.30
100.47
91.14
Various Sources
Foreign Investment inflows in Pakistan ($ Million)

Year
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11 (Jul-May)
Total
Green Field
Investment
357.00
622.00
750.00
1,161.00
1,981.00
4,873.20
5,276.60
3,719.90
2,150.80
1,392.3
22,283.80
Privatisation
Proceeds
128.00
176.00
199.00
363.00
1,540.00
266.40
133.20
0.00
0.00
0.00
2,805.60
Total FDI
485.00
798.00
949.00
1,524.00
3,521.00
5,139.60
5,409.80
3,719.90
2,150.80
1,739.40
25,436.50
Private Portfolio
Investment
-10.00
22.00
-28.00
153.00
351.00
1,820.00
19.30
-510.30
587.90
347.10
2,752.00
Source: BOI
Economic Indicators
53
Global Economic Briefs
Global Islamic Insurance Seen Growing 31 Percent in 2011
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 Emirates accounting for most, according to a report by accountants
Ernst & Young.
said Ashar Nazim, executive director and Islamic financial services

leader at Ernst & Young, in a statement.
The Indian subcontinent has seen contributions Takaful's

equivalent of premiums rise 85 percent, Indonesia had a growth
rate of 67 percent and Bangladesh 58 percent, the report said.
Egypt is also seen growing at a rapid pace as the country could

stand to benefit from regional unrest. UAE-based Salama Islamic
Arab Insurance's chief executive said turmoil in markets such as
Egypt have resulted in more claims but also raised awareness of
Islamic insurance, creating more opportunity for the market. Still,
the industry faces challenges from intensified competition, shortage of expertise and lower return-on-equity in relation to conventional insurance companies, the report said.
Key takaful markets are characterised by low insurance penetration rates and comparatively high rates of economic growth.
The takaful industry in the Gulf remains fragmented with smaller

players and low penetration rates with Saudi Arabia emerging as
the sole growth market due to the rollout of compulsory medical insurance. The (Gulf Arab region) is a more competitive market with
a larger number of players and will drive growth for the industry,
Turkey's Current Account Deficit Surges $6.127 Billion
urkey's current account deficit surged 127 percent year-onyear to $6.127 billion in February, less than forecast but illustrating 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
the need for tighter monetary and fiscal policies, he said.
In a Reuters poll of 13 analysts the median forecast was for a $6.2

billion deficit in February.
The central bank launched an unorthodox policy last December

comprised of lower interest rates to deter flows of hot money, and
higher required reserve ratios (RRRs) to dampen credit growth,
which grew 34 percent last year. Although the policy has not triggered inflation shock as some analysts had feared, nor has it yet
managed to slow down the rate of credit growth to the 20-25 percent pace sought by the central bank.
In the first two months of the year the deficit, the main vulnerability
in Turkey's otherwise strong economic outlook, widened to
$12.073 billion from $5.758 billion a year earlier, central bank data
showed.
The foreign trade deficit, which jumped 151.4 percent to reach
$5.937 billion in February, was the biggest factor in the current account deficit rise, a statement from the bank said. The latest data
on the gap, widened partly by Turkey's dependence on increasingly expensive energy imports, had a muted effect on financial
markets. Higher oil prices and strong domestic demand continued
to widen the deficit, but total financing needs remain modest due to
Last year, the current account deficit widened 247 percent to a record high of $48.557 billion, some 6.7 percent of gross domestic
product (GDP). In 2011 as a whole, the current account was expected to show a deficit of $59.2 billion and many predict the deficit
could hit 7.5-8 percent of GDP this year.
Crisis Strengthen Euro: EU chief
he eurozone crisis will not spread to Spain, the EUs top official 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
keeping us apart. I have no doubt that the eurozone will emerge
stronger and more united from the crisis, he said. But the EU chief
insisted that the bloc had to draw the right lessons from the crisis.
The threat of contagion has greatly diminished or has disappeared entirely, European Council President Herman Van Rompuy told Kathimerini daily in an interview published as he began a
one-day visit to Athens.
He argued that member states had so far been loose with fiscal
policy and had failed to keep a close eye on their banks. In addition, the EU's economic monitoring framework was until now too
focused on deficits and not enough on debt sustainability and macroeconomic threats.
It is very clear from the fall in Spanish spreads, he added. In contrast to Greece, Ireland and Portugal who have requested EU bailouts over the past year, Spain is a major eurozone economy
whose collapse would seriously threaten the single currency, analysts have warned. Rompuy, who is visiting Athens to give a
speech at a foreign policy think-tank and talk to the Greek prime
minister and president, insisted that Europe had the resources and
the determination to overcome the crisis.
The framework proved insufficient, it was undermined because it

was not applied when large countries trampled on the rules, he
said.
In ten years from now we will see the years 2010-2011 as a
turning point to something better, Van Rompuy saidn
I can tell you that the EU will not 'waste' the crisis. We have begun
Global Economic Briefs
54
Management Accountant, Mar-Apr, 2011
Technical Updates
International Federation of Accountants (IFAC)

others. Finance professionals are increasingly expected to have
the capacity to provide decision support as 'business partners' or
'navigators'. As navigators, professional accountants support
organizational leaders and managers with information and analysis
about the organization's position and course. They contribute to
strategic and operational decision making, and ensure that the
organization is managed in the long-term interests of stakeholders.
In essence, the financial professional needs to contribute towards
the organization as a valued business partner. Such capabilities will
require a blend of operational experience and a strong use of
finance acumen.
For more information, please visit www.ifac.org
IFAC issues Exposure Draft on Predictive

Business Analytics to help Professional
Accountants to anticipate future events and
forecast possible outcomes
he Professional Accountants in Business (PAIB) Committee of

International Federation of Accountants (IFAC) has issued a
new exposure draft titled "Predictive Business Analytics:
Forward Looking Measures to Improve Business
Performance" that aims to help the professional accountants,
working in commerce, industry, financial services, education, and
the public and not-for-profit sectors, as well as their organizations,
to embrace predictive analytics to achieve better forward-looking
performance insights.
"Predictive business analytics" help professional accountants
anticipate future events, forecast possible outcomes, and select
actions and decisions to improve the performance of their
organizations in response to changing market and industry
dynamics. Predictive business analytics is being increasingly used
by organizations to make more effective decisions at a strategic and
operational level.
The future perception of professional accountants, CFOs and
Finance Directors, and of the finance function, will be related
strongly to the analytical support provided to decision makers and
IFAC CEO Stresses Need for Transparency in

Government Financial Reporting
Mr. Ian Ball, CEO of IFAC has emphasized the need for
transparency in government financial reporting. He noted that
many countries are moving towards the adoption of International
Public Sector Accounting Standards (IPSAS) or other accrualbased accounting systems. He suggested that unless there is a
good public sector specific rationale for a different treatment, an
asset, liability, revenue or expense, be accounted for similar to that
of private sector. To download his speech, click
press.ifac.org/speech/2011/05/world-bankgovernment-borrowersforum
IFRS Foundation
commonly reported by entities in their IFRS financial statements.
The supplementary tags are intended to enhance the comparability
of financial information, and are consistent with IFRSs and the
XBRL (eXtensible Business Reporting Language) architecture of
the IFRS Taxonomy 2011. The exposure draft is open for comments
until 2nd August 2011.
For more details, please visit the IASB website: www.ifrs.org
IFRS Foundation exposure draft on IFRS

Taxonomy 2011 Interim Release
he IFRS Foundation has issued an exposure draft of the IFRS

Taxonomy 2011 Interim Release: Common practice
Concepts. The proposed interim release contains supplementary
tags for the IFRS Taxonomy that reflect disclosures that are
Federal Board of Revenue (FBR)

FBR and its field formations are working at its full
flow to achieve the set targets
Federal Government, in the Budget for Financial

Year 2011-12 Announced Complete Abolition of
Special Federal Excise Duty and Reduction of
Sales Tax rate from 17% to 16% effective 1st of
July, 2011
t has been reported today in a section of the press that some FBR
field officials at one or two locations have gone on strike to press
their demands of up gradation of posts of Income Tax Inspectors to
BS 16.
o incentives Trade and Industry in the country and also to

reduce the burden of indirect taxation, the Federal
Government, in the budget for financial year 2011-12 announced
complete abolition of Special Federal Excise Duty and reduction of
Sales Tax rate from 17% to 16% effective 1st of July, 2011, FBR
Spokesperson informed. However, with a view to further facilitate
the Trade and Industry in difficult times, it has been decided to give
effect to these two measures on imports from 20th of June, 2011.
Consequently, there will be no special excise duty on imports and
the rate of sales tax on imported goods shall be 16% with effect from
June 20, 2011. For more details, please visit FBR website www.
fbr.gov.pk
Technical Updates
FBR headquarter management have contacted the reported field

formations and have got it verified that no such officials are on
strike. The official work is going normal as usual. The employees
moreover, have also strongly refuted such news or rumors of strike
and have reiterated their commitment to fulfill the assigned revenue
targets through the hectic efforts during the month of June.
FBR management have further clarified that the issue of up
gradation of posts is under active consideration and a high powered
Committee comprising of senior Members of Federal Board of
Revenue is deliberating on this issue and the result is expected
shortly.
55
Journal & Publications Committee

CHAIRMAN
Mr. Zia ul Mustafa Awan, FCMA
CFO & Business Administrator
Expo Lahore (Pvt) Ltd.
ICMAP Secretariat
HEAD OFFICE
Executive Director
Mr. Mushtaq Ahmed Madraswala, FCMA
Email: edmadraswala@icmap.com.pk
Email: zia@expolahore.com
Director Education
Cell: 0301 844 7799
Mr. Mohammad Hussain Lakhani, FCMA, FCA
MEMBERS
Mr. Mohammed Hanif, FCMA
Director, Strategic Development
Getz Pharma (Pvt.) Limited
Email: hanif.ajari@getzpharma.com
Email: lakhani@icmap.com.pk
Director Examination
Mr. Imran Ahmed Karatela
Email: exam@icmap.com.pk
Director Internal Audit

Mirza Asif Ali Jah, FCMA
Ghulam Mustafa Qazi, FCMA

Partner
Tariq Mustafa Ramzan & Co. (TMRC)
Email: qazi@tmrc.com.pk
Cell: 0300 975 6140
Mirza Munawar Hussain, FCMA
Chief Executive
Munawar Mirza & Co.,
Email: mirzajee786@yahoo.com
Email: asif.alijah@icmap.com.pk
Director Coordination, PR, Members' Affairs & CPD

Mrs. Ghazala Yunus
Email: ed@icmap.com.pk
Director Corporate Relations

Mr. Muhammad Kamran Jamil
Email: kjamil@icmap.com.pk
Acting Director Finance

Mrs. Shabana Naz, ACMA
Email: finance@icmap.com.pk
Sr. Deputy Director Information Technology

Mr. Sohail Kamal
Mr. Shahzad Ahmad Awan, FCMA

Chief Officer, Billing & Recovery
Sui Northern Gas Pipelines Limited (SNGPL)
Email: shahzad.ahmed@sngpl.com.pk
Email: sohail.kamal@icmap.com.pk
Deputy Director Research

Mr. Shahid Anwar
Email: shahid.anwar@icmap.com.pk
SOUTHERN REGION
SECRETARY
Mrs. Ghazala Yunus
Director Secretariat
Email: ed@icmap.com.pk
JOURNAL & PUBLICATIONS SECTION

Mrs. Naila Khan
Deputy Director Library and J&P
Email: jps@icmap.com.pk
Deputy Director Education

Mr. Lal Muhammad Lakhan
Email: lal.muhammad@icmap.com.pk
CENTRAL REGION
Director Central Region
Sh. Mahmood-ul-Hasan, FCMA
Email: m.hasan@icmap.com.pk
NORTHERN REGION
Director Northern Region (Islamabad Centre)
Mr. Aftab Ali Khan
Email: aftab.khan@icmap.com.pk
60
ICMAP
ICMAP
Estd. 1951
th
Year
Institute of Cost and Management

Accountants of Pakistan
of Professional Excellence
THE CONTRIBUTION OF OUR MANAGEMENT ACCOUNTANTS

TOWARDS BUILDING ECONOMIC WALL OF THE COUNTRY IS VISIBLE !
BECOME THEIR SUCCESSORS!!!

Join ICMAP to attain Business
Leadership Positions
For further Information, please contact:

ICMAP Head Office
ICMAP Lahore Centre ICMAP Islamabad Centre ICMAP Multan Centre
ST-18/C, ICMAP Avenue, Block 6,

Gulshan-e-Iqbal, Karachi.
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Ph: (92-42) 111 042 262
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From the Holy Qur-'n

Surah IV: Al-Nisa (Woman), Verse 29

Translation and Commentary by:

ICMAP Nationwide Centres

Karachi - Head Office

ST-18/C, ICMAP Avenue, Block-6, Gulshan-e-Iqbal

Plot-16, Sector H/9, Islamabad.

ICMAP Centre, 414/A, People's Colony,

Karachi (City Campus)

Overseas Examination Centre

Journal is also available on ICMAP Website : www.icmap.com.pk

National Council 2009-11

Mr. Hasan A. Bilgrami, FCMA

Mr. Muhammad Rafi, FCMA

Members - Govt. Nominees

Chairman, CPD and Seminars/Conferences

Chairman, Executive, Education, Disciplinary

Mr. S. Tariq Asaf Husain

Mr. Sajjad Ahmad, FCMA

Chairman, CMA Act & Regulations

General Manager (Cost Accounts)

Former Commissioner (Legal Division), Securities

Mirza Munawar Hussain, FCMA

Mr. Mansur-ur-Rehman Khan

Chairman, Career Development, Members &

Chairman, Audit Committee

Banking Mohtasib Pakistan

President, PIPFA and Director, CFE College of

Mr. Masud Muzaffar, FCMA

Mr. Shahzad Ahmad Awan, FCMA

Mr. Ghulam Mustafa Qazi, FCMA

Chairman, Research, Quality Assurance &

ICMAP Nominee on PIPFA Board

Former Controller General of Accounts (CGA)

Branch Councils 2011*

Council's Members on the Branch

Lahore Branch Council

Council's Members on the Branch

Mr. Zia ul Mustafa Awan

Islamabad Branch Council

Council's Members on the Branch

Mr. Ghulam Mustafa

Multan Branch Council

Faisalabad Branch Council

Quetta Branch Council

Insurance Sector in Pakistan

From the Desk of Chief Editor/

Budget 2011-12: Comparative Analysis

By Tariq Mustafa Ramzan & Co.

Brief Summary of Federal Budget 2011-12

Revenue Collection & Sustenance of

Financial and Business Service

By Qaisar Mufti, FCMA, FCIS

By Muhammad Shahid Siddique, ACMA

By Abdul Ghaffar, M.Com, ACMA

Collection of Quantitative Data through

By Dr. Muhammad Arshad Haroon

Standards and Benchmarks Accounting Standards

Performance Audit for DFIs

A Dream World or Time Bomb

Gold an Outperforming Investment

European Social Welfare State

By Jean-Franois Henri, CMA and Marc Journeault, CMA