03-07-2007, 05:44 PM
Dear,
Thank you very much for your reply. Infact you have given a very focussed clarification as far as accrual basis and cash basis of accounting have been discussed by you. I principally agree to your conclusion.
Still, there are two further things to be elaborated. Firstly, Revenue is explained to be cash or cash equivalent received or receivable by para 11 of IAS 18. This covers both cash received against the revenue and revenue accrued. If we see the order of the transaction then off course accrual comes first and cash comes later. The intention of the aforesaid para may be construed that when some revenue is receivable as cash equivalent (i.e. the amount accrued to be received) then the accured amount would be the revenue to be disclosed in accounts and when the revenue is received as cash then the received amount (actual proceeds) would be the revenue to be disclosed in the accounts. If this is not true then what means by cash and cash equivalent received or receivable? The cost against the realized amount (which includes the portion of currency exchange gain) is the cost of inventories charged to profit and loss account against such sales thus complying the matching principle. Cost against the cash equivalent received is the carrying value of inventories charged.
The point which you highlighted about year-end debtors is of greatest importance becoz it would affect the next year profit and loss account and if it is a gain it would be carried with nil cost and if it would be loss it would be carried with nil revenue, creating problems with matching principle.
As far as adjusting loss against revenue, my view point is that such loss is notional and infact reflects the amount booked as cash equivalent receivable and cash actually received. This is not a setting of two non-similar items of expense and income becoz this does not reflect non-similar accounting estimate like bad debts etc. Therefore, in my view it could be adjusted there-gainst.However, your argument on this area is also very strong.
I understand that basic concept of acounting and framework of standards support the idea to account for such gain as other income. I also understand that consultants and fighting at various forums would turn the table against the tax authorities. I feel you are from Islamabad and you dont know the problems of exporters which are actually located at karachi, lahore and faisalabad. Incurring of substantial costs of consultancy and fighting with tax authroities after paying the demanded tax amounts (that will be piled up for the long runs without any financial return and on which they are paying huge financial charges) make the exporting sector a loss making sector due to very lesser margins in post WTO regime where antidumping is already hitting various industries from 5 percent to above 15 percent sequeezing all profits earned through such deals.
You know IAS 39 is still not implemented for banking sector in Pakistan due to fair valuation problems. {In my view such fair valuation as pointed out in paragraph 41-42 of IAS 39 read with para AG84 of its application guideline, is conflicting with the matching principle of frameowrk of IFRSs that has been discussed. Just a point to be considered} This has been delayed only to save the results of banking sectors from huge fair value adjustments.
If one sector is supposed to be saved by denying/delaying such an important IAS, then why not the exporting units be accomodated by limiting such requirement to the extent of disclosure only where no such specific classification is stipulated by any IFRS clearly. One has to consture the things from framework but nothing has been stipulated as a requirement. Further, there could be more arguments from both sides of the table on this discussion.
Anyways. Your clarification is sound, based upon facts and privides sufficient explanation on the matter.
I am really thankful to you for your valuable contribution.
Best regards.
Kamran.
Thank you very much for your reply. Infact you have given a very focussed clarification as far as accrual basis and cash basis of accounting have been discussed by you. I principally agree to your conclusion.
Still, there are two further things to be elaborated. Firstly, Revenue is explained to be cash or cash equivalent received or receivable by para 11 of IAS 18. This covers both cash received against the revenue and revenue accrued. If we see the order of the transaction then off course accrual comes first and cash comes later. The intention of the aforesaid para may be construed that when some revenue is receivable as cash equivalent (i.e. the amount accrued to be received) then the accured amount would be the revenue to be disclosed in accounts and when the revenue is received as cash then the received amount (actual proceeds) would be the revenue to be disclosed in the accounts. If this is not true then what means by cash and cash equivalent received or receivable? The cost against the realized amount (which includes the portion of currency exchange gain) is the cost of inventories charged to profit and loss account against such sales thus complying the matching principle. Cost against the cash equivalent received is the carrying value of inventories charged.
The point which you highlighted about year-end debtors is of greatest importance becoz it would affect the next year profit and loss account and if it is a gain it would be carried with nil cost and if it would be loss it would be carried with nil revenue, creating problems with matching principle.
As far as adjusting loss against revenue, my view point is that such loss is notional and infact reflects the amount booked as cash equivalent receivable and cash actually received. This is not a setting of two non-similar items of expense and income becoz this does not reflect non-similar accounting estimate like bad debts etc. Therefore, in my view it could be adjusted there-gainst.However, your argument on this area is also very strong.
I understand that basic concept of acounting and framework of standards support the idea to account for such gain as other income. I also understand that consultants and fighting at various forums would turn the table against the tax authorities. I feel you are from Islamabad and you dont know the problems of exporters which are actually located at karachi, lahore and faisalabad. Incurring of substantial costs of consultancy and fighting with tax authroities after paying the demanded tax amounts (that will be piled up for the long runs without any financial return and on which they are paying huge financial charges) make the exporting sector a loss making sector due to very lesser margins in post WTO regime where antidumping is already hitting various industries from 5 percent to above 15 percent sequeezing all profits earned through such deals.
You know IAS 39 is still not implemented for banking sector in Pakistan due to fair valuation problems. {In my view such fair valuation as pointed out in paragraph 41-42 of IAS 39 read with para AG84 of its application guideline, is conflicting with the matching principle of frameowrk of IFRSs that has been discussed. Just a point to be considered} This has been delayed only to save the results of banking sectors from huge fair value adjustments.
If one sector is supposed to be saved by denying/delaying such an important IAS, then why not the exporting units be accomodated by limiting such requirement to the extent of disclosure only where no such specific classification is stipulated by any IFRS clearly. One has to consture the things from framework but nothing has been stipulated as a requirement. Further, there could be more arguments from both sides of the table on this discussion.
Anyways. Your clarification is sound, based upon facts and privides sufficient explanation on the matter.
I am really thankful to you for your valuable contribution.
Best regards.
Kamran.
