Workshop on the Revised Fifth Schedule

Workshop on the Revised Fifth Schedule PowerPoint PPT Presentation


  • 195 Views
  • Uploaded on
  • Presentation posted in: General

Introduction. The Securities and Exchange Commission of Pakistan vide its S.R.O. 859(1)/2007 dated August 21, 2007 has revised the Fifth Schedule. Consequently, the fifth schedule is in line with the Accounting Standards for MSEs and SSEs.. Background of change. SMEs are more than 75% of the total entities operating in PakistanSignificant growth in SMEs in last two decadesConcept of SMEs introduced in Tax and other regulationsInternational Financial Reporting Standards designed primarily fo9455

Download Presentation

Workshop on the Revised Fifth Schedule

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


1. Workshop on the Revised Fifth Schedule Facilitator: Tahmeen Ahmad, ACA

2. Introduction The Securities and Exchange Commission of Pakistan vide its S.R.O. 859(1)/2007 dated August 21, 2007 has revised the Fifth Schedule. Consequently, the fifth schedule is in line with the Accounting Standards for MSEs and SSEs.

3. Background of change SMEs are more than 75% of the total entities operating in Pakistan Significant growth in SMEs in last two decades Concept of SMEs introduced in Tax and other regulations International Financial Reporting Standards designed primarily for multinationals and public listed entities Differing users of the financial statements Differing level of public accountability New and revised IAS/IFRS have added complexities to preparation of financial statements. Lack of adequate technical expertise and resources due to smaller size Current framework available only for listed corporate entities

4. The Fifth Schedule- an analysis of the changes

5. The MSEs Is an entity that: Is not listed ; In not in the process of listing; Does not hold assets in a fiduciary capacity for a broad group of outsiders, Is not a public utility or similar entity that provides an essential public service; or Is not economically significant Is not an SSE

6. Economically significant entity The criteria for economically significant would be as follows: Turnover in excess of Rs. 1 billion, excluding other income Number of employees in excess of 750 Total borrowings (excluding normal trade credit and accrued liabilities) in excess of Rs, 500 million (Any two of the above)

7. Illustrative example I XYZ corporation- which standards should apply

8. MSE standards in Brief Comprises of 17 Standards dealing with accounting for the regularly encountered transactions by this size of entities and a general framework Two topics added to (ISAR basic document) as these topics being relevant to most MSEs in Pakistan Investments Employee benefits The Framework covers objectives of financial statements, underlying assumptions, qualitative characteristics, elements, recognition and measurement criteria.

9. MSE standards in Brief-(contd.) Presentation of Financial Statements (IAS 1) Cash Flow Statements (IAS 7) Property, Plant and Equipment (IAS 16) Leases (IAS 17) Intangible Assets (IAS 38) Inventories (IAS 2) Government Grants and Other Government Assistance (IAS 20) Provisions (IAS 37*) Revenue (IAS 18)

10. MSE standards in Brief-(contd.) Borrowing Costs (IAS 23) Income Taxes (IAS 12) Accounting policies, changes in accounting estimates and errors (IAS 8) The effect of changes in Foreign Exchange rates (IAS 21) Events after Balance Sheet Date (IAS 10) Related-Party Disclosures (IAS 24) Investments* Employee Benefits( IAS 19*)

11. MSE standards in Brief-(contd.) Topics not covered by these standards Share based payment, (IFRS 2) Business combinations, (IFRS 3) Insurance contracts, (IFRS 4) Non-Current assets held for sale and discontinued operations (IFRS 5) Construction contracts, (IAS 11) Segment reporting( IAS 14) Consolidated and separate financial statements, (IAS 27) Investments in associates, ( IAS 28) Financial reporting for hyperinflationary economies, (IAS 29) Interests in joint venture, (IAS 31) Financial instruments (disclosure and recognition), (IFRS 7, 39) Impairment of assets, (IAS 36) Investment property (IAS 40) generally considered as not relevant to this size of entities) These standards are not considered relevant to small and medium sized entitiesgenerally considered as not relevant to this size of entities) These standards are not considered relevant to small and medium sized entities

12. The SSEs Small Sized entities are those entities that: have paid up capital plus undistributed reserves (total equity after taking into account any dividend proposed for the year) not exceeding twenty five million rupees; and have annual turnover not exceeding two hundred million rupees, excluding other income. (both of the above)

13. SSE standards in Brief-(contd.) Requires entities to prepare financial statements at least annually The minimum set of primary financial statements to include: (a) A balance sheet; (b) An income statement; and (c) Explanatory notes. Entities may wish to include other statements e.g. Cash Flow Statement Use of going-concern and a simplified accrual basis of accounting Separate classification of current and non-current assets and current and non-current liabilities Disclosure of the movement in owner’s equity during the financial year

14. SSE standards in Brief-(contd.) The face of the income statement to include line items that present the following amounts: (a) revenue; (b) the results of operating activities; (c) finance costs; (d) tax expense; (e) net profit or loss for the period Property, plant and equipment to be measured at cost less accumulated depreciation (no revaluation option) All leases to be accounted for as operating leases (in line with tax treatment) Basic revenue recognition criteria in line with IAS 18. Inventory accounting basic principles in line with IAS 2. General impairment guidelines

15. Summary of changes Medium and Small Sized companies directed to follow the Standards for MSEs & SSEs, as applicable. Fifth schedule is to apply to all unlisted companies unless otherwise specified. SSE disclosure requirements excludes some MSE requirements

16. Summary of changes (contd.) Disclosure requirement of ‘Redeemable capital’ has been withdrawn. Several liabilities clubbed under the head ‘Non-current Liabilities’. The clause regarding exchange gain/loss capitalization removed Following terminologies changed: Fixed Assets with ‘Non-current assets’ Tangible assets with ‘Property, Plant & Equipment’ Consistent with the fourth schedule Exchange gain loss clause removed because of change in IAS 21 ( MSE standard 13) Non current and ppe terms in accordance with IAS 1 and 16 (MSE standard 1 and 3) Consistent with the fourth schedule Exchange gain loss clause removed because of change in IAS 21 ( MSE standard 13) Non current and ppe terms in accordance with IAS 1 and 16 (MSE standard 1 and 3)

17. Summary of changes (contd.) MSE disclosure of Long Term Investment (& Short Term Investment) : (a) held to maturity investments (b) available for sale investments (c) market value of listed securities and book value of unlisted securities as per their latest available financial statements. Mse standard 16 deals with three categories of investments hence the above classificationMse standard 16 deals with three categories of investments hence the above classification

18. Summary of changes (contd.) The heading of ‘Deferred cost’ removed Clause regarding valuation of Inventories removed Current and Long term portion of Murabaha to be classified separately The line “Proposed Dividend” removed from the Balance Sheet and Profit & Loss account. New provisions for MSEs: Disclosure of amount of interest on borrowings from related parties. Details of remuneration to directors and CEO. Concept of deferred cost has been eliminated even in the fourth schedule Standard has been introduced for inventories; fifo and weighted avg for cost, nrv measurement is not explicit but implied Proposed dividend removed because ias 10 does not allow dividends announced after balance sheet date to be recognized Provisions of disclosure of remuneration to directors Concept of deferred cost has been eliminated even in the fourth schedule Standard has been introduced for inventories; fifo and weighted avg for cost, nrv measurement is not explicit but implied Proposed dividend removed because ias 10 does not allow dividends announced after balance sheet date to be recognized Provisions of disclosure of remuneration to directors

19. Illustrative example 2 SA company ICAP TR 5 and the SRO 859 of SECP

20. Definitions & Terminologies-New Capital Reserve Economically Significant Company Medium-sized Company Related party Revenue reserves Small-sized Company

21. Definitions & Terminologies-Exclusions Accounting Policies Finance Lease Financial Statements Fund Liability Operating Lease Prior Period Items Provision Reserve Unusual Items Most definitions are already in the standardsMost definitions are already in the standards

22. Definition & Terminologies-Revised Fixed Assets with ‘Non-current assets Tangible assets with ‘Property, Plant & Equipment’. Loan and advances to subsidiary, associated undertaking, directors, CE and managing agents has been replaced by loans and advances to related parties Debentures and Long-term loans, Liabilities against assets subject to Finance Lease, Deferred Liabilities and Long term Deposits with ‘Non-current Liabilities’. Marketable securities with short term ‘financial assets’. Terminologies are more in line with the ISAs Related parties are defined in MSEs Terminologies are more in line with the ISAs Related parties are defined in MSEs

23. GENERAL DISCLOSURES

24. New General Disclosures General nature of any credit facilities available to the company under contract Penalties imposed by any law to be disclosed. In accordance with the fourth schedule In accordance with the fourth schedule

25. Excluded Disclosures Non compliance with fundamental accounting assumptions Basis of translation Material items that cannot be accurately quantified Corresponding figures Additional information Immaterial items. Non compliance with fundamental accounting assumptions, corresponding figures, additional information, immaterial items included in the first standard Basis of translation is given in section 13 of MSEs Non compliance with fundamental accounting assumptions, corresponding figures, additional information, immaterial items included in the first standard Basis of translation is given in section 13 of MSEs

26. CHANGES IN BALANCE SHEET DISCLOSURE REQUIREMENTS

27. Non Current Assets-New disclosures New line items in Tangible Assets: office equipment development of property New line items in Intangible Assets: brand names computer software licenses and franchise In accordance with the fourth scheduleIn accordance with the fourth schedule

28. Non Current Assets-Disclosure excluded Disclosure of movements in cost and written down value of property, plant and equipment In case of revaluation of assets disclosure of revalued amounts, cost, valuer details, etc. Exchange gain / loss adjusted in value of non current assets Lump sum depreciation provided before the commencement of the ordinance to be allocated among sub heads Assets subject to finance lease to be disclosed separately. Movement disclosure and revaluation disclosure is now required in section 3 of the MSE standards, Exchange gain loss has been eliminated in IAS 21 and consequently in section13 of the MSE standards Lump sum requirement eliminated in fourth schedule too Lease disclosures are now in section 4, for lessees Movement disclosure and revaluation disclosure is now required in section 3 of the MSE standards, Exchange gain loss has been eliminated in IAS 21 and consequently in section13 of the MSE standards Lump sum requirement eliminated in fourth schedule too Lease disclosures are now in section 4, for lessees

29. Long Term Investments- New disclosures For MSEs only: (a) held to maturity investments, (b) available for sale investments, and (c) market value of listed securities and book value of unlisted securities as per their latest available financial statements. In accordance with the new standard on investments In accordance with the new standard on investments

30. Illustrative example 1a C company- disclosure of Long term investments

31. Long Term Investments-Excluded Disclosures Detailed separate disclosure in balance sheet excluded- two categories only included ie investment in related parties and other investments. Provision for diminution in value of investments, if any. Separate disclosure of investments against each specific fund. Separate disclosure of investments made in subsidiary and other associated undertaking in listed companies, unlisted companies, modarabas, immovable property, redeemable capital, Government securities Diminution of value in investments is covered in section 16 Fund disclosure?????Separate disclosure of investments made in subsidiary and other associated undertaking in listed companies, unlisted companies, modarabas, immovable property, redeemable capital, Government securities Diminution of value in investments is covered in section 16 Fund disclosure?????

32. Illustrative example 3 SSE Treatment of investment in associates; and Treatment of deferred taxation

33. Long term Loans and advances Separate disclosure of loans and advances due after 3 years excluded. Terms and conditions, securities obtained and any other material information shall be disclosed In accordance with the fourth schedule (perhaps also the three year period related to previous ITO 1979 requirement in dedction for business losses)In accordance with the fourth schedule (perhaps also the three year period related to previous ITO 1979 requirement in dedction for business losses)

34. Deferred costs Disclosure excluded

35. Current Assets-Excluded Basis of valuation for stores, spares, loose tools and stock in trade. Requirement of debts considered good for which company has no security other than director’s personal security. Bills receivable. Separate disclosure of cash in hand & cash in transit and amounts held in special accounts under the Ordinance. Trade debts ammendment is in accordance with the change in the fourth schedule Amount of cash and equivalents with the company that are not available for use by the company are to be disclosed under section 2 cash flow statements, for SMEsTrade debts ammendment is in accordance with the change in the fourth schedule Amount of cash and equivalents with the company that are not available for use by the company are to be disclosed under section 2 cash flow statements, for SMEs

36. Current Assets-Revisions MSEs to disclose total debts, loans & advances and Financial assets to : amount due by directors, CE and executives of the company due by Related party (old: associated undertakings) MSEs to disclose Short term Investment as: Held to maturity investment Available for sale investments Held for trading

37. Share Capital and reserves Detailed disclosures Share capital Separate disclosures of revenue and capital reserves

38. Surplus on revaluation of fixed assets Disclosure of movement in revaluation surplus excluded.

39. Non Current Liabilities New provisions: Current and Long term portion of Murabaha has to be classified separately. Long term deposits are classified according to their nature Excluded provisions: Distinction between secured and non-secured debentures and terms of security including assets under charge. Detailed disclosures of liabilities against assets subject to finance lease. Detailed disclosure of deferred liabilities. Detailed disclosure of debentures.

40. Current liabilities The following provisions have been excluded: Separate disclosure of current portion of liabilities against assets subject to finance lease, short term deposits, bills payable, profit accrued on redeemable capital. Disclosure of Proposed Dividend as liability Provision requiring liabilities to be valued at amounts not less than actually payable

41. Contingencies and commitments Provisions excluded: Arrears of cumulative preference shares. Information required regarding the existence of contingent loss Other sum for which the company is contingently liable. Arrears of cumulative preference shares-why excluded?? Some legal reason Arrears of cumulative preference shares-why excluded?? Some legal reason

42. CHANGES IN THE PROFIT AND LOSS ACCOUNT DISCLOSURE REQUIREMENTS

43. General P&L changes New provisions: Disclosure of amount of interest on borrowings from related parties. Details of remuneration to directors and CEO. Excluded provisions: The clause regarding exchange gain/loss capitalization ??why new related party reqmnts ??why new related party reqmnts

44. Gross Turnover- deductions Previous requirement: commission paid to sole selling agents commission paid to other selling agents brokerage and discount on sales New requirement: Trade discount and sales tax.

45. Other Operating Income Line items merged into ‘income from financial assets’ and ‘income from non-financial assets’ Income from unusual items, prior period items excluded.

46. Expenses Specific line items merged into classification by function Separate line items merged by function

47. Illustrative example 4 SSE Treatment of Leases

  • Login