Interview with Mr. Abdullah Yusuf , Vice President Institute of Chartered Accountants of Pakistan (ICAP)
Please describe ICAP and its role?
Institute of Chartered Accountants of Pakistan is an institution regulating the Chartered Accountancy profession in the country. ICAP was founded in 1961 under the government’s charter. All individuals and firms of chartered accountants are guided and monitored by ICAP. Moreover, the role of conducting the examination of the students, the training programs, contracts and monitoring of their training and examination is managed by ICAP. The guidelines of ICAP for the chartered accountants of Pakistan are in accordance with the international accounting standards.
Does ICAP take part in some way in the audit firms and other businesses?
ICAP recommends the adaptation of the international accounting standards to the local accounting firms ofPakistan. ICAP does not interfere in the business practices of the chartered accountant firms. These practices are monitored by the government through the Securities and Exchange Commission ofPakistan(SECP). ICAP keeps a check whether its members are fulfilling the accounting standards or not. Audit firms are functioning independently inPakistan. We only check that the audits being done by these firms if they are inline with the established practices or accounting standards or not. We inspect their working papers after the audit.
What role is ICAP playing to educate the students professionally?
Initially all the training institutions and coaching classes for students were run by ICAP but during the mid 90s, this role was delegated to the private sector by creating training institutions. Now ICAP only monitors those institutes and the standard level of training programs given to the students. ICAP is organizing limited number of coaching classes. After the training programs of private sector, the final exams are held under the supervision of ICAP.
There are 2 parts of chartered accountant examination. First part is the foundation or intermediate course which starts right after the intermediate education. Students take admissions in the private institutes and prepare themselves for the final examinations. These exams are called module A to D (first 2 years). After qualifying module D, the students are able to apply to firms as article ship (trainees). A training contract is formed which is registered with ICAP. That article ship period is now of 3.5 years. During the article ship, students are required to have 2 more exams which are called module E and F. Once a student is qualified and completes the training period, then he/she is given the certificate from the institute as a qualified chartered accountant.
What is the number of chartered accountants in Pakistan?
The present passing number of students is around 200 yearly. The current registered members (the graduate chartered accountants) of ICAP are approximately 4500 working inside and outside ofPakistan.
Do you think that there is demand for chartered accountants in Pakistan?
There is always a demand of chartered accountants inPakistan. Even there were times that we were very short of these professionals. These days there is a slightly less demand of chartered accountants but nevertheless there are also some good opportunities and openings in different accountancy related fields. This is a profession which is always in demand even in bad days. If a company is in liquidation, you still need an accountant to try and liquidate your company.
Do you follow the international accounting standards as they are or make some amendments according to the local business environment?
We have adapted the international standards as they are with a few exceptions where there were some practical difficulties. We are following the accounting system based on the British system which makes us fairly inline with the international accounting practices. The listed companies in stock markets have high requirements for compliance which makes monitoring easy for ICAP. Other companies like Private Limited, Partnerships and Sole Proprietorships are not at the same level, so they are difficult to manage comparatively with listed companies. We also have to work on some areas of legislation.
How is the government supporting ICAP?
The government has always shown support to ICAP. The council of ICAP comprises of 19 individuals, of which 4 are from the government and the rest 15 are elected by the vote of the ICAP members. This 19 member council has tenure of 4 years. The council elects a president and 2 vice presidents (each from the north and the other from the south region) with tenure of 1 year. SECP is the coordinating body of the government to interact with ICAP.
How are the government and ICAP working to increase the transparency in the business accounts?
Pakistanis one of the few countries introducing the international accounting standards. We have started this implementation from the top public companies (listed) followed by private limited companies, partnerships and even sole proprietorships. Government should have a vision of implementing the corporate environment in all levels of businesses. Currently, as far as the sole proprietorships and partnerships are concerned, there is no control or proper legislation in the country. The small business owners are not accountable to anyone or their business procedures are not transparent unlike private limited companies and other listed companies. There should be some basic requirements for all kinds of businesses for instance maintaining book of accounts and financial records which are not mandatory in sole proprietorship and partnership. We have a strong foundation of laws and standards. We are going through the transition phase to make our business activities more transparent. This transparency will also help the government to increase the tax base.
How can we increase the tax base of our country through accounting systems?
We are a country which is not documented predominantly and a cash economy. Due to this reason, the tax toGDPratio is much less than actually it should be. To develop our economy, we need resources which are predominantly generated through taxation. Taking loans to run the country and making ourselves indebted is not the sustainable way and has to be changed by adapting measures to increase the tax base. Documentation of the businesses is an important characteristic in this respect.
Apart from the documentation procedure, the tax gap (difference between the potential and the actual collected tax) can be reduced by adapting several other measures. According to some estimates, the government gets only 50% of the taxes out of the total potential tax revenue. This happens because of undocumented and cash economy. The Federal Board of Revenue (FBR) is adapting the concept of Data Warehousing. It is a resource which you collect through 3rd party information. Government commitments are very important in order to implement this system.
Please tell us about the Data Warehouse concept which tracks the transactions of the public to increase the tax base?
Data Warehousing is a concept that all the 3rd parties in the economy which are dealing with any sort of monetary transactions should be linked with the tax collecting authorities. For example all bank account transactions of the entire country should be available online to the tax authorities. If person is making some economic transactions like spending money while traveling, opening several bank accounts, using credit cards etc., this information will be accessible to the Data Warehouse system as 3rd party information. It will be obligatory for him to give taxes because the tax authority will have all the information regarding his economic transactions. Through this Data Warehouse the authority can collect any kind of information of a person’s economic activities. In this effective way, the government can increase the tax base. This is a recognized and accepted system in other economies as well as it monitors every economic transaction. This system is almost ready to function and will provide transparency to all of the economic activities and can even tap the government officials who are not paying the taxes.