CMER WORKING PAPER NO. 05-40
Our paper examines the origins, growth, and the development of accounting practices and disclosures in Pakistan and the factors that influenced them. We traced the early days of accounting in the Indian subcontinent and the British colonial influence over the accounting of newly independent State. We examined the development of accounting through three eras: 1) Independence through 1971, 2) Post 1971 1984, and 3) 1984 to the present. We described how the colonial past and later the international financial institutions such as the Asian Development Bank and the International Monetary Fund played a key role in shaping accounting and reporting practices of the country. Pakistans adoption of International Financial Reporting Standards as national standards in 1985 did not lead to improvement in the quality of financial reporting. Pakistan, though classified as a common law country in literature exhibits most of the properties of code law countries. We argue that lack of investor protection (e.g., minority rights protection, insidertrading protection), judicial inefficiencies, and weak enforcement mechanisms are more critical factors than are cultural factors in explaining the state of accounting in Pakistan. We conclude that it is the enforcement mechanisms that are paramount in improving the quality of accounting in developing economies.