Name : Mazhar Iqbal

Stage : Professional-IV

Reg. #: 00991593

Role Of Regularity Authority under “Code Of Corporate Governance”

If we look back towards 500 years, the most of the businesses were being managed as
sole proprietorship run by a single person or with association of few family members
with small investments.

But because of inventions of modern technology, the entire world has become a global
village. There are no limits of business boundaries. Now business turn over is in multi
billions even trillions. Definitely this type of investment can not be managed by a single
person or a group of few persons. This situation gave a new opportunity to a large scale
business and opportunity to a large number of persons to make joint investments to be
run by professional management. Where second persons look after the investment of
principle investors.

Here need arises to have some methodology to run business and report to the principle
investors. With this changed scenario involvement of third parties also came into the
picture like Government exchequers for taxes and duties, Banks for credit limits,
Suppliers for the value of supplies and services, Customers to receive product or service
for the money they pay.

Monitoring the interest of so many parties from various disciplines, who keep close eyes
from their own point of view in business activities become difficult.

Like every discipline of life regulations were made. In business world also, regulatory
authorities were established to make common rules and uniform reporting system.

If we look in our local business environment, the following Authorities are involved to
make and monitor regulations.

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN:

The SECP work is around the registration of the companies. Means it deals with all the
companies registered under the Companies Ordinance, but not with the Banking
Companies.

STATE BANK OF PAKISTAN:

SBP deals with Banking Companies and make sure they follow all the rules and
regulations under the Banking Ordinance.

STOCK EXCHANGE:

The platform of trading in securities of listed companies. Deals with the listed
Companies.

Not directly in picture but ultimately more powerful and in full command of the field of
business:

JUDICIARY AUTHORITIES- High Courts, Supreme Courts, and now one new
establishment with unprecedented and unlimited power is NAB.

Before discussing role of these authorities, let us see the mission and vision statements of
the SECP, which is the real reflection of the wishes of the investors.

Mission Statement

"To promote an efficient and transparent capital market, develop the corporate
sector and protect the investor through responsive policy measures, effective
regulation and enforcement of best governance practices."

Vision Statement

"To install and sustain a dynamic, modern and proactive regulatory body that
provides impetus for the development of a fair, efficient and transparent capital
market and a robust corporate sector."

Ladies and Gentlemen:

To ensure achievement of mission and vision, SECP has established “Code Of Corporate
Governance”.

Let us see what are these Codes? Is it a new invention or old rules in new cover? Are
these really followed, efficiently and effectively monitored, and timely actions are taken
to ensure its compliance? Is there systematic way to ensure compliance or used
traditional wait for ---- to take action.
Let us see first the main clauses of Code of Corporate Governance.

BOARD OF DIRECTORS:

Topic Addressed Previous Status

1. Qualification and Eligibility Already mentioned in Co. Ord.1984

2. Powers of the BOD Already mentioned in Co. Ord.1984
3. Meetings of the BOD Already mentioned in Co. Ord.1984
4. Key information to be placed by BOD Already mentioned in Co. Ord.1984

CHIEF FINANCE OFFICER:

Yes, there is prescribed qualification but interesting to see, be a Qualified Accountants,

OK, Fine,

Graduate with five years experience of listed companies or a bank or financial

institutions. A Graduate in any discipline with five years experience (level not defined
and quality of experience is not a criteria). Can he replace a qualified person? What a
funny decision in a country where listed Companies are less than 1,000 and Qualified
Accountants are over 5,000.

In simple words a member of National Assembly or Provincial Assembly an also be a

Chief Finance Officer of a listed company. If the company will be run like present
assembly style, money of investors will be as safe as interest of a common man in the
hands of assembly members.

Sir, I request to the August House of Qualified Accountants and future Accountants,
please raise voice to restrict qualification of CFO only to a qualified Accountants for this
highly professional and demanding job like other modern world.

Yes, frequency of Financial Reporting from twice a year to four times a year is a good
step.

AUDIT COMMITTEE:

Yes, it is a new concept, but do we think that a director without any audit/accounts
qualification can be an effective member of the highly technical job?

1. Frequency of meetings.
2. Attendance at meetings.
3. Terms of Reference.
4. Reporting Procedures.
5. Internal Audit.
 6. External Audit.

Ladies and Gentlemen: with all these changes, new ways and means, is there any
remarkable improvement in corporate governance? Is there any transparency in Financial
Management?

Have a look on actions taken by the Regularity Authorities:

In year 2001:
• Actions against over fifteen companies and two Chartered Accountants Firms
have been taken.

In year 2002:
• Fine/action against five Chartered Accountants Firms for non compliance of
certain rules.
• Prosecute one company for non compliance.
• Show cause notices to nineteen companies for non compliance of certain rules.

What happened subsequently, Allahh knows the better.

In year 2003:
• Called explanations from international Brokerage Houses.
• Warning to authorize Stock Brokerage Houses.

Whether we have improved our professional ethics or Regularity Authorities have

compromised on standards.

If we see list of actions, the reply is “improvement”.

If we see economic growth and return on investment reply is “compromised”.

At last, but not the least, with apology, if it is not a contempt of court.

If there is professionally qualified judiciary avaible to narrate and interpret the complexed
financial business situations, my professional colleagues who are handling/facing this
typical situation will be in better position to reply, but I am sure the reply will be
negative.

Here I would like to make some recommendations that:

• The professional accountants only be the Chief Finance Officer.

• Auditor of the company may appointed by the SECP whoever necessary with the
power and responsibility.
• Where there is a power, there should be monitoring of power to ensure
compliance.
 • Audit of auditor should be conducted by other discipline of accountants that is
Chartered Accountants for Management Accountants and Management
Accountants for Chartered Accountants.

This will help to improve efficiency, sense of responsibility and healthy business
environment by competition.

Thank you,