International Accounting

and
Auditing Standards

By
Dr. Ayesha Rehan
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 ACCOUNTING STANDARDS

• Accounting standards are authoritative standards for financial reporting

given by governing bodies like FASB and IASB.

• Accounting standards specify financial accounting policies and practices as

to how transactions and other events are to be recognized, measured,
presented and disclosed in financial statements.

• Accounting standards improve the transparency of financial reporting to

investors, lenders, creditors, etc. that is useful in making decisions about
providing resources to the entity (investment) and comparing them across
companies and countries.

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 ACCOUNTING STANDARDS

• In the United States, the GAAP form the set of accounting

standards widely accepted for preparing financial statements.

• International companies follow the IFRS, which are set by the

International Accounting Standards Board (IASB) and serve as the
guideline for non-U.S. GAAP companies reporting financial
statements.

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 FINANCIAL REPORTING FRAMEWORK

• The term financial reporting framework is defined as a set of criteria

used to determine measurement, recognition, presentation, and
disclosure of all material items appearing in the financial statements.

• An applicable financial reporting framework is the set of rules used as

guidelines in the preparation of financial statements. The framework used
is typically based on the type of business and where it is located, as well
as the applicable laws.
• E.g. applicable financial reporting framework for a business located in the United States
would be GAAP, while IFRS would be applicable reporting framework in most other
countries.
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 APPLICABLE FINANCIAL REPORTING FRAMEWORK

• Applicable Financial Reporting Framework (AFRF) is the financial

reporting framework adopted by management and / or by TCWG in
preparation of financial statements considering legal requirements, nature of
entity, nature of financial statements, and purpose of financial statements.
• Auditor shall not accept proposed audit engagement, if AFRF is NOT applied.

• Those charged with Governance means persons with responsibility to

supervise, control and oversee the strategic direction of an entity.
• TCWG look after financial reporting process and are responsible for
approving the financial statements e.g. Board of Directors, and audit committee, share
holders committee etc.

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 DIFFERENCE BETWEEN ‘IAS’ AND ‘IFRS’

• The IASC, the accounting standard-setting body, was replaced by IASB in

2001.
• IASC issued 41 accounting standards in the name of International
Accounting Standards (IAS) between 1973 and 2001.

• On 1 April 2001, the IASB took over from the IASC the responsibility for
setting International Accounting Standards in the name of International
Financial Reporting Standards (IFRS).
• Currently, IASB operates under the oversight of the IFRS Foundation.
• Besides issuing new IFRSs, IASB also replacing the old IAS in the name of
IFRS.

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 FINANCIAL REPORTING FRAMEWORK IN PAKISTAN

• Pakistan has a differential financial reporting regime under which

different financial reporting requirements are set according to the type of
company, principally based on the level of public interest in the company.

• Under Pakistani Companies Act 2017 (Companies Ordinance, 1984), the

Securities and Exchange Commission of Pakistan notifies the accounting
standards that are applied by entities in Pakistan.

• Pakistan has adopted most but not all International Financial Reporting
Standards (IFRSs) for mandatory application by listed companies, banks
and other financial institutions and Economically Significant Entities (ESE),
even when these are not listed.

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 FINANCIAL REPORTING FRAMEWORK IN PAKISTAN

• For Example:
• Standards relevant for financial institutions (IAS 39 - 40 and IFRS 7)
have not been adopted for banks and other financial institutions
regulated by the State Bank of Pakistan (SBP).
• The SBP has prescribed its own criteria for recognition and
measurement of financial instruments for such financial entities.
However, adoption of IAS 40 for these companies is currently under
consideration by the SBP.
• For insurance entities there is specific guidance for the
measurement of some investments that differs from IAS 39.
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 FINANCIAL REPORTING FRAMEWORK IN PAKISTAN

• Accounting and reporting standards as applicable in Pakistan comprise of the following

• Financial reporting standards
- International Financial Reporting Standards (IFRS)
- International Financial Reporting Standard for Small and Medium-sized Entities
(IFRS for SMEs)
• Provisions and requirements of the Companies Act -
- Fourth schedule of the Companies Act
- Fifth schedule of the Companies Act

• Specialized financial reporting standards

- Accounting Standard for Not for Profit Organizations (NPOs)
- Islamic Financial Accounting Standards (IFAS)

• Specialized financial reporting requirements - Required under the law and related regulations
applicable to specialized entities such as banks, DFIs, insurance companies and mordabas

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INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

• International Financial Reporting Standards, commonly called IFRS,

are accounting standards issued by the IFRS Foundation and
the International Accounting Standards Board (IASB).
• They constitute a standardized way of describing the company’s financial
performance so that company financial statements are understandable and
comparable across international boundaries.
• They are particularly relevant for companies with shares or securities listed
on a public stock exchange.

• IFRS have replaced many different national accounting standards around

the world but have not replaced the GAAP used in the United States

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 IFRS PUBLICATIONS

• International Financial Reporting Standards I(FRS)-17

• International Accounting Standards (IAS)– 41
• International Financial Reporting Interpretations Committee (IFRIC)
- Interpretations -23
• Standard Interpretations Committee (SIC) Interpretations -33
• Other pronouncements -5
– Such as ;
– Conceptual Framework for Financial Reporting (2018)
– IFRS for Small and Medium Sized Entities

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 INTERNATIONAL FEDERATION OF ACCOUNTANTS (IFAC)

• IFAC is the worldwide leader of audit profession. It is the global

organization of professional accountants dedicated to serving the public
interest.
• Functions / Role of IFAC:
• IFAC supports the development of profession in the area of auditing, ethics,
professional education and public sector by following activities:
• development of high-quality standards and guidance.
• facilitating the adoption and implementation of standards and guidance.
• promoting the value of professional accountants worldwide.
• speaking out on public interest issues where professional voice is important.

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 BOARDS OF IFAC
• IFAC includes following four boards:

• International Auditing and Assurance Standards Board (IAASB);

• International Ethics Standards Board for Accountants (IESBA);

• International Public Sector Accounting Standards Board (IPSASB).

• International Accounting Education Standards Board (IAESB);

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 INTERNATIONAL STANDARDS ON AUDITING (ISA)

• International Standards on Auditing (ISA) are professional standards for

the auditing of financial information.
• These standards are issued by the International Federations of Accountants
(IFAC) through the International Auditing and Assurance Standards
Board (IAASB).
• ISA guides the auditor to add value to the assignment hence building
confidence of investors.
• The standards cover various areas of auditing, including respective
responsibilities, audit planning, internal control, audit evidence, using the
work of other experts, audit conclusions and audit reports, and standards for
specialized areas.

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 LIST OF INTERNATIONAL STANDARDS ON AUDITING

• Currently, International Standards on Auditing have 36 and 1 Quality Control Standard:

• ISA 200: Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with International Standards on Auditing 
• ISA 210: Agreeing the Terms of Audit Engagements 
• ISA 220: Quality Control for an Audit of Financial Statements
• ISA 230: Audit Documentation
• ISA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
• ISA 250: Consideration of Laws and Regulations in an Audit of Financial Statements
• ISA 260: Communication with Those Charged with Governance 
• ISA 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and
Management

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 LIST OF INTERNATIONAL STANDARDS ON AUDITING

• ISA 300: Planning an Audit of Financial Statements 

• ISA 315: Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment
• ISA 320: Materiality in Planning and Performing an Audit 
• ISA 330: The Auditor’s Responses to Assessed Risks
• ISA 402: Audit Considerations Relating to an Entity Using a Service Organization
• ISA 450: Evaluation of Misstatements Identified during the Audit
• ISA 500: Audit Evidence
• ISA 501: Audit Evidence-Specific Considerations for Selected Items
• ISA 505: External Confirmations

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 LIST OF INTERNATIONAL STANDARDS ON AUDITING

• ISA 510: Initial Audit Engagements-Opening Balances

• ISA 520: Analytical Procedures
• ISA 530: Audit Sampling
• ISA 540: Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related
Disclosures
• ISA 550: Related Parties 
• ISA 560: Subsequent Events 
• ISA 570: Going Concern
• ISA 580: Written Representations
• ISA 600: Special Considerations-Audits of Group Financial Statements (Including the Work of
Component Auditors) 
• ISA 610: Using the Work of Internal Auditors
• ISA 620: Using the Work of an Auditor’s Expert

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 LIST OF INTERNATIONAL STANDARDS ON AUDITING

• ISA 700: Forming an Opinion and Reporting on Financial Statements 

• ISA 705: Modifications to the Opinion in the Independent Auditor’s Report
• ISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s
Report 
• ISA 710: Comparative Information-Corresponding Figures and Comparative Financial Statements
• ISA 720: The Auditor’s Responsibilities Relating to Other Information in Documents Containing
Audited Financial Statements
• ISA 800: Special Considerations-Audits of Financial Statements Prepared in Accordance with
Special Purpose Frameworks
• ISA 805: Special Considerations-Audits of Single Financial Statements and Specific Elements,
Accounts or Items of a Financial Statement 
• ISA 810: Engagements to Report on Summary Financial Statements
• International Standard on Quality Control (ISQC) 1, Quality Controls for Firms that Perform Audits
and Reviews of Financial Statements, and Other Assurance and Related Services Engagements

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 AUDITING FRAMEWORK IN PAKISTAN
• Under the Companies Act of 2017, ICAP is responsible for adopting and
issuing auditing standards to be applied in Pakistan, and the institute has
adopted the revised 2016 ISA.
• Under the Companies Act, all companies, except for private limited companies
with paid up capital below one million rupees, are to be audited following
auditing standards adopted and issued by ICAP. The Act indicates that
financial statements of companies with paid up capital below one million
rupees does not require an audit but still requires submission to the SECP.
• In 2016, the Securities and Exchange Commission of Pakistan (SECP) made
an independent Audit Oversight Board (AOB) with the responsibility to
regulate the auditing profession.
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 Auditing Standards Requirement
• Auditing standards were required by multinational corporations
that wanted consistent auditing throughout the world.
• With a set of international standards adopted for the world,
international investors can be more confident in financial statements
prepared in another country.
• The nondomestic auditor’s opinion will lend as much credibility as a
domestic auditor’s opinion.
• ISAs are harmonization standards, the application of which
promotes consistent auditing across the world.

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