CIRCULAR ISSUED TO MEMBERS 2003

Circular No. Date of Issue Subject 01/2003 02/2003 03/2003 04/2003 05/2003 06/2003 07/2003 08/2003 09/2003 10/2003 11/2003 12/2003 13/2003 14/2003 15/2003 16/2003

Feb. 24, 2003 Feb. 24, 2003 Mar. 25, 2003 May 12, 2003 June 14, 2003 June 21, 2003 July 11, 2003 July 25, 2003 July 25, 2003 July 28, 2003 Aug. 2, 2003 Sep. 20, 2003 Oct. 20, 2003 Oct. 27, 2003 Dec. 11, 2003 Dec. 26, 2003

Statement of Compliance Replacement of Section 7 of Code of Ethics, withdrawal of TR-23 and Revision of TR-27 The SEC (Insurance) Rules, 2002 ATR-14 (Revised), Minimum Hourly Charge Out Rates and Minimum Fee for Audit Engagements Master Circular No. 1 dated January 11, 2003 issued by Banking Supervision Department of the State Bank of Pakistan Exposure Draft of Islamic Financial Accounting Standard (IFAS) on Ijarah Interim financial statements to have the words “un-audited” Review of published financial statements of listed companies Auditors’ report to the certificate holders of modaraba Meetings between external auditors and Banking Inspection Department (BID), SBP (Practising Members only) Share Registration Services Task Force to examine Council Directives Code of Ethics for Chartered Accountants Disclosure of the Name of the Signatory on behalf of the Chartered Accountants’ Firm Auditors’ Report to the Members Revision of Criteria-State Bank of Pakistan Panel of Auditors

Circular 01/2003 February 24, 2003 ALL MEMBERS OF THE INSTITUTE STATEMENT OF COMPLIANCE With the recent changes in the Preface to International Accounting Standards and IFAC new exposure draft of International Auditing Practice Statement on Reporting on Compliance with International Financial Reporting Standards (IFRS), it is felt that there is a need to clearly identify the financial reporting framework being used in Pakistan for the preparation of the financial statements. At present the reporting framework can be summarized as:

“Subject to the provisions of this Ordinance such International Accounting Standards and other standards shall be followed in regard to the accounts and preparation of the balance-sheet and profit and loss account as are notified for the purpose in the official Gazette by the Commission”. (Section 234 (3) of the Companies Ordinance, 1984)

and the Statement of Compliance currently being used is as follows:

“These accounts have been prepared in accordance with accounting standards issued by the International Accounting Standards Committee (IASC) and interpretations issued by the Standing Interpretations Committee of the IASC as applicable in Pakistan and the requirements of the Companies Ordinance, 1984.”

ISA 200, “Objective and General Principles Governing an Audit of Financial Statements” states that the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. ( ISA 200.2 ) In particular, paragraph 17 of ISA 700, “The Auditor’s Report on Financial Statements” requires that the auditor’s report should clearly indicate the financial reporting framework used to prepare the financial statements. It is observed that while the Auditors’ Report to the Members states that “it is the responsibility of the company’s management to prepare and present the financial statements in conformity with the approved accounting standards” and that “the financial statements conform with approved accounting standards as applicable in Pakistan”, neither the Statement of Compliance given by the management of a company nor the Auditors’ Report define the term approved accounting standards as required by ISA 200 and ISA 700. As mentioned earlier, the situation is further effected with the recent changes in the Preface to IAS and new exposure draft of IAPS on Reporting on Compliance with IFRS.

Contd. Page 2

- 2 -

The paragraphs that have been deleted from the revised Preface to IAS issued in May 2002 had stated:-

Para 8: Within each country, local regulations govern, to a greater or lesser degree, the issue of financial statements. Such local regulations include accounting standards, which are promulgated by the regulatory bodies and/or the professional accountancy bodies in the countries concerned. Para 11: International Accounting Standards promulgated by IASC do not override the local regulations, referred to in paragraph 8 above, governing the issue of financial statements in a particular country. The obligations undertaken by the members of IASC, as explained in this Preface, provide that where International Accounting Standards are complied with in all material respects, this fact should be disclosed. Where local regulations require deviation from International Accounting Standards, the local members of IASC endeavour to persuade the relevant authorities of the benefits of harmonization with International Accounting Standards.”

Further, the new exposure draft of International Auditing Practice Statement “Reporting on Compliance with International Financial Reporting Standards” states that:

“an unqualified opinion may be expressed only when the auditor is able to conclude that the financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the identified financial reporting framework. In all other circumstances, the auditor is required to disclaim an opinion or to issue a qualified or adverse opinion depending on the nature of the circumstances. ( Paragraph 3 )

Considering the above facts, the Professional Standards and Technical Advisory Committee ( PS&TAC ) considered it necessary that the financial reporting framework should be clearly identified. For this reason the PS&TAC in its 37th meeting held on January 29, 2003 has approved the following revised Statement of Compliance to be given in the financial statements:-

“These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of Companies Ordinance, 1984. Approved accounting standards comprise of such International Accounting Standards as notified under the provisions of the Companies Ordinance, 1984. Wherever, the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of Pakistan differ with the requirements of these standards, the requirements of Companies Ordinance, 1984 or the requirements of the said directives take precedence.”

Syed Sajid Ali Director Technical Services D:\ICAP\CIR-2003.DOC

Circular No. 02/2003 February 24, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member, 1. Code of Ethics for Chartered Accountants

Section 7 - Publicity and Advertising by Chartered Accountants (Revised)

On the recommendations of the Professional Standards and Technical Advisory Committee, the Council of the Institute in its 155th meeting held on February 1, 2003 has approved the replacement of existing Section 7 of the Institute’s Code of Ethics for Chartered Accountants relating to Publicity and Advertising. Revised pages No. 21 to 26A are enclosed which the members are requested to file in the Members’ Handbook Volume-I, Part-4, Section 6, Directive 6.04.

2. Withdrawal of TR-23 Accounting For Investments

TR-23 - Accounting for Investments was issued to explain different provisions of IAS 25 - Accounting for Investments. IAS 25 has been completely superseded by IAS-39 and IAS 40, which became applicable to listed companies for accounting periods beginning on or after July 1, 2001 and January 1, 2002 respectively. The Council of the Institute in its 155th meeting held on February 1, 2003 has approved the recommendations of the Professional Standards and Technical Advisory Committee to withdraw TR-23.

3. TR-27 on IAS 12 Income Taxes (Revised 2000)

IAS-12, Income Taxes (Revised) issued by IASC has become effective for the accounting periods beginning on or after January 1, 2002 which along with SECP Circular No. 16 of 1999 has necessitated the revision of TR-27 issued by the Institute in 1996.

The Council of the Institute in its 155th meeting held on February 1, 2003 has approved the recommendations of the Professional Standards and Technical Advisory Committee for the issuance of enclosed revised TR-27. Members are requested to file it in the Members’ Handbook Volume II, Part I, Section C. A revised sectional index for TRs is also enclosed.

- 2 - 4. Limited Scope Review of Consolidated Financial Statements by the Statutory Auditors

Clause (xxi) of the Code of Corporate Governance requires that all listed companies shall ensure that half-yearly financial statements are subjected to a limited scope review by the statutory auditors. Queries have been received from the members whether the consolidated half-yearly financial statements are also to be subjected to a limited scope review by the statutory auditors. It is clarified that there is no such requirement in case of consolidated half -yearly financial statements.

This has been confirmed from SECP.

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above D:\DATA\ICAP\CIR-2003.DOC

SECTION 7* Publicity and Advertising by Chartered Accountants

Publicity 7.1 In the marketing and promotion of themselves and their work, chartered accountants should:-

(a) not use means which bring the profession into disrepute; (b) not make exaggerated claims for the services they are able to offer, the qualifications they

possess, or experience they have gained; and (c) not denigrate the work of other accountants.

A member preparing or authorizing the issue of matter falling within this Section should do so with a due sense of responsibility to the profession and to the public as a whole. In particular such material should be in good taste both as to content and presentation and should not belittle services offered by others, whether members or not, either by claiming superiority for the services of a particular member or otherwise. The same attitude should be adopted towards activities mentioned in subsequent paragraphs.

Advertising and Solicitation

7.2 Notwithstanding the provisions of clause (5) and (6) of Part 1 and clause (1) and (2) of Part 2 of Schedule I to the Chartered Accountants Ordinance, 1961 publicity, advertising or other forms of practice promotion are allowed to be undertaken within the limits prescribed in the following paragraphs.

(a) where publicity, advertising or other forms of practice promotion are carried out, such activities should:

(i) be aimed at informing the recipients or the public in an objective manner;

(ii) conform to the basic principles of legality, decency, clarity, honesty and truthfulness; and

(iii) not project an image, which is inconsistent with that of a professional person bound to high ethical and technical standards.

(b) Activities which may expressly be considered not to meet the above criteria and are therefore prohibited include those that:

(i) create false, deceptive or unjustified expectations of favourable results; (ii) imply the ability to influence any court, tribunal, regulatory agency or similar body

or official; (iii) consist of self-laudatory statements that are not based on verifiable facts; (iv) make comparisons with other professional accountants in public practice; (v) contain testimonials or endorsements; (vi) contain any other representations that would be likely to cause a reasonable

person to misunderstand or be deceived; and (vii) make unjustified claims to be an expert or specialist in a particular field of

accountancy.

(c) The advertisements in newspapers should not exceed a quarter of a page nor should advertisements by associated firms appearing in the same edition of a newspaper exceed in total that limit. (This clause has been shifted from 7.2 (d) (vii)).

(d) The examples which follow are illustrative of circumstances in which publicity is acceptable and the matters to be considered in connection therewith subject always to the overriding requirements mentioned in the preceding paragraphs:-

_________________________________________________________________________________

* Replacement of Section 7 was approved by the Council of the Institute in its 155th meeting held on February 1,

2003.

________________________________________________________________________________

(i) Appointments and Awards

It is in the interests of the public and the profession that any appointment or other activity of a member in a matter of national or local importance, or the award of any distinction to a member , should receive publicity and that membership of the Institute should be mentioned. However, the member should not make use of any of the aforementioned appointments or activities for personal professional advantage.

(ii) Chartered Accountants Seeking Employment or Professional Business

A Chartered Accountant may inform interested parties through any medium that a partnership or salaried employment of an accountancy nature is being sought. The Chartered Accountants should not, however, publicize for subcontract work in a manner, which could be interpreted as seeking to procure professional business. Publicity seeking subcontract work may be acceptable if placed only in the professional press and provided that neither the Chartered Accountant’s name, address or telephone number appears in the publicity. A Chartered Accountant may write a letter or make a direct approach to another Chartered Accountant when seeking employment or professional business.

(iii) Directories & Internet

A member and his firm may be listed in the directories both alphabetically and in lead type and in classified list under "Chartered Accountants" in the directories. He can however, use the classification "Accountants and Auditors" when the directories do not have specific classification for “Chartered Accountants". Entries should be limited to name, address, telephone numbers, internet address, e-mail address , professional description and any other information necessary to enable the users of the directories to make contact with the member or firm to which the entry relates.

A member and his firm may also develop and maintain a web site on the Internet provided the contents comply with the requirements of paragraphs 7.1, (a) and (b) of 7.2 and (ix) of 7.2(d).

(iv) Books, Articles, Interviews, Lectures, and Electronic Media

A member who is author of a book or articles on a professional subject, may state his name and professional qualifications and give the name of his firm but shall not give any information as to the services that the firm provides. Similar provisions are applicable to participation by a practicing member in a lecture, interview or a radio or television program on a professional subject. What practicing member write or say, however, should not be promotional of themselves or their firm but should be an objective professional view of the topic under consideration. Practicing members are responsible for using their best endeavors to ensure that what ultimately goes before the public complies with these requirements.

When interviewed by a writer or reporter, the member should observe the limitations imposed on him by this Section. The member may not provide the press with any information for publication that he could not publish himself.

(v) Training Courses, Seminars, etc.

A chartered accountant may invite clients, their staff and the general public to attend training courses or seminars conducted for imparting professional education. However, undue prominence should not be given to the name of a chartered accountant in any booklets or documents issued in connection therewith.

(vi) Professional Literature and Publications

Any professional literature bearing the name of a member or his firm giving technical information for the assistance of staff and clients may be issued to any other firm or persons.

A publication developed / authored by a firm may be published in the firm’s name but it shall not give any information as to the services that the firm provides.

Such professional literature and publications can also be placed on the website of the firm.

(vii) Staff Recruitment

Genuine vacancies for staff may be communicated to the public through any medium in which comparable staff vacancies normally appear. The fact that a job specification necessarily gives some detail as to one or more of the services provided by the member or his firm is acceptable but it should not contain any promotional element. There should not be any suggestion that the services offered are superior to those offered by other members as a consequence of size, associations, or for any other reason.

In publications such as those specifically directed to schools and other places of education to inform students and graduates of career opportunities in the profession, services offered to the public may be described in a businesslike way. More latitude may also be permissible in a section of a newspaper devoted to staff vacancies than would be allowed if the vacancy appears in a prominent position elsewhere in a newspaper on the grounds that it would be most unlikely that a potential client would use such media to select his professional adviser.

(viii) Recruitment on Behalf of Clients

A member may advertise on behalf of clients. However, he should ensure that the emphasis in the advertisement is directed towards the objectives to be achieved for the client. The designation of any services provided by the practice as being of specialist nature is not permitted.

(ix) Brochures and Firm Directories

A practicing member may issue:- (a) A factual and objectively worded account of the services provided, the

firm’s resources (human and other, specifying qualifications and experience of personnel where appropriate), existing clients (unless this breaches client confidentiality) and of professional assignments undertaken and;

(b) A directory setting out names of partners, office addresses and names

and addresses of associated firms and correspondents.

(x) Stationery and Nameplates

Stationery of chartered accountants in public practice should be of an acceptable professional standard and comply with the requirements of the directives issued by the Council of the Institute from time to time as to names of partners, principals and others who participate in the practice, use of professional descriptions and designatory letters, cities or countries where the practice is represented, logotypes, etc. The designation of any services provided by the practice as being of specialist nature is not permitted. Similar provisions apply to nameplates.

(xi) Newspaper Announcements

Appropriate newspapers or magazines may be used to inform the public of the establishment of a new practice, of changes in the composition of a partnership, or of any alteration in the address and telephone number of a practice. Such announcements should be limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.

(xii) Inclusion of the Name of a Practicing Member in a Document Issued by a Client

When a client proposes to publish a report by a practicing member dealing with the client’s existing business affairs or in connection with the establishment of a new business venture, practicing member should take steps to ensure that the context in which the report is published is not such as might result in the public being misled as to the nature and meaning of the report. In these circumstances, practicing member should advise the client that permission should first be obtained before publication of the document. Similar consideration should be given to other documents proposed to be issued by a client containing the name of a practicing member acting in an independent professional capacity.

This does not preclude the inclusion of the name of a practicing member in public practice in the annual report of a client. When practicing member in their private capacity are associated with, or hold office in, an organization, the organization may use their name and professional status on stationery and other documents. The practicing member should ensure that this information is not used in such a way as might lead the public to believe that there is a connection with the organization in an independent professional capacity.

(xiii) Advertising Material Used to Promote a Course, Which He Has Been Asked to

Conduct

It is of value to prospective students and course participants to know the instructor’s background - such as degrees he holds, professional body affiliations, and the name of his firm. The member has the responsibility to ascertain that all promotional efforts are within the bounds of this Section.

(xiv) The Use of the CA title on an Employer's Stationery

The use of the CA title on an employer's stationery by a member not in public practice is proper. It would also be proper for the CA title of the member to appear in paid advertisements of the employer that list the officers and directors.

(xv) Greeting and Invitation Cards

Greeting and invitation cards may be sent in the name of a member or his firm. Professional qualifications may be indicated but no information shall be given regarding the services that the member or the firm provides.

SECTIONAL INDEX

PART I SECTION C TECHNICAL RELEASES

TR-1 Withdrawn

TR-2 Withdrawn

TR-3 Withdrawn

TR-4 Withdrawn

TR-5 IASC Standards-Council’s Statement on Applicability (Reformatted - 2000)

TR-6 Fixed Assets Register (Reformatted - 2000)

TR-7 Withdrawn

TR-8 Clarification Regarding Basis of Calculation of Workers’ Profit Participation Fund (Reformatted - 2000)

TR-9 Withdrawn

TR-10 Deferred Taxation

TR-11 Depreciation on Idle Fixed Assets (Reformatted - 2000)

TR-12 Debt Extinguishment

TR-13 Withdrawn

TR-14 Revaluation of Fixed Assets-Accounting Treatment (Reformatted - 2000)

TR-15 Bonus Shares-Accounting Treatment (Reformatted - 2000)

TR-16 Withdrawn

TR-17 Withdrawn

TR-18 Withdrawn

TR-19 Excise Duty-Accounting Treatment (Reformatted - 2000)

TR-20 Accounting for Expenditure During Construction Period (Reformatted - 2000)

TR-21 Date of Commencement of Commercial Production (Reformatted - 2000)

TR-22 Book Value Per Share (Revised - 2002)

TR-23 Withdrawn

TR-24 Exchange Risk Fee-Accounting Treatment (Reformatted - 2000)

TR-25 Prudential Regulations for Banks (Reformatted - 2000)

TR-26 Withdrawn

TR-27 IAS 12, Income Taxes – Revised 2000 (Revised – 2003)

TR-28 Golden Handshake-Accounting for

TR-29 Carry-Over-Transactions (COT)

ACCOUNTING TR-27 REVISED 2003 IAS-12, INCOME TAXES (REVISED 2000)

1.0 APPLICABILITY IN PAKISTAN

IAS-12, Income Taxes (Revised) issued by IASC has become effective for the accounting periods beginning on or after January 1, 2002. It is felt that guidance is required on the applicability of deferred taxation where a company has brought forward tax losses or its sources of income are subject to deduction or collection of tax and the said deduction or collection is treated as full and final tax liability for the purposes of assessment under the Income Tax Ordinance 2001. It is therefore, proposed to issue the following as a guidance to the members on the applicability of IAS 12 (Revised) in Pakistan in relation to the afore-mentioned situations.

2.0 APPLICATION OF DEFERRED TAXATION

2.1 The deferred tax accounting does not apply to those companies whose entire income is subject to deduction of tax at source that is taken as a final tax liability (under any provision of the Income Tax Ordinance, 2001), as there will be no temporary differences.

2.2 Difficulty arises in case of those companies that have a portion of income subject to

deduction or collection of tax and the said deduction or collection is treated as full and final tax liability for the purposes of assessment under the Income Tax Ordinance 2001 while the remaining portion of the income attracts assessment under normal provisions of the Income Tax Ordinance, 2001.

For instance, temporary differences are likely to arise on that portion of profit, which represents non-supplies. If the ratio between supplies remains the same year after year, it would be easy to calculate effect of temporary differences but since this ratio is not expected to be the same year after year, effect of temporary differences cannot be calculated with accuracy. In such instance, a reasonable estimate for sales relating to non-supplies should be made for the future years and the deferred tax liability provided accordingly.

2.3 However, if it is not practicable to develop a reasonable estimate for calculation of

deferred tax liability / asset then an entity should evaluate the expectation of future turnover by taking into consideration the turnover trend of at-least three years (including the current year) and recognize and provide deferred tax liability accordingly. If the pattern of supplies and non-supplies remains same in the future also then the company should recognize and provide deferred tax for all temporary differences that could be attributed to non-supplies

2.4 A practical example on the application of Deferred Tax is enclosed assuming that the ratio between non-supplies and supplies is 4:6.

3.0 TAX LOSSES

3.1 In case in a particular year, current tax liability is calculated under provisions of Section 113 due to taxable loss the effect of temporary differences should be calculated and deferred tax liability/ asset should be recognized.

3.2 In Pakistan, normally the tax losses are assessed months or even years after the balance sheet date. While ascertaining the deferred tax asset on the balance sheet date, the loss for the current year should be based on the estimated amount of loss that is likely to be assessed by the tax authorities.

3.3 A deferred tax asset should be recognized for the carry forward of unused tax losses and unused tax credits (as allowed under the provisions of the Income Tax Ordinance, 2001) to the extent that it is probable that future taxable profit will be available against which the

unused tax losses and unused tax credits can be utilized.

4.0 EXAMPLE

Equipment costing Rs.2,000,000 was purchased during 20A. Capital expenditure budget reflects following additions:

20B 700,000 20C 800,000 20D 900,000 20E 1,000,000

Entity's revenue include 60% sales that are subject to collection/ deduction of tax.

Tax Rate 35% Tax Depreciation 25% WDV Life 10 Years Depreciation Policy Straight Line

ACCOUNTING NBV

Year Cost Depreciation NBV Beginning Additions End of Beginning For the End of Of Year Year of Year Year Year

20A 2,000,000 2000,000 200,000 200,000 1,800,00020B 2,000,000 700,000 2700,000 200,000 270,000 470,000 2,230,00020C 2,700,000 800,000 3500,000 470,000 350,000 820,000 2680,00020D 3,500,000 900,000 4400,000 820,000 440,000 1,260,000 3140,00020E 4400,000 1000,000 5400,000 1260,000 540,000 1,800,000 3600,000

DEPRECIATION PER ACCOUNTS

Year On Original On On On On Total Cost Additions Additions Additions Additions

20B 20C 20D 20E 2000,000 700,000 800,000 900,000 1000,000 5,400,000 20A 200,000 200,000 20B 200,000 70,000 270,000 20C 200,000 70,000 80,000 350,000 20D 200,000 70,000 80,000 90,000 440,000 20E 200,000 70,000 80,000 90,000 100,000 540,000

TAX WDV

Year Cost Depreciation Beginning Addition End of Beginning For the End of NBV Of year Year Of year Year Year

20A 2,000,000 2,000,000 - 500,000 500,000 1,500,00020B 2,000,000 700,000 2,700,000 500,000 550,000 1,050,000 1,650,00020C 2,700,000 800,000 3,500,000 1,050,000 612,500 1,662,500 1,837,50020D 3,500,000 900,000 4,400,000 1,662,500 684,375 2,346,875 2,053,12520E 4,400,000 1,000,000 5,400,000 2,346,875 763,281 3,110,156 2,289,844

TAX DEPRECIATION

Year On Original On On On On Cost Additions Additions Additions Additions Total 20B 20C 20D 20E 2,000,000 700,000 800,000 900,000 1,000,000 5,400,000 20A 500,000 500,000 20B 375,000 175,000 550,000 20C 281,250 131,250 200,000 612,500 20D 210,938 98,437 150,000 225,000 684,375 20E 158,203 73,828 112,500 168,750 250,000 763,281

TEMPORARY DIFFERENCES

Year NBV per Tax WDV Cumulative Increase Non-Supplies Provision Cumulative

Accounts Temporary In Temporary Temporary @ 35% Provision Difference Difference Difference @ 40% 20A 1,800,000 1,500,000 300,000 300,000 120,000 42,000 42,00020B 2,230,000 1,650,000 580,000 280,000 112,000 39,200 81,20020C 2,680,000 1,837,500 842,500 262,500 105,000 36,750 117,95020D 3,140,000 2,053,125 1,086,875 244,375 97,750 34,213 152,16320E 3,600,000 2,289,844 1,310,156 223,281 89,312 31,259 183,422

As per the Revised IAS 12, deferred taxation should be recognized each year using the balance sheet liability method i.e. a provision of Rs. 42,000 (being 35% of 40% Rs.300,000) would be required at the end of 20A and so on. A total of Rs. 183,422 would be recognized as deferred tax liability from year 20A to year 20E assuming that there would be no reversals during this period.

5.0 DEFERRED TAX RELATING TO LEASING COMPANIES

Another issue relates to leasing companies only. SECP Circular No. 16 of 1999 required leasing companies to transfer to a capital reserve, amounts equivalent to their deferred tax liability during the period 1 July 1998 to 30 June 2003. The circular was issued to ensure compliance with IAS 12 by the time it became applicable. However, the circular has not specified the treatment of this capital reserve so created when IAS 12 becomes applicable.

Appropriate treatment would be to treat it as a change in accounting policy in accordance with IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. In preparation of financial statements beginning on or after 1 July 2003.

This would require:

recognition of deferred tax liability as at June 30, 2002 as an adjustment of

opening retained earnings;

charge of deferred tax liability for 2002-2003 to 2003-2004 financial statements (i.e. to restate comparative figures) presented for comparison purposes and charge deferred tax liability for 2003-04 to profit and loss account, and

transfer capital reserve for deferred tax to retained earnings in 2003-2004 financial statements.

Circular No.03/2003 March 25, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member THE SECURITIES AND EXCHANGE COMMISSION (INSURANCE) RULES, 2002 On 12th December 2002, the SECP had issued the Securities and Exchange Commission (Insurance) Rules, 2002 which inter-alia included formats of Auditors’ Report to the members of Life and Non-Life Insurance Companies. These two formats have been slightly modified by SECP vide its Circular No. F.No.7(1)T(1)/2000 dated March 11, 2003. The two revised formats are enclosed for members’ information and compliance. Further SECP vide its letter No. ID-SEC/IAP/01/2003 dated February 27, 2003 has also allowed the following relaxations to the insurance companies:-

i) Insurance companies are allowed to choose between the previous method of computing the reserves for un-expired risk i.e. @ of 40% or methods proposed vide Regulation 8(4) of the Accounting Regulations for non-life insurance companies. The insurance companies will be required to fully disclose the method used and its estimated financial impact, in case of using the 40% method.

ii) Setting up of the Premium Deficiency Reserve may be deferred until half- yearly

accounts for the 6 months ending June 30, 2003. The companies shall be required to provide a disclosure in case they do not provide this reserve in their accounts for the year ended December 31, 2002.

iii) The words “Other Current Assets” appearing as a sub-heading on the asset side

of the balance sheet may be replaced with “Other Assets”. iv) The word “Act” from the class of business “Motor Act” may be deleted so that the

entire motor business is shown as two sub-classes under this head as follows:

a) Motor Third Party Compulsory Business b) Other Motor Business

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above

AUDITORS’ REPORT TO THE MEMBERS OF A LIFE INSURANCE COMPANY We have audited the annexed financial statements comprising of: -

(i) balance sheet; (ii) profit and loss account; (iii) statement of changes in equity; (iv) cash flow statement; (v) revenue account; (vi) statement of premium; (vii) statement of claims; (viii) statement of expenses; and (ix) statement of investment income;

of …………………………. as at ………….. together with the notes forming part thereof, for the year then ended. It is the responsibility of the Company’s Board of Directors/ Management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the Approved Accounting Standards as applicable in Pakistan and the requirements of the Insurance Ordinance, 2000 (XXXIX of 2000) and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the Auditing Standards as applicable in Pakistan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as, evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion ----

(a) proper books of accounts have been kept by the Company as required by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984;

(b) the financial statements together with the notes thereon have been drawn up in conformity with the

Insurance Ordinance, 2000 and the Companies Ordinance, 1984, and accurately reflect the books and records of the Company and are further in accordance with accounting policies consistently applied *1except for the changes as stated in note (s) ……….with which we concur;

(c) the financial statements together with the notes thereon present fairly, in all material respects, the

state of the Company’s affairs as at ______________ and of the profit, its cash flows and changes in equity for the year then ended in accordance with Approved Accounting Standards as applicable in Pakistan, and give the information required to be disclosed by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984;

(d) the apportionment of assets, liabilities, revenue and expenses between two or more funds has been

performed in accordance with the advice of the appointed actuary; and (e) Zakat deductible*2 at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was

deducted by the Company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Date ……………… Signature Place …………….. [Name(s) of Auditors]

NOTES *1 Where there is no change in the accounting policy(ies) the portion “except for the changes as stated in

note(s) ______________ with which we concur” may be omitted. *2 Where no Zakat is deductible, substitute “no Zakat was deductible at source under the Zakat and Ushr

Ordinance, 1980”. Where any of the matter referred to in the Auditors’ Report is answered in the negative or with a qualification, the report shall state the reason for such answers along with the factual position to the best of the auditor’s information.

AUDITORS’ REPORT TO THE MEMBERS OF A NON-LIFE INSURANCE COMPANY We have audited the annexed financial statements comprising of:-

(i) balance sheet; (ii) profit and loss account; (iii) statement of changes in equity; (iv) cash flow statement; (v) statement of premium; (vi) statement of claims; (vii) statement of expenses; and (viii) statement of investment income;

of …………………………. as at ………….. together with the notes forming part thereof, for the year then ended. It is the responsibility of the Company’s Board of Directors/ Management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the Approved Accounting Standards as applicable in Pakistan and the requirements of the Insurance Ordinance, 2000 (XXXIX of 2000) and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the Auditing Standards as applicable in Pakistan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as, evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion ----

(a) proper books of accounts have been kept by the Company as required by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984;

(b) the financial statements together with the notes thereon have been drawn up in conformity with the

Insurance Ordinance, 2000 and the Companies Ordinance, 1984, and accurately reflect the books and records of the Company and are further in accordance with accounting policies consistently applied *1except for the changes as stated in note (s) ……….with which we concur;

(c) the financial statements together with the notes thereon present fairly, in all material respects, the

state of the Company’s affairs as at ______________ and of the profit, its cash flows and changes in equity for the year then ended in accordance with Approved Accounting Standards as applicable in Pakistan, and give the information required to be disclosed by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984;

(d) Zakat deductible*2 at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was

deducted by the Company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Date ……………… Signature Place …………….. [Name(s) of Auditors]

NOTES *1 Where there is no change in the accounting policy(ies) the portion “except for the changes as stated in

note(s) ______________ with which we concur” may be omitted. *2 Where no Zakat is deductible, substitute “no Zakat was deductible at source under the Zakat and Ushr

Ordinance, 1980”. Where any of the matter referred to in the Auditors’ Report is answered in the negative or with a qualification, the report shall state the reason for such answers along with the factual position to the best of the auditor’s information.

Circular No. 04/2003 May 12, 2003 ALL MEMBERS OF THE INSTITUTE

ATR-14 (REVISED), MINIMUM HOURLY CHARGE OUT RATES AND MINIMUM FEE FOR AUDIT ENGAGEMENTS

Dear Member The Council of the Institute in its 156th meeting held on April 5 and April 14, 2003 has approved the recommendations of the Professional Standards & Technical Advisory Committee relating to the revision of ATR-14, Minimum Hourly Charge Out Rates And Minimum Fee For Audit Engagements. Members are requested to file the enclosed revised ATR –14 in Members’ Handbook, Volume II, Part II, Section C. We also wish to draw the attention of the members that compliance with the directives issued or pronouncements made by the Council or any of its Standing Committees is not only the responsibility of members in practice, the members in service are also required to comply with the Council’s directives or pronouncements so as not to fall within the mischief of Part 4 of Schedule I to the Chartered Accountants Ordinance, 1961. Thanking you Yours truly Syed Sajid Ali Director Technical Services Encl. As above

ATR-14 (Revised)

MINIMUM HOURLY CHARGE OUT RATES AND MINIMUM FEE

FOR AUDIT ENGAGEMENTS

1. The Council of the Institute of Chartered Accountants of Pakistan periodically reviews and prescribes minimum hourly rates, which it considers reasonable and compatible under the existing market conditions and quality of professional standards to be observed by the practicing members of the Institute. The current minimum chargeable rates as prescribed by the Council of the Institute are shown below:

Rupees

Per man-hour Partner 3,500 Qualified Assistant:

Senior (5 years or above)

2,100 Junior (0-5 years) 1,400 Supervisor 500 Senior 350 Semi-Senior 285 Junior 175

2. The level of fee is to be mutually agreed between the auditor and his client, which largely

depends upon the volume of work involved and estimated time to be incurred by the auditor. The Council whilst recognizing this principle is however, of a view that there has to be minimum threshold of audit fee.

3. To achieve the desired objective, the following parameters are being prescribed which

shall govern the determination of a minimum prescribed audit fee (which may be increased by consent having regard to specific circumstances of a company) based on the applicability of any two parameters within a category. In case of applicability of a combination of parameters in a specific situation, the highest prescribed minimum audit fee shall be applicable.

Category Turnover Equity Fixed Assets Prescribed minimum

Audit fee

------------ Rupees in million ------------ Listed

Companies Other

Companies

A Up to Rs. 10 Up to Rs. 10 Up to Rs. 10 Rs. 60,000 Rs. 40,000 B Rs.10 – 50 Rs.10 – 30 Rs.10 – 50 Rs. 75,000 Rs. 50,000 C Rs.50 – 100 Rs.30 – 50 Rs.50 – 100 Rs. 100,000 Rs. 60,000 D Over Rs.100 Over Rs. 50 Over Rs. 100 Rs. 125,000 Rs.100,000

Note:

i) The terms “turnover”, and “fixed assets” shall have the meanings assigned to them in the Fourth

Schedule to the Companies Ordinance, 1984 and the term “equity” as defined in IASC Framework for the Preparation and Presentation of Financial Statements.

ii) Considering the practical difficulties being faced by various practicing members in the determination of

audit fee, the Council has decided that the prescribed minimum audit fee shall be charged without any exception. However, in case of an existing audit client, the present audit fee shall be enhanced to the aforesaid prescribed level over a period of three years with mutual consent provided it is not less than 60% of the prescribed minimum in the first year. Nevertheless, in case of acceptance of an audit client by a practicing member for the first time the prescribed fee levels shall be strictly observed.

4. MINIMUM AUDIT FEE IN CERTAIN CIRCUMSTANCES

For audit engagements of clients in the pre-incorporation / pre-operation stages or in case where less than two of the aforesaid parameters are attracted for whatever reason including sickness of the project or closed operations or discontinuation of business, the prescribed minimum audit fee chargeable by the practicing members shall be as under.

Listed Other Companies Companies

Minimum audit fee Rs. 25,000 Rs. 15,000

5. The Code of Corporate Governance requires the auditors to:

Attend the Audit Committee Meetings of clients Issue a Review Report on Statement of Compliance with Best Practices of Corporate Governance Issue Review Report on half – yearly financial statements Special certification required by regulators over and above normal scope of audit

The minimum audit fee prescribed above is exclusive of the above additional services to be rendered by a statutory auditor and professional fee for such services shall be charged separately by mutual consent.

6. In case of joint audits, fee may be shared among the auditors as may be mutually agreed

between them.

7. The fee may be reviewed annually to cover inflationary effects in costs.

8. The hourly rates and fee are exclusive of traveling and hotel expenses, out of pocket expenses and other incidental costs which would be reimbursable to auditors at actual.

9. In case of a religious or charitable institution or a company “not for profit”, the practicing

members may undertake to do the audit on a token fee or on an honorary basis.

10. At the time of quality control review, the reviewer will ensure the compliance of this ATR. This Directive supersedes ATR-14 (Revised) issued pursuant to the Council’s decision of July 30, 2001.

(156th Meeting of the Council - 14 April, 2003) d\DATA\ICAP\CIR-2003.DOC

Circular No. 05/2003 June 14, 2003 ALL MEMBERS IN PRACTICE Dear Member Attention of members in practice is drawn towards Master Circular No. 1 dated January 11, 2003 issued by Banking Supervision Department of the State Bank of Pakistan in which para 4 states as follows:-

“Apart from the observations noted during verification of the above items, the Auditors would also report any matter of substantial nature with which they may become aware of during the process of statutory audit, which in the auditor’s opinion may have the potential to prejudice materially the interest of depositors of the bank. If nothing of this nature has come to the attention of the auditors, a confirmation to that effect should be given in the report”.

A question has arisen as to what is the meaning of the terms “matters of substantial nature” and “the matters which are considered materially prejudicial to the interest of the depositors of the banks” and format of the report mentioned in the said BSD Circular. The matter was discussed in detail recently in a meeting with the State Bank of Pakistan in which: SBP representatives explained that auditors were not required to carry out any additional work and

were required to report any matters noted during the normal audit which in their opinion are of substantial nature and may have the potential to prejudice materially the interest of depositors.

It has been agreed that until such time a comprehensive framework is developed for reporting purposes to the State Bank of Pakistan and in order to comply with the requirements of the said Circular the auditors should report to SBP on the following lines:-

Matters arising out of the audit of financial statements of the -------------- Bank for the year ended 31 December -------------------- have been communicated to the Bank in our covering letter No. ------------------- dated ---------------------------- addressed to the Board and Management Letter No. ---------------------------- dated ------------------------- . The copies of these letters may be requested from the Bank”.

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services D:\DATA\ICAP\CIR-2003.DOC

Circular No. 06/2003 June 21, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member

EXPOSURE DRAFT OF ISLAMIC FINANCIAL ACCOUNTING STANDARD (IFAS) ON IJARAH

The Committee on Accounting and Auditing Standards for Interest Free Modes of Financing and Investments of the Institute has developed an Exposure Draft of Islamic Financial Accounting Standard (IFAS) on Ijarah. The Committee would like to mention that this Exposure Draft is based on IAS 17 Leases, for which due permission has been obtained from International Accounting Standards Committee Foundation (IASCF). You are invited to offer your comments, if any, on the Exposure Draft. Comments would be more helpful if they indicate the specific paragraph or group of paragraphs to which they relate, clearly explaining the issue(s), and providing a suggestion for alternative text or solution preferably giving rationale for the suggested change. You are requested to send your comments to the undersigned by July 5, 2003 Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above. D:\DATA\ICAP\CIR-2003.DOC

Circular No. 07/2003 July 11, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member INTERIM FINANCIAL STATEMENTS TO HAVE THE WORDS “UN-AUDITED” The Professional Standards & Technical Advisory Committee of the Institute in its 38th meeting held on June 25, 2003 has decided that the interim financial statements as reviewed by the practising members of the Institute should be clearly marked as “un-audited”. Thanking you. Yours truly, Syed Sajid Ali Director Technical Services D:\DATA\ICAP\CIR-2003.DOC

Circular No.08/2003 July 25, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member

REVIEW OF PUBLISHED FINANCIAL STATEMENTS OF LISTED COMPANIES

1. As you are aware that to ensure that the published financial statements of listed

companies comply with the requirements of the International Accounting Standards (IAS) and the Fourth Schedule to the Companies Ordinance, 1984 (the Schedule), the Institute conducts from time to time an exercise of review of the published financial statements.

2. The Institute, while reviewing the published financial statements of various listed

companies recently has found several instances where not only the presentation and disclosure requirements of IAS and the Schedule were not followed but inexcusably the auditors’ reports to the members were also found to be drawn up on superceded format.

3. The Institute would like to remind its members that they have a duty to provide a

reasonable level of care while performing work for those they serve. Whether it be the preparation of financial statements as part of management or issue of an opinion as external auditors, they will be failing in their duty if they ignore the requirements of the financial reporting framework followed in Pakistan i.e. IAS and the Schedule.

4. In order to communicate significant deficiencies found in the published financial

statements, a summary of non-compliances is enclosed for your information. We certainly hope that the disclosures in the next published financial statements of the companies will be an improvement over the financial statements under reference.

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above \\Ansar ahmed\d\DATA\ICAP\CIR-2003.DOC

AUDIT REPORT Report not as per Form 35A

Incorrect placement of matter of emphasis paragraph

SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

Not presented in notes

1.91(a) &

1.94

Staff Retirement Benefits

Discount rate & expected salary increase not stated

19.120 h (i)

& (iv)

Assets Subject to Finance Lease

Accounting policy not stated Para 2 (iii) of Part I 1.97 & 1.99

(j)

Basis of recognition i.e. F.V or P.V of MLP

17.12

Financial Instruments

Recognition and de-recognition policy not stated

Para 2(iii) of Part I 32.52, 1.97 &

1.99 (i)

Deferred Tax

Extent of deferred tax liability not provided

Para 10(D) of Part II

Reasons for not providing Deferred Tax liability not stated

Depreciation

Depreciation method used not stated

16.60 (b)

Operating Assets

Depreciation charged on the basis of actual operating days

Para 4 of TR 11

Foreign Currency Translation

Return on deposits accounted for on receipt basis

18.30 (a)

Revenue Recognition

Stated only for sale while income consisted rent only

Stock in trade

Valuation method i.e. Average, FIFO, LIFO not stated

Para 6(B) of Part II

Trade debts Policy note not stated Para 2 (iii) of Part I 1. 97

GOING CONCERN

ICAP Circular 11/2002 highlighted the deficiencies

ISA 570 not

followed

REDEEMABLE CAPITAL Redeemable capital shown after loan from banks and financial institutions

Part II of the Schedule

LONG TERM LIABILITIES Loan not classified as secured and unsecured

Para 8(D) of Part II

LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE

Existence of terms of renewal or purchase, options and escalation clauses not disclosed

Para 9(c) of Part II 17.23(e)(ii)

CURRENT PORTION OF LONG TERM LIABILITIES

Long Term Loan Amount of current maturity not disclosed

Para 12 B (ii) of Part II

Assets Subject to Finance Lease

Amount of current maturity not disclosed

Para 12 B (ii-b) of Part II 17. 23

TAXATION Shown as administrative expensePara 1(G)(xii)(a) of Part

III

SHORT TERM BORROWINGS / FINANCING

Short Term Finance

No stock existed whereas borrowings were stated to be secured against stocks.

CONTINGENCIES AND COMMITMENTS

Contingencies and commitments

Company's commitments against CWIP not disclosed

Para 14 (iv) of Part II

OPERATING FIXED ASSETS

Revaluation of Leased Assets

Leased assets have been revalued

17.12

Revaluation of Fixed Assets

Revaluation performed by barred valuers

16.64 (a), (d), (e), (f)

Disclosures required by IAS 16 regarding revaluation not made

Surplus on Revaluation of Fixed Assets

Amount of revaluation excluded from or included in the book value of the asset not disclosed

Para 2(C) of Part II

CWIP Significant item wise detail of CWIP not disclosed

Para 2 A (i)(f) of Part II

DEFERRED COSTS WAPDA reconnection charges capitalized as deferred costs

Para 5(B) of Part II

Preliminary expenses not amortized despite company being operative since 1992

Para 5(C) of Part II

LONG TERM INVESTMENTS

Provision for diminution in value of investments not made

Para 3(F) of Part II 25. 23

Market value of long term investment not disclosed

Para 3(E) of Part II

Long Term Investments stated at lower of average cost or net realizable value

Para 3(E) of Part II

CURRENT ASSETS

Trade Debtors Names of associated undertakings and maximum aggregate amount due from them during any month-end not indicated

Para 6(C)(b)&(c) of Part II

Short Term Investments Shown on the face of balance sheet, appropriate disclosures not made

Para 6(D) of Part II

Loans, Advances, Deposits Prepayments and other Receivables

Name of associated company not disclosed

Para 4(B) of Part II

PROFIT AND LOSS ACCOUNT

Sales Export sales shown net of exchange gain arising on realization of export proceeds

21. 9

Cost of Goods Manufactured

Amount of raw material consumed wrongly arrived at.

Selling & Distribution Expense

Other expenses, not showing separately every material item and the nature of each such item

Para 1(E) of Part II

Other Income Other income not showing separately every material item and the nature of each such item

Para 1 (A) (x) of Part III

Other income included export rebate rather than including it in sales

Opinion # 1.9 of the Selected Opinions Volume I.

OTHER DISCLOSURES

Earning Per Share Basic and diluted earnings per share not disclosed

33. 47

Transactions with Associated Companies

Pricing policies adopted by the company for such transactions not disclosed

24.23 (c)

Aggregate Transactions with Associated Undertakings

Aggregate amount due by associated undertakings not disclosed

Para 6(C) (b) of Part II

Financial Instruments Prepayments, advance income tax, sales tax and excise duty taken as financial assets

32.56 (b)

Effective interest rates not disclosed

Production Capacity Not clear whether disclosure of production capacity reflected actual production of the company or its production capacity

Para 2 (vii) of Part I

Constant installed production capacity disclosed despite major additions to plant and machinery

Foreign Exchange Transactions

Company is engaged in exports sales but amounts of exchange differences included in the net profit for the period not disclosed.

21.9 &

21.42 (a)

Number of Employees Number of employees at the end of the period or the average for the period not disclosed

1. 102 (d)

Directors and Officers Remuneration

Amounts charged as remuneration and benefits for Executives and company's contribution to provident fund for directors not disclosed

Para 4(i) of Part III Para 4(i) (e) of Part III

CASH FLOW STATEMENT Not drawn up in the format set out in IAS 7

7. 1 & 7.2

Amounts of trade debtors, advances, deposits and creditors, accrued and other liabilities wrongly arrived at.

Circular No. 09/2003 July 25, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member, AUDITORS’ REPORT TO THE CERTIFICATE HOLDERS OF MODARABA Enclosed please find an extract from S.R.O. 471(I)/2003 dated June 5, 2003 regarding substitution of existing Form No. XI in the First Schedule to the Modaraba Companies and Modaraba Rules, 1981 relating to Auditors’ Report to the Certificate Holders with the revised one as given therein. The new format is applicable with immediate effect. For the explanation of the words “approved accounting standards” as used in the new format, members are advised to refer to our circular No. 01/2003 dated February 24, 2003. Other items in the SRO under reference relate to amendments in the Modaraba Companies and Modaraba Rules, 1981 concerning:-

a) substitution of the words “statement of changes in the financial position” with the words “cash flow statement and statement of changes in equity”;

b) applicability of International Accounting Standards notified under section 234(3)

of the Companies Ordinance, 1984 to the annual financial statements of a modaraba;

c) preparation of financial statements at the end of first, second and third quarters in

accordance with International Accounting Standards notified under section 234(3) of the Companies Ordinance, 1984; and

d) replacement of the Second Schedule relating to scale of fees with a new one.

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above. G:\ICAP\Circular Issued in 2003.DOC

FORM NO. XI [See rule 9 (3)]

AUDITORS’ REPORT TO THE CERTIFICATE HOLDERS

We have audited the annexed balance sheet of ………………. modaraba as at ………….. and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof (hereinafter referred to as the financial statements), for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. These financial statements are the modaraba company’s (name of modaraba company to be indicated) responsibility who is also responsible to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards as applicable in Pakistan and the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, 1981. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies and significant estimates made by the modaraba company, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that— (a) in our opinion, proper books of accounts have been kept by the modaraba company in respect of

………….. modaraba as required by the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, 1981;

(b) in our opinion:

(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) and the Modaraba Companies and Modaraba Rules, 1981, and are in agreement with the books of accounts and are further in agreement with accounting policies consistently applied *1 except for the changes as stated in note(s) ………. with which we concur;

(ii) the expenditure incurred during the year was for the purpose of the modaraba’s

business; and (iii) the business conducted, investments made and the expenditure incurred during the year

were in accordance with the objects, terms and conditions of the modaraba;

(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan and give the information required by the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) and the Modaraba Companies and Modaraba Rules, 1981 in the manner so required and respectively give a true

and fair view of the state of the modaraba’s affairs as at ………….. and of the profit or loss, its cash flows and changes in equity for the year then ended; and

(d) in our opinion, *2 Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of

1980), was deducted by the modaraba and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Signature (Name(s) of Auditors)

Date ____________________ Place ___________________

NOTES

Where applicable— *1 Where there is no change in the accounting policy (ies) the portion “except for the changes as

stated in note(s) ……….. with which we concur” may be omitted. *2 Where no Zakat is deductible, substitute “no Zakat was deductible at source under the Zakat and

Ushr Ordinance, 1980”. Where any of the matter referred to in the auditors’ report is answered in the negative or with a qualification, the report shall state the reason for such answers along with the factual position to the best of the auditor’s information. G:\ICAP\Circular Issued in 2003.DOC

Circular No. 10/2003 July 28, 2003 ALL MEMBERS IN PRACTICE Dear Member, The State Bank of Pakistan and the Institute of Chartered Accountants of Pakistan have constituted a Joint Committee to examine the issues arising out of audit and accounting of banks. Meetings of the Committee are to be held on regular basis. In the first meeting of the Joint Committee held recently, it was agreed in principle that two meetings should be arranged between the external auditors of the respective banks and the Banking Inspection Department (BID). First meeting will be arranged at the beginning of the inspection of each bank and the external auditors would share their findings with BID. The second meeting will take place at the completion of the inspection and the BID teams would share their major findings with the external auditors. It was also agreed that both the meetings would be arranged at SBP. You are advised to extend necessary co-operation to the State Bank of Pakistan in this respect. Thanking you. Yours truly, Syed Sajid Ali Director Technical Services \\Ansar ahmed\d\DATA\ICAP\CIR-2003.DOC

Circular No. 11/2003 August 2, 2003 ALL MEMBERS IN PRACTICE Dear Member SHARE REGISTRATION SERVICES Enclosed please find copy of Securities and Exchange Commission of Pakistan letter No. SCD/SERV/05/2002/ dated July 23, 2003 addressed to the Managing Directors of the three Stock Exchanges of the country, which is self-explanatory. Thanking you Yours truly Syed Sajid Ali Director Technical Services Encl.: As above E:\ICAP\Circular Issued in 2003.DOC

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

SCD/SERV/05/2002 July 23, 2003

1. Managing Director

Karachi Stock Exchange (Guarantee) Ltd. Karachi

2. Managing Director

Lahore Stock Exchange (Guarantee) Ltd. Karachi

3. Managing Director

Islamabad Stock Exchange (Guarantee) Ltd. Karachi

Subject: SHARE REGISTRATION SERVICES Dear Sirs, Please refer to our directive of even number dated May 10, 2002 regarding improvement in the quality of audit, which was subsequently incorporated in the listed regulations of the Stock Exchanges. 2. In this connection, your attention is invited to clause (vi) of para 1 of the above directive, providing that, “In connection with share registration services, (transfer agents) an auditor, or a person associated with him, of a listed company rendering such services to its audit clients may continue to do so under existing or renewed contracts/arrangements until 30 June 2003”. 3. The Commission has decided to defer the applicability of clause (vi) of para 1 of the above directive till 30th June 2004, therefore, the Exchange(s) may not take any action against listed companies which fail to comply with this requirement till June 30, 2004. Yours truly, (Shahid Ghaffar) Commissioner (SM)

Circular No. 12/2003 September 20, 2003 ALL MEMBERS IN PRACTICE Dear Member On a directive from the Council of the Institute, a Task Force is at present examining Council Directive No. 4.06 – Styling of Firms with Foreign Names Prohibited, 4.11 – Permission to Refer to Association or Affiliation With Foreign Firms on Stationery Etc. of Practising Firms and 5.03 – Use of Foreign Names for Management Consultancy. For examining the issues in depth, the Task Force requests the members in practice, who have any type of association with foreign firms, to advise it the nature of commitment they have made with their foreign associates. You are requested to respond to the undersigned by October 6, 2003. Thanking you. Yours truly, Syed Sajid Ali Director Technical Services G:\ICAP\Circular Issued in 2003.DOC

Circular No. 13/2003 October 20, 2003 ALL MEMBERS OF THE INSTITUTE Dear Member, CODE OF ETHICS FOR CHARTERED ACCOUNTANTS Dear Member, The Council of the Institute in its 158th meeting held on July 25-26, 2003 has decided to add the following proviso in paragraph 13.15 of the Code of Ethics for Chartered Accountants relating to Superseding Another Chartered Accountant in Practice: -

“However, the proposed chartered accountant, before accepting an appointment, need not communicate with the previous chartered accountant in practice if the latter’s firm has been dissolved.”

New pages 43 and 44 are enclosed to replace existing pages in the Members’ Handbook, Volume-I, Part IV, Section 6.04 relating to Code of Ethics for Chartered Accountants. Thanking you. Yours truly, Syed Sajid Ali Director Technical Services Encl. As above G:\ICAP\Circular Issued in 2003.DOC

Circular No. 14/2003 October 27, 2003 ALL MEMBERS IN PRACTICE Dear Member, DISCLOSURE OF THE NAME OF THE SIGNATORY ON BEHALF OF THE CHARTERED ACCOUNTANTS’ FIRM

During the second co-ordination meeting held between ICAP and SBP on October 07, 2003, the SBP representatives raised the issue of disclosure of the name of the signatory on behalf of the Chartered Accountants’ firm in communication with SBP. It was pointed out that the partners, while communicating with the SBP, put the name of their firm as a signature, and in the case of large firms particularly, it was difficult to identify the person signing the report. Considering the above, ICAP and SBP agreed to the proposal that in future, any communication with the SBP should bear the name of the partner. The members of the Institute representing firms on SBP panel of auditors are, therefore, advised to mention the name of their relevant partner (in addition to the name of the CA firm) while communicating with SBP. Thanking you. Yours truly, Syed Sajid Ali Director Technical Services G:\ICAP\Circular Issued in 2003.DOC

Circular No. 15/2003 December 11, 2003 ALL MEMBERS IN PRACTICE Dear Member, AUDITORS’ REPORT TO THE MEMBERS Your attention is drawn towards SECP S.R.O. 167(1)/2003 dated February 14, 2003, whereby certain additions were made in Form 35A relating to the format of Auditors’ Report to the Members in respect of transfer-pricing. Later on SECP vide its S.R.O. 687(1)/2003 dated July 7, 2003 under the powers conferred on it by Section 506 of the Companies Ordinance, 1984, issued revised Companies (General Provisions and Forms) Rules, 1985, which has reinstated the original format of Form 35A. The members are therefore advised to note the above.

Thanking you. Yours truly, Syed Sajid Ali Director Technical Services G:\ICAP\Circular Issued in 2003.DOC

Circular No. 16/2003 December 26, 2003 ALL MEMBERS IN PRACTICE Dear Member, REVISION OF CRITERIA – STATE BANK OF PAKISTAN PANEL OF AUDITORS

During the second coordination meeting between State Bank of Pakistan (SBP) and The Institute of Chartered Accountants of Pakistan (ICAP) it was decided that in case of inactive / dual partners of the auditing firms the weightage of such partners in the criteria for placement in SBP Panel of Auditors would be reviewed. Existing criteria for placement has been divided into 5 parts:

1. Size of the Firm 2. Firm’s Audit Experience 3. Quality Control Review (QCR) by the ICAP 4. Affiliation with International firm of Accountants 5. IT System Audit Experience

Size of the firm is further divided into two parts, one related to the partners of the firm and the other to management / staff. In case of partners of the firm, every fellow member of ICAP has been allocated 2 points and every associate member 1 point each with a restriction that maximum points in this section will not exceed 15. State Bank of Pakistan has now decided that in case of audit firms having partners with dual partnership status (partners in more than one firm) the points allocation for such partners be reduced by half i.e. a fellow member of ICAP will be allocated 1 point and an associate member 0.5 point. Members in practice are requested to note the above. Syed Sajid Ali Director Technical Services H:\ICAP\Circular Issued in 2003.DOC