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audit division and the external auditors
on the system of internal control and
any material weaknesses that have
been identified, and discusses the
actions to be taken in areas of concern
with relevant executive management.
2) The Corporation has an internal audit
function, which carries out, on a
continuing basis, reviews of internal
controls and reports to the audit
committee.
3) The board approves budgets and
monitors the actual performance with
the budgets. There also exists a
strategic planning process.
4) An organization structure, which
supports clear lines of communication
and tiered levels of authority with
delegation of responsibility and
accountability, has also been
established.
f) There are no significant doubts upon
the Corporation’s ability to continue
as a going concern.
g) There has been no material departure
from the best practices of corporate
governance, as detailed in the listing
regulations.
Changes in Board of
Directors
Since the publication of Annual Report
2004, Mr. Zakir Mahmood relinquished as
an elected Director on completion of his
term and Mr. Kamal Afsar was elected /
joined the PIA Board as Director. The
Board welcomes the new Director and
wishes to place on record the valuable
contribution of the outgoing Director.
Dividend to
Shareholders
The Board of Directors in May, 2004
declared payment of interim cash dividend
of 5% to all the shareholders after eight
years of no dividend payments.
Offer for sale by
Government
The Government which is the majority
stake holder offered its 5% shareholding
22 PIA Annual Report 2004
in PIA at Rs. 20 per share in May 2004
through the stock market. The offering
included a green shoe option of 5% i.e.
equivalent to the initial offering. The offer
received encouraging response from the
investors with the initial offer of 5% being
over subscribed.
Auditors’ Report
External auditors have expressed a
qualification that due to lack of
adequate audit trail to support the
carrying value of inventories as a result
of problems with the inventory
management system, they were
unable to confirm the valuation of
inventories.
The qualification has arisen due to the
inherent limitation of the over two
decade old inventory management
system with respect to valuation of
inventories. This constraint will be
addressed after the proposed
implementation of the ‘Enterprise
Resource Planning (ERP)’ project
which includes the inventory
accounting and management systems.
The external auditors have expressed
qualification thereby stating that in their
opinion recognition of interest income
@ 5% on the working capital loan
aggregating Rs 2,669 million for the
period up to December 31, 2004 during
the current year does not meet revenue
recognition criteria stipulated in the
International Accounting Standard No
18 because there has been no change
in PIAIL’s ability to repay the outstanding
debt and interest thereon without
disposal of its properties.
The ground for recognizing the subject
income as also more fully explained in
notes 6.1.4 and 6.1.5 to the financial
statements are that the subject liability is
admitted by PIAIL and PIAIL has been
recognizing this liability on accruing basis
in its financial statements and that the
aggregate values of the assets of PIAIL
determined through recent independent
valuations would be adequate to cover
the liabilities of PIAIL towards the
Corporation in the event of a satisfactory
overall settlement with the other
shareholder.
The external auditors have expressed
another qualification that in their
opinion recognition of interest income
@ 10% on the accumulated interest
relating to the renovation loan does
not meet revenue recognition criteria
stipulated in the International
Accounting Standard No 18 because
the other shareholder of PIAIL had
made a request for reduction in the
interest rate from 10% to 7.74% and
because there has been no change
in PIAIL’s ability to repay the
outstanding debt and interest thereon
without disposal of its properties.
However, the Corporation firmly believes
that the accrual of interest @ 10% meets
revenue recognition criteria on the
following grounds:
23
The interest rate of 10 % was agreed
by the two shareholders through a
shareholders agreement executed in
　
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