SECP directs listed firms to change external auditors every five years

Securities and Exchange Commission of Pakistan (SECP) has directed all listed companies in the financial sector to change their external auditors every five years. According to the Listed Companies (Code of Corporate Governance) Regulations, 2017 issued by the SECP, no company shall appoint as external auditors, a firm of auditors, which has not been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan and registered with Audit Oversight Board of Pakistan.
No company shall appoint as external auditors, a firm of auditors which or a partner of which is non-compliant with the International Federation of Accountants' Guidelines on Code of Ethics, as adopted by the Institute of Chartered Accountants of Pakistan. The Board of Directors of a company shall recommend appointment of external auditors for a year and his remuneration, as suggested by the audit committee. The recommendations of the audit committee for appointment of an auditor or otherwise shall be included in the Directors' Report. In case of a recommendation for appointment of an auditor other than the retiring auditor, the reasons for the same shall be included in the Directors' Report, the SECP said.
No company shall appoint its auditors to provide services in addition to audit except in accordance with these regulations and shall require the auditors to observe applicable International Federation of Accountants guidelines in this regard. The company shall ensure that the auditors do not perform management functions or make management decisions, responsibility for which remains with the board of directors and management of the company.
No company shall appoint a person as an external auditor or a person involved in the audit of a company who is a close relative (spouse, parents, dependents and non-dependent children) of the chief executive officer, the chief financial officer, the head of internal audit, the company secretary or a director of the company, the SECP said. Every company shall require external auditors to furnish a management letter to its board of directors within 45 days of the date of audit report. Provided that any matter deemed significant by the external auditor, it shall be communicated in writing to the board of directors prior to the approval of the audited accounts by the board of directors.
All listed companies in the financial sector shall change their external auditors every five years. Provided further 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. Financial sector, for this purpose, means banks, non-banking financial companies (NBFC's), modarabas and insurance/ takaful companies.
All listed companies other than those in the financial sector shall, at the minimum, rotate the engagement partner after every five years. The details of all related party transactions shall be placed periodically before the audit committee of the company and upon recommendations of the audit committee the same shall be placed before the board for review and approval. Provided where majority of the directors are interested in such transactions, the matter shall be placed before the general meeting for approval.
The related party transactions, not executed at arm's length price, shall also be placed separately at each board meeting along with necessary justification on recommendation of the audit committee of the company. The requirements of Section 208 of the Act shall be complied by the board for approval of such transactions, the SECP added.