The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested that the Securities and Exchange Commission of Pakistan (SECP) should stay away where the law and issuance of notifications are conflicting and contradictory to each other.
FPCCI Vice-President Engr M.A. Jabbar made the suggestion at the second meeting of the Task Force on Rotation of Auditors held here late last month.
"Any notification or imposition, encroaching upon the rules driving the law may be a bad option for the regulators to seek for", he said, adding: "The SECP may like to limit to the listed companies, playing in the stock trading for protecting the weaker partners' interests while considering proposal for rotation of auditors."
The following three questions were put by the SECP for consideration before formulating the recommendations:
(i) Whether the partners on an audit firm may be allowed to rotate as allowed by the IFAC code of ethics or the audit firm itself.
In reply, it was suggested that the partners of the audit firm may be allowed to rotate and understandably any unethical observation may be hit by code of conduct, originating from within the institute under which the auditors are functional and are carrying out the professional duties pertaining to audits of the companies.
(ii) Whether the listed company's auditor should be rotated after every five years as required by the code of corporate governance.
The reply was that the listed companies might be required to be regulated for safeguarding the interest of the minor shareholders. The stock trading and its fluctuations have remained debatable as to the questionable situations when the frequency of fluctuations give rise to unwanted discussions.
In cases where the companies are exposed to trading activities in the stocks, the rotation of auditors, if it is based on certain reinforcing parameters ensuring the plantation of safeguard measures for protecting the interest of minor share-holder, can be a good option.
The selection of auditors in case of such listed companies may also extend as an option offer for decision by general body so that the larger interests are protected.
(iii) Should any company or class of companies be exempted from rotation as audit firms? If so, what criteria, if any, should be applied.
It was suggested that the private limited companies may not be applied for rotation of audit firms, as they will otherwise open other venues like asking the audit firms to continue working with them, while seeking endorsement from other audit firm which phenomenon the FPCCI anticipates.
Therefore, regulations and beating of the regulations will undermine the intents of the regulators without prejudice though even being good conceived and result-oriented for the objectives.
Engr Jabbar suggested that instead of preferring for the proposed rotation of auditors, the other measures for consideration by the SECP may include management integrity, improvement in standards of audits, better applied code of ethics in the institutes, and their rules governing functioning of auditors and discharging the professional duties may constitute a better area for exploration by the SECP.
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