Companies Act 2017 (the Act) is the main statute for governing the corporate structure in Pakistan. The Act also specifies the accounting and financial reporting requirements for all corporate entities working in Pakistan as well as provides guidelines for the presentation of financial statements. All corporate entities have to prepare their financial statements according to the requirements of the Act.  produce financial statements.

Accounting & Financial Reporting Structure

Under the Companies Act of 2017 only those accounting and financial reporting standards can be applied by the Companies which are adopted by the Securities and Exchange Commission of Pakistan (SECP). The Commission is the custodian of the Companies Act 2017.

However, SECP has delegated the responsibility for adopting the accounting and financial reporting standards to the Institute of Chartered Accountants of Pakistan (ICAP). ICAP has adopted the International Financial Reporting Standards (IFRS) issued by the International Federation of Accountants (IFAC) for the accounting and financial reporting of listed companies, public interest companies, public sector companies, public utility companies, financial institutions, and companies in the process of being listed on the Pakistan Stock Exchange and large-sized non-listed companies. These Companies are required to apply IFRS in the preparation of their financial statement.

Medium-sized companies as defined in Companies Act 2107 (i.e., companies other than listed, public interest, large-sized) and small-sized entities can either choose to use IFRS for SMEs or full IFRS. Small-sized entities can choose to use Accounting and Financial Reporting Standards for Small-Sized Entities (AFRS for SSEs), IFRS for SMEs, or full IFRS.

IFRS for SMEs and AFRS for SSEs are abridged forms of IFRS.

Under the Banking Companies Ordinance 1962, the State Bank of Pakistan (SBP) is responsible for setting financial reporting requirements for banks and other similar financial institutions. The SBP requires that all the banks and other related financial institutions have to prepare and submit their audited financial statements according to the standards adopted by the ICAP (i.e. IFRS). Further for the insurance companies the Insurance Ordinance 2000 provides financial reporting requirements and regulations for insurance companies. Under the Ordinance, insurance companies are required to follow financial accounting and reporting standards adopted by ICAP (i.e IFRS).

Auditing Framework

Companies Act of 2017 provides that the Institute of Chartered Accountants of Pakistan ( ICAP) is responsible for regulating the auditing profession in Pakistan as well as for adopting and issuing the auditing standards. The institute has adopted the International Standards on Auditing (ISAs). Under the Companies Act, all companies are required to get their financial statements audited by an independent auditor (normally a chartered accountants firm). The Companies have to submit the audited financial statements to the SECP and the Federal Board of Revenue (FBR).