Role of State Bank of Pakistan

The State Bank of Pakistan performed all the traditional and non-traditional
functions. The traditional functions, which are generally performed by central
banks all over the world, are classified into two groups:

the primary functions1 including issue of notes, regulation of the financial

system, lender of the last resort, and conduct of monetary policy,
the secondary functions including management of public debt,
management of foreign exchange, advising the Government on policy
matters, anchoring payments system, and maintaining close relationships
with international financial institutions.

The central banks objective is to achieve monetary stability. In achieving its

objectives, central banks conduct monetary transactions with different objectives
than commercial entities. The central bank may hold a large number of financial
instruments, both in domestic currency and foreign currencies. While the financial
instruments possessed by the central bank may have similar features as those
owned by commercial entities, they are intended for policy implementation instead
of for profit creation. The financial statements of the central bank should be
interpreted as a whole in relation to the achievement of central bank objectives.
Thus, central bank financial statements are not meant for decision-making on
investments by stakeholders. The difference in financial reporting purposes may
raise the question as to whether the accounting standards for commercial entities,
such as IFRS, are suitable for central banks. This paper shows in general, the
choice of central bank financial reporting framework is defined by the function,
ownership or accountability of central bank. The central bank is a unique not-for-
profit entity; therefore, profits are not a measure of central bank performance. As a
tool of accountability, financial statements of a central bank should be reliable and
understandable. Despite limitations of the IFRS, many central banks have opted to
use the IFRS because of the absence of central bank-specialized accounting
standards. Some institutions have employed either national accounting standards,
central bank-specific standards, or some combination thereof. This study was
conducted to shed light on central bank accounting practices and focuses on
SEACEN central banks and their roles, financial reporting practices and the users'
perspective on the central bank financial statements. In terms of financial
reporting, consistent with previous research, the study found that there are
variations in financial reporting framework used by central banks in the SEACEN
economies. 42% of central banks have established their own accounting standards
while the other 42% adopt the IFRS fully. In between, 16 % adopt the IFRS or
national IFRS with modifications. The study suggests that there is a different
emphasis on the importance of each component of financial statements. It is noted
that several central banks, even one which applies the IFRS, opt not to present the
statement of cash flows. In the case of a central bank using an accounting
framework that significantly departs from the IFRS or modified-IFRS standard,
there are some main key departures, which includes the effect of changes of foreign
exchanges, subsequent measurement of financial assets, and measurement of FX
Swap for monetary operations. The study also found that there are different views
of users whether the bottom line of the central bank's financial statements is
important. Nevertheless, they agree that accounting standards should be applied
able to support the stability of income.