ISLAMABAD, Feb 27: Appointment of foreign auditors and accountants may be made mandatory for auditing of listed companies for corporate governance, transparency and investor confidence in the capital market, said Khalid A. Mirza the chairman of SECP.

The SECP was very critical of the role being played by the auditors and accountants in Pakistan, and said that if institutions like Institute of Chartered Accountants of Pakistan (ICAP) did not take immediate steps to improve their reputation, the SECP would be constrained to allow foreign auditors to perform auditing of listed companies in the country.

Speaking at a news conference here on Wednesday, he said that the SECP could impose a fine of Rs2,000 on a chartered accountant for misconduct or any violation of company laws during audit of listed companies besides restricting him to be appointed as auditor of other listed companies for three years, but this was not enough and stringent measures like disqualification would follow in due course of time.

He said that listed companies should not hire their auditors as their consultants because it created serious problems like conflict of interest. “The comfortable and cozy relationship between the auditors and the listed companies could not be allowed to go on any more,” he said.

Mr Mirza said it was a recognized problem around the world that self-regulation was not enough and independent auditors were a must for corporate governance. He, however, deplored that nothing has been done on that front, and being head of capital market’s regulator he was concerned with working of the listed companies.

“They should look at their image, how people look at them abroad. They should gear up decisively and take steps in their own interest,” said the SECP chief.

“We want proper auditing locally, if not, we would be inviting external auditors from abroad to do that in Pakistan and that is going to happen anyway in 2005,” he said.

He said that after enhancing its surveillance, monitoring and enforcement capacity, the SECP would now concentrate on strengthening the accounting side of the capital market that was a key to investor confidence.

He said that a code of corporate governance was being finalized that will stipulate provisions with respect to rotation of auditors, banning auditors and their families from investing in shares of their audit clients, instituting audit commitments and the internal audit function, and requiring the appointment of only those firms as auditors that have gone through the quality control review (QCR).

He said all non-banking financial institutions (NBFIs) and investment banks would be transferred from State Bank to the SECP with effect from July 1, 2002.