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Excerpts from an exclusive interview with Badaruddin Fakhri, President, Institute of Cost and Management Accountants of Pakistan

By SHABBIR H. KAZMI
 Mar 11 - 17, 2002

Badaruddin Fakhri, FCMA, is President of Institute of Cost and Management Accountants of Pakistan. He was elected as President of PIPFA for 2001 by its Board of Governors. He has been working as Technical Advisor on the Education Committee of IFAC since 1999. He has been the Chief Editor of 'Management Accountant' from 1996 to 2001. He has presented papers in national, as well as, international conferences on professional and other economic issues. Currently he is Director Finance at Pioneer Cement.

Recently, Institute of Cost and Management Accountants of Pakistan (ICMAP) and Institute of Chartered Accountants of Pakistan (ICAP) have jointly distributed 'Best Presented Accounts Awards' to companies listed at stock exchanges in Pakistan. This Award has been installed to recognize dissemination of information by the companies in their annual reports reflecting the quality of management. In general financial statements show results of past performance and do not show non-financial information, though in many instances, it may be pertinent for decision makers.

There exists a gap between the financial statements, being released by the companies, and the purpose they purport to serve. Since Pakistani companies have started following International Accounting Standards, the quality of annual reports is expected to improve, with particular reference to greater disclosure. Many companies not only follow good governance but also provide maximum disclosure for the benefit of all the stakeholders. However, some sponsors resist any attempt to bring transparency and give less attention to corporate governance.

Accounting profession plays an important role in ensuring reliability and transparency in financial disclosure by the listed companies. With the improved reporting not only shareholders are expected to benefit but financial analysts at banks and DFIs and equities analysts would be better equipped to advise investors, both local and foreign, regarding portfolio investment. Without greater disclosure, adopting International Accounting Standards and reliable audit investors' confidence cannot be achieved.

The shareholders need information, besides the assurance which audited financial statements are expected to provide. Investors look for future plans and funding requirement for expansion and BMR programmes. Financial institutions and suppliers want to know how efficiently the company would be able to discharge its financial obligations. Therefore, financial statements are not only an indicator of performance but also the basis for decision making.

For a considerably long time ICMAP has been trying hard to convince the sponsors to go for cost audit, alongwith financial audit. While ICMAP has been demanding to make cost audit mandatory some of the companies belonging to cement, edible oil and sugar sectors have agreed for this. The general perception is that if a company does for cost audit there would be greater criticism on the way the companies are being managed. Whereas, we believe that the companies themselves will be the biggest beneficiary of this audit. They would be able to identify wastages and inefficiencies. Once the sponsors are able to overcome this, competitiveness of their companies will be improved. In my views, the main reason for higher cost of production is, no cost audit.

We also believe that while advocating cost audit, we do not consider that the management is doing any thing wrong. The management become so used to its practices and believe their practice are the best. This may not be correct. Once an outsider, review their data and performance, only then it can be ascertained whether what they have been doing was correct or needs improvisation.

I would go one step further and say that for a stronger economy, financial institutions operating in the country should be strengthened. At present commercial banks, leasing companies, investment banks and DFIs are operating in the country. The latest addition is establishment of specialized banks to cater to the needs of small and medium enterprises. However, often these institutions are involved in activities which are outside their original mandate — commercial banks involved in leasing business or DFIs undertaking commercial banking activity. The result is, these institutions are not able to achieve higher levels of efficiencies. Therefore, the GoP must ensure that each institution must adhere to the core activity for which it was established.

To achieve the highest professional standards, the ICMAP follows a diversified curriculum but also keeps on updating it to include the contemporary disciplines.