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ICAP Not Competent to Issue Relaxation on Application of IFRSs and IASs

KARACHI (February 10 2009): It is not within the ambit of Institute of Chartered Accountants of Pakistan (ICAP) to issue any relaxation from application of International Financial Regulatory Standards (IFRSs) or International Accounting Standards (IASs).

However, Securities and Exchange Commission of Pakistan (SECP), being regulators, are empowered to lay down specific treatments in certain special circumstances which prevail over the requirements specified in the IFRS/IAS.

Views to the above have been reportedly conveyed by ICAP to SECP, on Monday, in the wake of the special meeting on treatment of decline in value of “Available-for-Sale” investments, held on Saturday, February 7, 2009.

At the outset, the President ICAP, Asad Ali Shah explained ICAP's role in the standard setting process. He informed the meeting that ICAP has been advising SECP in adoption of the IFRSs/IASs issued by the IASB for over 20 years which are later notified by the SECP as part of the legal accounting framework.

He emphasised that ICAP's Council is committed to working with the SECP and the SBP in achieving compliance with full set of IFRSs by 2009 for public interest entities. He also informed the participants of the meeting that the meeting had been organised on the request of SECP and was being attended by all stakeholders, such as the KSE, associations of banks, mutual funds, insurance, leasing, modarabas, investment banks and representatives of investors.

The meeting was only being facilitated by ICAP, in which representatives from SECP were also present as observers. The meeting has been called to discuss the matter of treatment of impairment on investments held as 'Available-for-Sale' (AFS). He clarified that ICAP had proactively started deliberations on the matter since September 2008 and had concluded that it is not within the ambit of ICAP to issue any relaxation from application of IFRS/IAS.

However, as per the accounting framework applicable in Pakistan, SECP and SBP, being regulators, are empowered to lay down specific treatments in certain special circumstances which will prevail over the requirements specified in the IFRS/IAS.

All the stakeholders/representatives of various associations stated that the current economic conditions in the country are “rare circumstances” and the plunge in the equity markets is not considered fair reflection of the equity values. Under the provisions of IAS-39 relating to recognition of impairment/decline in value of AFS equity securities through profit and loss account will not reflect correct financial performance of the corporate entities.

Therefore, they proposed that the difference between the carrying value of AFS investments and the stock exchange closing prices as of December 31, 2008, should be allowed to be recognised through equity. This relaxation was sought upto December 31, 2009.

However, the insurance sector representatives stated that: “Clause l6 (1), Part A of Annexure II to the Insurance Rules 2002 allows the following treatment for “Available for sale” investments in the financial statements of insurance companies: For the purpose of all statements prepared under these regulations, and for the purpose of 534 (1) of the Insurance Ordinance 2000:

a) Available-for-Sale investments shall be stated at the lower of cost or market value (market value being taken as lower if the fall is other than temporary). The market value of investments at the balance sheet date shall be disclosed, as shall the effect of non-compliance with IAS-39.”

The representatives from insurance sector, considering the provisions of Insurance Rules, proposed that the difference between the carrying value of AFS investments and the stock exchange closing prices as of December 31, 2008, should not be considered as permanent impairment.

In conclusion, ICAP considered that this matter should be urgently resolved “with due consideration be given to the recommendations of all stakeholders in view of the special economic conditions in the country and to ensure preparation of financial statements on a consistent basis by the Corporate Sector as whole.”

THE FOLLOWING ATTENDED THE MEETING HELD AT ICAP HOUSE ON FEBRUARY 7, 2009:

ICAP REPRESENTATIVES: Asad Ali Shah; Syed Mohammad Shabbar Zaidi; Nasimuddin Hyder; Farrukh Viqaruddin Junaidy; Shaikh Saqib Masood; Rashid Rahman Mir.

MUFAP REPRESENTATIVES: Najam Ali; Shamshad Nabi; Nasim Beg. Representatives of IAP: Fakhir A. Rahman; Muhammad Ali Zeb; Arif A. Mehmud. Representative of MAP: Zulfiqar Ali. Representatives of SECP: Syed Fayyaz Mahmud; Asif Bhatti; Ali Azeem; Dr Mumtaz Hashmi. Representative of KSE: Adnan Afridi.

REPRESENTATIVE OF LAP: Teizoon Kisat. Investors: Farhan Akram (Engro); Arif Habib (Arif Habib Securities); Muneer Kamal (KASB Bank); Tahir Qureshi (Allied Bank); Hassan Ali Abdullah (EFU General Insurance); Aameer Karachiwala (UBL); and Jahangir Siddiqui (JS Company).

Meanwhile, Mutual Funds Association of Pakistan (MUFAP), in a press release issued here on Monday has clarified its position with references to various news items published in the national newspapers on Sunday regarding treatment of decline in value of “Available of Sale” investments as required under IAS 39.

In this regard MUFAP stated that all participants of the meeting had developed a consensus view that any impairment losses under IAS 39 should not be routed through profit and loss account and instead taken to equity directly. The President of the ICAP, Asad Ali Shah had clearly stated the ICAP's role was only as a facilitator and ICAP would convey the consensus view to the SECP accordingly, the press release added. The MUFAP strongly denied any impression that there was any dispute between ICAP and the participants of the meeting.

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