Prof. Dr. Khawaja Amjad
Saeed, FCA, FCMA*
Oct 18 - 24, 1999
There are three terms which have been used in the topic namely
Accountant, Revival and Economy. The word role is common in its inter-relationship. For
proper and effective communication, it is advisable that we may define these words and
delimit some of these to ensure clarity. The dictionary meaning of Accountant IS a person
dealing with money an
d includes a banker, a teller, a purser, a bursar, a treasurer, a
receiver and a cashier. However, for the purpose of this piece, we are perceiving role of
a professionally qualified Accountant, who may be a Chartered Accountant or a Cost and
Management Accountant. The word Revival has several dictionary meanings e.g. to recover,
to improve, to st
rengthen, to have a rebirth, to renew, to refresh, to reawake and to
rouse. The presumption is that the economy of a country is not on a sound and a stable
footing and therefore the role of an accountant has to be extended to its revival. The
term Economy is used in a broad sense which would include all the three sectors of a
country namely Agricu
lture and allied, Manufacturing and Mining and Infrastructure
(technological, financial, social and physical).
The misfortune is that the role of accountant in the revival of the
Economy has not been properly understood and appreciated, particularly in developing
An accountant's role in the revival of the Economy of a country has two
dimensions namely, macro and micro. This piece will primarily focus on the micro aspects
with diagnostic tools at Macro Level.
ROLE OF IFAC
The International Federation of Accountants has done a glorious work in
the past. Its institutional framework is just magnificent for a backup support for the
revival of a country. IFAC Handbook 1999 has been published and this contains Technical
Pronouncements. Spread over 988 pages, the Handbook includes innovative material covering
d guidelines in areas such as Auditing, Ethics, Education, Financial
and Management Accounting, Information Technology and Public Sector. Practical
implementation of the marathon work already undertaken can provide strong logistics to the
revival of the economy of a country. Governments in powers, economists, analysts and all
those interested in t
he revival of the economy of a country need to bejewel themselves with
the standards developed, guidelines issued and Statement of the Council of IFAC, etc. The
clarion call of today is to enlighten oneself with enriched literature included in the
above IFAC Handbook.
ROLE OF IASC
International Accounting Standards Committee, London has issued several
accounting standards. These are expected to be implemented so that Corporate Financial
Reports look informative and credible. These cover several areas which extend logistical
support to transparency and full disclosure which are the foundations on the premises of
ial positions are highlighted and operating results are disseminated.
It is high time that the Governments in power properly comprehend the foregoing IASs for
wider application to private, public and Government Sectors. The transparent results can
provide excellent guidelines for developing throughts relating to the diagnosis and later
the economy of a country.
For evaluating the state of economy of a country, professional
accountants have made rich contributions in the past. It is interesting to note that the
Canadian Institute of Chartered Accountants, Toronto has undertaken a considerable
research in this respect. The treatises is known as:
INDICATORS OF GOVERNMENT FINANCIAL CONDITION
This magnificent Research Report was released in 1997 and is spread
over seven chapters and five appendices. The scope includes introduction, what is
financial condition of Government, the challenges to reporting on financial condition,
users and the information provided, characteristics for the indicators, the indicators and
some final thoughts.
The diagnostic tools included in this pieces are based on the above
work. Indeed guidance provided in this research report is extremely useful as an eye
opener and deserves careful attention by Governments, planners and all persons in Civil
and Military Sectors. It is suggested that the Government may undertake a comprehensive
analysis based on th
e suggested indicators and begin to start revival job of the economy.
As Governments have employees, staff and logistics, the challenge of revival of the
economy be met immediately. Our positive role as a facilitator in revival will continue.
The suggested frame work is contained in this piece.
There are three indicators of the economic health of an economy of a
country at macro level. The following figure shows the position:
The above diagnostic tools are tabulated below:
Table No. 1
1. Debt as a percentage of GDP.
2. Deficit as a percentage of GDP.
3. Primary Balance as a percentage of GDP.
4. Financial Requirements as a percentage of GDP.
5. Debt as a percentage of Budget Revenues.
6. Debt as a percentage of Investments.
7. Net Worth as a percentage of GDP.
8. Actual GDP as a percentage of potential GDP.
Table No. 2
1. Own Source Revenues as a percentage of GDP.
2. Pubic Debt changes as a percentage of Revenues.
3. Changes in physical Capital as a percentage of Capital Stock.
4. Deficit as a percentage of Revenues.
5. Budgetary Expenditure as a percentage of GDP.
6. Financial Requirements to Revenue.
7. Deficit as a percentage of Operating Expenditure.
8. Expenditures as a percentage of Revenues.
9. Income Tax as a Percentage of Operating Revenue.
10. Interest Charges as a percentage of GDP.
11. Interest charges as a percentage of Operating Expenditure.
12. Interest Charges to Personal Disposable Income.
13. Primary Balance as a percentage of Operating Expenditures.
14. Program spending as a Percentage of GDP.
15. Program spending as a percentage of Operating Expenditure.
16. Program spending as a Percentage of Revenue.
17. Sales, Excise and Other Taxes as a Percentage of Operating Revenue.
18. Own source Revenues as a Percentage of Revenues.
Table No. 3
1. Current Account Balance as a Percentage of GDP.
2. Govt. to Govt. Transfers as a percentage of Own Source Revenues.
3. Foreign-held Govt. Debt as a Percentage of Total Govt. Debt.
4. Foreign Currency Debt-to-total Govt. Debt.
5. Total External Debt-to-GDP.
6. Govt. Debt by Currency Composition.
7. Debt as a Percentage of Exports of Goods, Services and Private
8. Interest Payments as a Ratio of Export Earnings.
9. Gross National Savings as a percentage of GDP.
10. Household Savings as a percentage of GDP.
11. Provincial and Federal Revenue Shares of Total Provincial Revenues.
12. Personal Debt as a percentage of Disposable income.
13. Personal Debt as a Percentage of GDP.
Characteristics of Information
Government Financial Reports should present information with the
Guidelines for Prepareres and Auditors
The following is a suggested note for guidelines for prepareres and
auditors of Government financial reports:
1. Exercise Professional judgement.
2. Assess benefits and costs
3. Make trade offs.
4. Consider substance over form.
5. Exercise prudence.
SICKNESS: DIAGNOSIS AND REHABILITATION
Sickness exists in all sectors of the economy of a country. There is a
need to establish early warning signals so that preventive maintenance approach is
followed and corrective actions are taken to avoid the catastrophe. In this respect,
Section 295 of the Companies Ordinance 1984 of Pakistan is a great innovation in financial
area. The role of a
ccountants is a pronounced one and needs to be followed in letter and
spirit. Later the rehabilitation package under Section 296 can be implemented so that
sickness impact is reduced. The relevance relating to early warning signals is the
contribution of an accountant as is shown below:
Table No. 4
Early Warning Signals of Sickness of an Enterprise
RELEVANCE TO ACCOUNTANTS ROLE
1. Affairs of a business
Prejudicial to various interest groups: Accountant will identify areas.
2. Business of a Company
Conducted or managed with intent to defraud the members and creditors.
An accountant may contribute to quantify the above.
3. Deprivation of Members
An accountant will determine the quantum of return to enable the
calculation of reasonable return.
4. Quantitative Analysis
The following quantitative indicators have been included in Section
i) operational smoothness will be determined by an accountant.
ii) Market value of quoted shares to be less than 75% of its par value:
The Accountant's role is positive in determination of the above.
iii) Debt Equity Ratio deteriorated beyond 9:1 or
iv) Current ratio deteriorated beyond 0.5:1 or Operations
v) closed for two years.
vi) Accumulated losses exceed 60% of its paid up capital.
vii) Default in repayment of debt amounted to Rs. One million or more.
Accountants role is prominent in all the above areas.
Section 296 of the Companies Ordinance 1984 prescribes rehabilitation
measures for which an accountant's role is highly significant.
SIGNIFICANT AREAS FOR ACCOUNTANTS CONTRIBUTION
An accountant's contribution is of enriched nature in revival of the
economy of a country. Some significant areas are identified below:
Table No. 5
An Accountant's Role in Revival of Economy
Financial Statements of timely, relevant and credible nature serve as a
basis of accountability.
Secret deals of financial detriment to the economy will be unfolded
through transparent transparency.
3. Good Corporate Governance
Guidance may be sought from Cadbury and Hamphel Reports - contributions
of accounting and financial bodies of U.K.
4. Three Es
For revival of the economy of a country three Es namely, Economy,
Efficiency and Effectiveness are pre-requisites. The role of an accountant is a pronounced
one. 5. Waste
The role of an accountant, particularly Cost and Management Accountant,
in weeding waste is well known.
Productivity increase is an important tool in the revival of the
economy. An accountant's role is pushing ahead the productivity on three fronts namely,
Men, Material and Machine is of inspirational nature and logistics are provided by
accountants in these respects.
Sound and dynamic decisions can be made on the basis of information
which is generally provided by accountants. Revival of economy follows.
Accountants role in Cost-Plus-Pricing and in perfect competition etc is
of significant nature. This can create competitive edge.
9. Financial Management
Revival of the economy of a country follows by concentrating on two
vital aspects of financial management namely, minimizing risks and maximizing returns. An
accountant plays a significant role.
10. Bench Marking
Information is generated by accountants and bench marking is
11. Innovative Tools
Recent contributions in quantitative analysis e.g. Balanced Scorecard,
Just-in-Time, Re-engineering, Target Costing, Activity Based Costing, Activity Based
Management, Total Quality Management, Life Cycle Costing, etc. are areas where accountants
are richly contributing.
12. Cost Audit
Maintenance of Cost records and their audit can uncover factors
underlying sickness and their subsequent revival.
Indeed an extensive treatises is needed to correlate the role of an
accountant for revival of economy. This piece identifies some areas. Full fledged research
must continue in this respect so that logistics are clearly spelled out for the guidance
to revive the economy of a country through the contributions of an accountant. This noble
uld be adopted as a continuing agenda for the 21st Century.
1. The Companies Ordinance, 1984.
2. Economic Survey of Pakistan, 1998-99.
3. Saeed, Khawaja Amjad, Economy of Pakistan, Lahore, Institute of
Business Management, 1999.
4. Saeed, Khawaja Amjad, Managerial Policy: Check Lists, Lahore,
Institute of Business Management, 1999.
5. Saeed, Khawaja Amjad, Excellence in Manufacturing: Innovative Role
of Management Accountants in strengthening Quality Management Systems, article presented
in the National Seminars held in Lahore, Islamabad and Karachi and organized by the
Institute of Cost and Management Accountants of Pakistan in September, 1999.
INTERNATIONAL ACCREDITED INSTITUTIONS
6. IFAC Handbook: Technical Pronouncements, 1999.
7. IASC Handbook: containing International Accounting Standards,
8. Research Report: Indicators of Government Financial Condition,
Toronto: Institute of Canadian Chartered Accountants, 1997.
* Dean: Executive Programs, Punjab College of Business Administration,
Constituent College of Mohammad Ali Jinnah University.
President, Institute of Cost and Management Accountants of Pakistan.
Member Governing Council, International Federation of Accountants