One important provision is external audit under Section 32

In line with the Corporate Governance Code 2012, Section 20 of Listed Companies CCG Regulations, 2017 also mentions the mandatory requirement for all directors of listed companies to have certification by June 30, 2020 under any director training programme offered by any local or foreign institution. ICMA Pakistan strongly recommends that the Securities and Exchange Commission of Pakistan (SECP) should allow only recognised professional accounting bodies in Pakistan to provide DTP and discourage mushroom growth of other institutions otherwise it would affect the quality of training. It is further proposed that persons holding professional qualification from recognised professional accounting bodies may be exempt from the mandatory directors training programme.

Through Section 23 of the draft regulations, in addition to qualified professional accountants, post-graduate degree holders with even five years of experience have been allowed to become the CFO of listed companies. This is against the norms of justice and equality as a postgraduate cannot be equivalent to a member of professional accounting body in terms of required qualification and skills to perform the role of a CFO. This is the exclusive domain of professional accountants. It is therefore suggested that since the position of CFO is of specialised nature, only those persons having professional qualification like CAs and CMAs from any recognised body of professional accountants in Pakistan should be allowed to become CFO of any listed company. Foreign qualified accountants may be considered if they have completed their qualification through Pakistan tax and corporate laws. In case of any code of conduct issue, they should be subject to Pakistani legal framework for disciplinary action as per applicable code of conduct.

Another flaw in the draft legislation is that under Section 24 the experience requirement for an internal auditor has been proposed to be three years, whereas for CFO the required experience is five years. Logically, the internal auditor must be ‘smarter’ than the CEO and the CFO as he is responsible to examine their performances, as well as identify fraudulent transactions and non-compliances of reporting procedures within the organisation. As such, the experience requirement for Head of Internal Audit should be increased to at least five years.

The draft rules, in Chapter VIII, do not define the required qualification for a ‘company secretary’ whereas the required qualifications of CFO and head of internal audit have been duly mentioned. This omission needs to be addressed otherwise it would lead to confusion in appointment of company secretary in listed companies. It is proposed that a company secretary should be a person holding the qualification from any recognised body of professional accountants or the Institute of Corporate Secretaries of Pakistan (ICSP) with minimum experience of three years as a company secretary of any other company. The company secretary should also be made responsible for corporate compliance of the listed company.

It is further proposed that in addition to the audit committee; the human and remuneration committee and nomination committee, a risk management committee and procurement committee may also be formed by the board in view of its significance for the listed companies. Accordingly, a new Section on Procurement Committee may be added in Chapter X of the said Regulations.

One important provision is external audit under Section 32 which says that every listed company shall appoint only those audit firms which have satisfactory QCR rating from ICAP and registered with Audit Oversight Board (AOB) of Pakistan. This provision need to be overhauled as CMAs qualified from ICMA Pakistan has been altogether ignored despite being entitled under Section 247 of the Companies Act of 2017 to conduct audit of accounts of companies having paid-up capital of less than three million rupees. This provision is not based on principles of equality and justice as well as ensuring a level playing field and competition.

It is the duty of the regulator to take along all stakeholders and safeguard everyone’s interests instead of espousing the interest of only one profession. The conventional rights of statutory audit need to be reviewed in a more transparent manner and equal opportunity may be provided to professionals from other recognised professional accounting bodies who study audit and assurance. The management accountants are performing a remarkable role in financial management affairs and internal audit and they have turned around many organisations, both in the private and public sectors. If they are trusted for statutory audit rights along with cost audit, they can perform much better.

In the perspective of external audit provision, it must be pointed out that the existing Audit Oversight Board lacks independence and is under the influence of one profession. An independent Financial Reporting Council (FRC) may be established in its place as per global practice having representation from all recognised bodies of professional accountants, academia, law, industry and other stakeholders.

Section # 33 under Chapter XII on the external audit is missing. This needs to be clarified by the Commission if this is a typographical error or an inadvertent omission.

Section 34 refers to the rotation of external auditors after every five years in all listed companies in the financial sector. In proviso to this section it is stated that all inter-related companies/ institutions, engaged in business of providing financial services shall appoint the same firm of auditors to conduct the audit of their accounts. As per internal control principles, rotation of five years is on higher side and it must be lowered to three years to provide an opportunity to other firms to review/audit financial statements from different aspects. Further, change of partner does not fall in the rotation of auditors at the international level even. This will create a conflict of interest.