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