Workshop on the

Revised Fifth
Schedule

Facilitator: Tahmeen Ahmad, ACA

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 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
The Fifth Schedule- an analysis
of the changes
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
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)
Illustrative example I
 XYZ corporation- which standards should
apply
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.
MSE standards in Brief-(contd.)
1. Presentation of Financial Statements (IAS 1)
2. Cash Flow Statements (IAS 7)
3. Property, Plant and Equipment (IAS 16)
4. Leases (IAS 17)
5. Intangible Assets (IAS 38)
6. Inventories (IAS 2)
7. Government Grants and Other Government Assistance
(IAS 20)
8. Provisions (IAS 37*)
9. Revenue (IAS 18)
MSE standards in Brief-(contd.)
10. Borrowing Costs (IAS 23)
11. Income Taxes (IAS 12)
12. Accounting policies, changes in accounting estimates
and errors (IAS 8)
13. The effect of changes in Foreign Exchange rates (IAS
21)
14. Events after Balance Sheet Date (IAS 10)
15. Related-Party Disclosures (IAS 24)
16. Investments*
17. Employee Benefits( IAS 19*)
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)
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)
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
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
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
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’
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.
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.
Illustrative example 2
 SA company
 ICAP TR 5 and the SRO 859 of SECP
Definitions & Terminologies-New
 Capital Reserve
 Economically Significant Company
 Medium-sized Company
 Related party
 Revenue reserves
 Small-sized Company
Definitions & Terminologies-
Exclusions
 Accounting Policies
 Finance Lease
 Financial Statements
 Fund
 Liability
 Operating Lease
 Prior Period Items
 Provision
 Reserve
 Unusual Items
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’.
GENERAL DISCLOSURES
New General Disclosures
 General nature of any credit facilities
available to the company under contract
 Penalties imposed by any law to be
disclosed.
Excluded Disclosures
 Non compliance with fundamental
accounting assumptions
 Basis of translation
 Material items that cannot be accurately
quantified
 Corresponding figures
 Additional information
 Immaterial items.
CHANGES IN BALANCE SHEET
DISCLOSURE REQUIREMENTS
Non Current Assets-New disclosures

 New line items in Tangible Assets:

 officeequipment
 development of property
 New line items in Intangible Assets:
 brand names
 computer software
 licenses and franchise
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.
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.
Illustrative example 1a
 C company- disclosure of Long term
investments
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.
Illustrative example 3
 SSE
 Treatment of investment in associates;
and
 Treatment of deferred taxation
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
Deferred costs
Disclosure excluded
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.
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
Share Capital and reserves
 Detailed disclosures Share capital
 Separate disclosures of revenue and
capital reserves
Surplus on revaluation of fixed
assets
o Disclosure of movement in revaluation surplus
excluded.
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.
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
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.
CHANGES IN THE PROFIT AND
LOSS ACCOUNT DISCLOSURE
REQUIREMENTS
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
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.
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.
Expenses
 Specific line items merged into
classification by function
 Separate line items merged by function
Illustrative example 4
 SSE
 Treatment of Leases