TEXT: The Chief Guest, the Guest of Honors, Dignitaries, Ladies and Gentlemen, Assalamu alaykum I welcome all of you, Mr Akif Saeed Chairman SECP and three Guest of Honors Mr Ehsan A. Malik, CEO of Pakistan Business Council Mr Khalid Mehmood, CEO of Getz Pharma Pvt. Ltd Mr Adnan Afridi Managing Director NIT.
I would like to acknowledge Mr Akif Saeed‘s positive attitude in not only promoting corporate governance in Pakistan but also for supporting our both Professional Accounting Institutes. While saying this I will go back to 2012 when he approved our Directors’ Training Program.
Over the last 11 years, I have become increasingly interested in this topic. Alhamdulillah, I have so far written four articles in The Pakistan Accountants and have been giving presentations on the topic of corporate reporting at Directors' Training Programs and Seminars in Pakistan and once in the UAE.
Award and Reward
Denzel Washington, winner of numerous awards very well explained difference between award and reward:
“Man gives you Awards but God [Allah] gives you the reward.”
We have assembled here today to applaud and confer awards to all those who have participated and are successful in achieving Best Corporate Report Awards for 2022.
Corporate Reporting
The annual report is a medium of communication between the company’s directors and its shareholders. Corporate Reporting is a valuable tool for promoting good corporate governance, and transparency and building the confidence and trust of all stakeholdersshareholders, lenders, and donors.
It is to be noted that stakeholders, especially investors, equate high quality annual reports with high quality management.
The Organization of Economic Cooperation and Development (OECD) requires that “The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters relating to the corporation, including the financial situation, performance, ownership and governance of the company.” This need for accurate disclosure is served through corporate reporting.
Transparency is also encouraged by the IMF. It requires that information must be given promptly unless there are compelling reasons against such disclosure. It believes that by being open and clear accountability becomes easy.
Increased accountability raises credibility and aids in the effective and disciplined operation of international financial markets. Here I would like to endorse Mr. Zaffar A Khan, a renowned corporate leader, who believes that a Corporate Report should report not only on the immediate past but should also endeavor to be forward-looking.
Ms. SANDRA PETERS, Head of Financial reporting team at CFA Institute said that: “The desire and need for data is increasing. We’ve become used to having data at our fingertips through our smartphones. Users of financial reporting information are no different.
They will continue to request additional information, as well as seek technological enhancements that can help them organize and analyze this information” (source: “The future of corporate reporting (kpmg.com)”.
Best Corporate Report Award
The two premier accounting bodies in the country, ICAP, and ICMA Pakistan, joined hands in the Year 2000 to launch the Best Corporate Report Awards. This is a prominent example of the unity of the two professional institutions for the last 23 years.
The purpose of the award ceremony is to encourage companies to achieve excellence in financial and governance reporting.
The competition has brought a tremendous improvement in the overall presentation of annual reports of the companies in Pakistan. I am pleased to observe that the disclosures made in the annual reports in Pakistan are at par and in some cases even better than disclosures made by companies in the developed world.
It is also my pleasure to acknowledge that the increasing number of Pakistani companies’ awards each year in the SAFA Best Presented Awards also shows our companies’ commitment to strive for best corporate reporting in line with best practices.
The Corporate reports are assessed based on BCR Evaluation Criteria which is updated regularly. We have been arranging consultative sessions with research heads of Banks/DFIs, analysts, and CFOs to improve transparency through the BCR Evaluation Criteria. Some recent additions in BCR criteria are:
• disclosures on ‘IT Governance & Cyber Security’ and ‘Enterprise Resource Planning’;
• Specific disclosures related to Banks, Insurance, Exploration, and Production companies.
International practice for Best Annual Report Award
This type of competition is organized at the SAFA level as well in many countries around the world like in Canada, Singapore, Australia, Malaysia etc.
For example, in Malaysia Corporate Report Awards have been announced for the last 33 years with the objective of promoting transparency and excellence in corporate reporting encompassing financial and non-financial information.
Its brochures it states that “the process of decision making is dependent on the reliability and sufficiency of the information contained in the annual reports, when the information presented is adequate and accurate, market regulators will surely acknowledge its veracity”.
Canada is another instance, where it was first introduced in 1951 under the name Annual Report Awards. After 40 years following additions were made:
• Management Discussion and Analysis (MD & A)
• Environmental reporting and corporate governance disclosures.
In 2001, the category for electronic disclosure was added.
Sustainability Reporting
The Sustainability Reporting Award was introduced in 2011 in Pakistan by the BCR committee.
The International Sustainability Standards Board has recently issued two Sustainability Standards in June 2023:
• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
• IFRS S2 Climate-related Disclosures
These are now undergoing the SECP approval process.
Recommendation to SECP:
• Contents of the Annual Report: The Companies Act 2017, Listed Companies (Code of Corporate Governance) Regulations, 2019, Public Sector Companies (Corporate Governance) Rules, 2013 and PSX Rule Book do not provide any guidelines for the contents of the Annual Report.
• We have been recommending SECP to direct all listed companies to follow our BCR criteria for developing annual reports.
• Interestingly, the State-Owned Enterprises (Governance and Operations) Act, 2023 recently passed by the National Assembly provides guidelines for contents of the Annual Report and statement of corporate intent.
• Key items for this statement of corporate intent which SOEs are required to publish at the beginning of each financial year are:
• Main Business of SOE
• Business goals business plan
• Performance measures and benchmarks against business goals/tar- gets and its primary objective
• Strategies for achieving its business goals and primary objective:
• Summary of key risks identified in the achievement of the business goals.
Recommendation to PSX:
• While announcing top companies' awards, PSX does not give much consideration to transparent corporate reporting. PSX's recognition of transparent reporting will build trust among investors. Our committee members met the former CEO of the Pakistan Stock Exchange (PSX) Richard Morin in 2018. He was convinced but so far no action has been taken by PSX.
• It is suggested that PSX being a regulator of the Capital Market should also follow the BCR criteria for transparent reporting while preparing PSX Annual Report.
NPOs
• It is estimated that there are approximately 10,000 functional NPOs in Pakistan. These NPOs receive substantial financial charity in terms of Zakat and Donations. However, generally, these NPOs lack transparency and do not publish proper annual reports.
• NPOs need to be transparent and should disclose to providers of funds how they use charity funds, particularly Zakat funds.
•A separate criterion for NPOs is available to encourage Trustees to be transparent but, regrettably, the response from this sector is very poor.
• It is noted that the financial reporting standards as applicable in Pakistan (including Accounting Standards for Not-for-Profit Organizations) do not provide specific disclosures for zakat utilized by an entity. Although some NPOs get Sharia certification, without transparency these certifications are not of much use.
• However, I am pleased to note that recently the Accounting Standards Board of ICAP, which includes representatives of SECP, PSX, and the Ministry of Finance, has issued an Exposure Draft for transparency of Zakat. The Objective no 3 of the Exposure draft states that “Financial Reporting standards in Pakistan ------------do not provide specific disclosures regarding Zakat received and utilized by an entity”
This Standard is expected to be issued very soon. For this, I am thankful to ICAP’s Accounting Standard Board led by Mr Farrukh Rehman FCA, Mr Tariq Naseem of SECP, and Chairman of SECP Mr Akif Saeed.
I would like to thank the awardees and the Participating Organizations.
Finally, thanks to the Chief Guest, the Guests of Honor, our Presidents of both institutes and Council members, Members of the Evaluation Committee, our today's Masters of Ceremony, the Directors and staff of both Institutes, and the Secretariat team, which was admirably led by Ms. Farheen Mirza, Mr. Asim Husain Khan, Mr. Shams Bhimani, and Mr. Babar Badal, for their support and tireless efforts on behalf of this program.
Copyright Business Recorder, 2023
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