AUDIT COMMITTEE
Posted on June 21, 2008
- The Board of Directors of every listed company shall establish an Audit Committee, which shall comprise not less than three members, including the chairman. Majority of the members of the Committee shall be from among the non-executive directors of the listed company and the chairman of the Audit Committee shall preferably be a non-executive director. The names of members of the Audit Committee shall be disclosed in each annual report of the listed company.
FREQUENCY OF MEETINGS
- The Audit Committee of a listed company shall meet at least once every quarter of the financial year. These meetings shall be held prior to the approval of interim results of the listed company by its Board of Directors and before and after completion of external audit. A meeting of the Audit Committee shall also be held, if requested by the external auditors or the head of internal audit.
ATTENDANCE AT MEETINGS
- The CFO, the head of internal audit and a representative of the external auditors shall attend meetings of the Audit Committee at which issues relating to accounts and audit are discussed.Provided that at least once a year, the Audit Committee shall meet the external auditors without the CFO and the head of internal audit being present.
Provided further that at least once a year, the Audit Committee shall meet the head of internal audit and other members of the internal audit function without the CFO and the external auditors being present.
TERMS OF REFERENCE
- The Board of Directors of every listed company shall determine the terms of reference of the Audit Committee. The Audit Committee shall, among other things, be responsible for recommending to the Board of Directors the appointment of external auditors by the listed company’s shareholders and shall consider any questions of resignation or removal of external auditors, audit fees and provision by external auditors of any service to the listed company in addition to audit of its financial statements. In the absence of strong grounds to proceed otherwise, the Board of Directors shall act in accordance with the recommendations of the Audit Committee in all these matters.
The terms of reference of the Audit Committee shall also include the following:
- determination of appropriate measures to safeguard the listed company’s assets;
- review of preliminary announcements of results prior to publication;
- review of quarterly, half-yearly and annual financial statements of the listed company, prior to their approval by the Board of Directors, focusing on:
- major judgmental areas;
- significant adjustments resulting from the audit;
- the going-concern assumption;
- any changes in accounting policies and practices;
- compliance with applicable accounting standards; and
- compliance with listing regulations and other statutory and regulatory requirements.
- facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary);
- review of management letter issued by external auditors and management’s response thereto;
- ensuring coordination between the internal and external auditors of the listed company;
- review of the scope and extent of internal audit and ensuring that the internal audit function has adequate resources and is appropriately placed within the listed company;
- consideration of major findings of internal investigations and management’s response thereto;
- ascertaining that the internal control system including financial and operational controls, accounting system and reporting structure are adequate and effective;
- review of the listed company’s statement on internal control systems prior to endorsement by the Board of Directors;
- instituting special projects, value for money studies or other investigations on any matter specified by the Board of Directors, in consultation with the Chief Executive and to consider remittance of any matter to the external auditors or to any other external body;
- determination of compliance with relevant statutory requirements;
- monitoring compliance with the best practices of corporate governance and identification of significant violations thereof; and
- consideration of any other issue or matter as may be assigned by the Board of Directors.
REPORTING PROCEDURE
- The Audit Committee of a listed company shall appoint a secretary of the Committee. The secretary shall circulate minutes of meetings of the Audit Committee to all members, directors and the CFO within a fortnight.
INTERNAL AUDIT
- There shall be an internal audit function in every listed company. The head of internal audit shall have access to the chair of the Audit Committee.
- All listed companies shall ensure that internal audit reports are provided for the review of external auditors. The auditors shall discuss any major findings in relation to the reports with the Audit Committee, which shall report matters of significance to the Board of Directors.
EXTERNAL AUDITORS
- No listed company shall appoint as external auditors a firm of auditors which has not been given a satisfactory rating under the Quality Control Review programme of the Institute of Chartered Accountants of Pakistan.
- No listed company shall appoint as external auditors a firm of auditors which firm or a partner of which firm is non-compliant with the International Federation of Accountants’ (IFAC) Guidelines on Code of Ethics, as adopted by the Institute of Chartered Accountants of Pakistan.
- The Board of Directors of a listed company shall recommend appointment of external auditors for a year, as suggested by the Audit Committee. The recommendations of the Audit Committee for appointment of retiring auditors or otherwise shall be included in the Directors’ Report. In case of a recommendation for change of external auditors before the elapse of three consecutive financial years, the reasons for the same shall be included in the Directors’ Report.
- No listed company shall appoint its auditors to provide services in addition to audit except in accordance with the regulations and shall require the auditors to observe applicable IFAC guidelines in this regard and 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 listed company.
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- All Listed Companies in the Financial Sector shall change there External Auditor every five years. Financial Sector, for this purpose, means Banks, Non Banking Finance Company (NBFCs), Modarabas and Insurance Company; and
- All Listed Companies other than those in the financial sector shall, at a minimum rotate the engagement partner after every five year
- No listed company shall appoint a person as the CEO, the CFO, an internal auditor or a director of the listed company who was a partner of the firm of its external auditors (or an employee involved in the audit of the listed company) at any time during the two years preceding such appointment or is a close relative, i.e. spouse, parents, dependents and non-dependent children, of such partner (or employee).
- Every listed company shall require external auditors to furnish a Management Letter to its Board of Directors not later than 30 days from the date of audit report.
- Every listed company shall require a partner of the firm of its external auditors to attend the Annual General Meeting at which audited accounts are placed for consideration and approval of shareholders.
COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
- All listed companies shall publish and circulate a statement along with their annual reports to set out the status of their compliance with the best practices of corporate governance set out above.
- All listed companies shall ensure that the statement of compliance with the best practices of corporate governance is reviewed and certified by statutory auditors, where such compliance can be objectively verified, before publication by listed companies.
- Where the Securities and Exchange Commission of Pakistan is satisfied that it is not practicable to comply with any of the best practices of corporate governance in a particular case, the Commission may, for reasons to be recorded, relax the same subject to such conditions as it may deem fit.
Appendix |
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| Clause Reference | Brief Description | Manner of Enforcement | Effective Date |
| (i) | Representation of independent non-executive directors, including those representing minority interests, on the Board of Directors of listed companies | Voluntary | When next election is due |
| (ii) | Filing of consent by directors | Mandatory | When next election is due |
| (iii) and (iv) | Qualification and eligibility to act as a director | Mandatory | When next election is due |
| (v) | Election/ nomination of a broker on the Board of Directors | Voluntary | When next election is due |
| (vi) | Tenure of office of directors | Mandatory | Immediate |
| (vii), (viii)and (ix) | Responsibilities, powers and functions of the Board of Directors | Mandatory | July 1, 2002 |
| (x), (xi)and (xii) | Meetings of the Board of Directors | Mandatory | Immediate |
| (xiii) | Significant issues to be placed for decision by the Board of Directors | Mandatory | July 1, 2002 |
| (xiv) | Orientation courses | Mandatory | July 1, 2002 |
| (xv) | Appointment and removal of CFO and Company Secretary | Mandatory | July 1, 2002 |
| (xvi) and(xvii) | Qualification of CFO and Company Secretary | Mandatory | Immediately for new appointments |
| (xviii) | Requirement for CFO and Company Secretary to attend Board meetings | Mandatory | Immediate |
| (xix) | The directors’ report to shareholders | Mandatory | For accounting periods ending on or after June 30, 2002 |
| (xx), (xxi),(xxii) and
(xxiii) |
Frequency of financial reporting | Mandatory | For accounting periods ending on or after June 30, 2002 |
| (xxiv) and(xxv) | Responsibility for financial reporting and corporate compliance | Mandatory | For accounting periods ending on or after June 30, 2002 |
| (xxvi) | Disclosure of interest by a director holding company’s shares | Mandatory | Immediate |
| (xxvii) | Auditors not to hold shares | Mandatory | Immediate |
| (xxviii) | Corporate ownership structure | Mandatory | July 1, 2002 |
| (xxix) | Divestiture of shares by sponsors/ controlling interest | Mandatory | July 1, 2002 |
| (xxx),(xxxi),(xxxii), | Audit Committee | Mandatory | July 1, 2002 |
| (xxxiii) and(xxxiv) | |||
| (xxxv) and (xxxvi) | Internal Audit | Mandatory | July 1, 2002 |
| (xxxvii), (xxxviii), | Appointment of external auditors | Mandatory | When next appointment of auditors is due |
| (xxxix) and (xl) | |||
| (xli) | Rotation of external auditors | Mandatory | When next appointment of auditors is due |
| (xlii) | Appointment of a partner or employee of the external auditors in a key position within the listed company | Mandatory | Immediately for new appointments |
| (xliii) | Management letter issued by external auditors | Mandatory | For accounting periods ending on or after June 30, 2002 |
| (xliv) | Attendance of external auditors at Annual General Meeting | Mandatory | For accounting periods ending on or after June 30, 2002 |
| (xlv) and (xlvi) | Compliance with the Code of Corporate Governance | Mandatory | For accounting periods ending on or after June 30, 2002 |
