Page 35 - CMA Journal (Mar-Apr 2026)

Implications for Accounting, Auditing, and Taxation

1) Accounting and Auditing Standards
Inventory and Impairment (IAS 2 & IAS 36): Under IAS 2,
inventories are supposed to be recorded at the lower of
cost or net realizable value. In a situation where export
prices fall due to instability, rms may have to write
down inventory values. This is a major point for
Pakistan's textile exporters, since they are operating in
an industry where prices shift quickly according to the
latest trends and climate. IAS 36 is also relevant for a
company that is heavily dependent on exports.
Especially exporting to limited markets, since instability
in any of its major destination markets can directly
impact the exporter. They may need to reassess the
value of its assets.

Financial Instruments (IFRS 9): IFRS 9 requires companies
to account for expected credit losses (ECL). In uncertain
global conditions, the risk of default increases especially
when dealing with foreign buyers. This makes Practical Challenges
estimation more difficult and more conservative. In practice, State Bank of Pakistan and Ministry of Finance
reports state that external shocks amplify structural
Exchange Rate and Going Concern (IAS 21 & ISA 570):
weaknesses and cause a delay in refund processing. During
Exchange rate movements are another major factor.
2022–2024, exporters faced delays in sales tax refunds,
Under IAS 21, uctuations in currency values directly
struggled with liquidity shortages, and had to increase
affect nancial statements. Given how much the
working capital requirements due to rise in freight costs and
Pakistani Rupee has depreciated in recent years, this has
insurance premiums.
had a noticeable impact on exporters' reported
performance. ISA 570 (Going Concern) also states that Internal Control System (ICS) in Pakistan's Export
in conditions like these which can cause much Sector
uncertainty, auditors need to assess whether such
Internal control systems are those policies and procedures
disruptions could threaten a company's ability to
which are set in place by an organization to ensure smooth
continue operating. and efficient operations, compliance with local and
international laws and regulations, and prevention of fraud
2) Taxation Implications
and misstatement in accounts or inventory tracking.
Income Tax Framework (ITO 2001): The Final Tax Regime In Pakistan's export sector, internal control weaknesses are
under Section 154 is meant to ease tax-related frequently observed due to weak governance and lack of
compliance for exporters and to encourage in ow of automation.
foreign exchange during periods of external stress. Key Weaknesses in Internal Controls
Sections 65A and 65B of ITO 2001 provide tax credits for
industrial undertakings and for investment in plant and The main concerns affecting Pakistan's textile sector are:
machinery. These credits support exporters who are n Poor tracking of raw materials
trying to meet their operational capacity even during n Weak warehouse controls
global disruptions. n Lack of real-time inventory systems
n Lack of integrated ERP systems
Sales Tax Framework (STA 1990): Exports are treated as
zero-rated under Section 4 of the Sales Tax Act 1990. This Export processes require strict documentation. Weak
allows rms to claim refunds on input taxes that they internal controls result in:
paid during production. The aim is to make exports n Delays in Letter of Credit (LC)
more competitive internationally by removing the tax n Rejected export claims
burden from exporters.
n Foreign exchange settlement issues

ICMA’s Chartered Management Accountant, Mar-Apr 2026 33