Quality of Audit

Posted on June 21, 2008

  1. -A All listed companies shall facilitate the Quality Control Review (QCR) of the audit working papers of practicing chartered accountants, carried out by the Institute of Chartered Accountants of Pakistan (ICAP) and, therefore, shall authorize their auditors to make available all the relevant information including the audit working papers to the QCR Committee of ICAP.
  1. -B
  1. No listed company shall appoint or continue to retain any person as an auditor, who has been found guilty of professional misconduct, by the Commission or by a Court of Law, for a period of three years unless a lesser period is determined by the Commission. In case a firm has been appointed as an auditor, and if any of its partners has been held guilty of professional misconduct, the firm shall only be eligible for appointment as an auditor provided a written confirmation is given by the firm to all the stock exchanges of the country and the Commission with a copy to ICAP to the effect that such a partner shall not be engaged in the audit of any listed company for the specified period.
  2. A person appointed as an auditor shall be guilty of "professional misconduct"

    if he:

  1. fails to report a material misstatement or fact known to him and non-disclosure of which may render the financial statements misleading or disclosure of which is necessary in his professional capacity;
  2. fails to obtain sufficient information to warrant the expression of an opinion or his exceptions are sufficiently material to negate the expression of an opinion;
  3. makes a statement which is misleading, or deceptive;
  4. incites any one to commit a criminal offence, or helps or encourages anyone in planning or execution of a criminal offence which is committed;
  5. agrees with anyone to prevent or obstruct the course of justice by concealing, destroying or fabricating evidence by a misleading statement which he knows to be untrue;
  6. deceives any person, either by making a statement, which he knows to be false, or by suppressing matters relevant to a proper appreciation of its significance;
  7. expresses his opinion on financial statements of any business or enterprise in which he, his firm or a partner in his firm has substantial interest.
  8. is penalized under any of the provisions of the Companies Ordinance, 1984 in relation to his function as an auditor of a listed company; and

i.    is guilty of any other act which is determined as professional misconduct by the Commission in relation to his function as an auditor of a listed company.

  1. -C
  1. No listed company shall appoint or continue to retain any person as an auditor who is engaged by the company to provide any service that are prohibited.
  2. A listed company shall also not appoint or continue to retain any person as an auditor, if a person associated with the auditor is, or has been, at any time during the preceding three months engaged to provide any services that are prohibited.

Explanation:

For the purposes of this regulation, the expression “associated with†shall mean any person associated with the auditor, if the person: -

  1. is a partner in a firm, or is a director in a company, or holds or controls shares carrying more than twenty percent of the voting power in a company, and the auditor is also partner of that firm, or is a director in that company or so holds or controls shares in such company; or
  2. is a company or body corporate in which the auditor is a director or holds or controls shares carrying more than twenty percent of the voting power in that company or has

other interest to that extent. Explanation: For the purpose of this regulation the services that are prohibited shall mean the following:

  1. Preparing financial statements, accounting records and accounting services;
  2. Financial information technology system design and implementation, significant to overall financial statements;
  3. Appraisal or valuation services for material items of financial statements;
  4. Acting as an Appointing Actuary within the meaning of the term defined by the Insurance Ordinance, 2000;
  5. Actuarial advice and reviews in respect of provisioning and loss assessments for an Insurance entity;
  6. Internal Audit services related to internal accounting controls, financial systems or financial statements;
  7. Human resource services relating to:-
  1. Executive recruitment;
  2. Work performed (including secondments) where management decision will be made on behalf of a listed audit client;
  1. Legal services;
  2. Management functions or decisions
  3. Corporate finance services, advice or assistance which may involve independent threats such as promoting, dealing in or underwritten of shares of audit clients.
  4. Any exercise or assignment for estimation of financial effect of a transaction or event where an auditor provides litigation support services as identified in paragraph 9.187 of Code of Ethics for Chartered Accountants.
  5. Share Registration Services (Transfer Agents) and;
  6. Any other service (s), which the Council with the prior approval of the Securities and Exchange Commission of Pakistan, may determine to be a "prohibited service".

The Commission may, in its sole discretion and to the extent deemed fit and proper exempt one or more services from the restriction aforesaid. ICAP also may, with the prior written approval of the Commission, and to the extent deemed fit and proper, exempt one or more services from this restriction.

Leave a Reply