KARACHI, Feb 25: The chairman of Securities and Exchange Commission of Pakistan (SECP), Khalid A.Mirza said that the Commission was determined to see that the accountancy industry puts its house in order: “Whatever is necessary to restore the confidence of the capital market and the shareholders of listed companies — in the reliability, consistency, accuracy and transparency of the audited financial statements — would be done,” he told Dawn on Monday.

The SECP chairman stated that following numerous large recent bankruptcies — most recent being those of Allied Irish Bank and the Enron — questions have been raised all over the world over the reliability and effectiveness of audited financial statements and the auditor independence under the International Federation of Accountants’ (IFAC’s) ‘code of ethics’. Self-regulation by the industry has proved of little value and it is increasingly being wondered everywhere whether the profession must not be monitored by a tough, outside statutorily independent body, that has no direct interest in the accountancy industry? Mirza pointed out that none of the actions of the Commission were ever meant to target the accountancy profession, but that the Commission would press ahead with its agenda of corporate governance for the sake of development of the capital market and regulation of listed companies.

The SECP chairman said that it was time that the ‘ground realities’ and ‘prevailing corporate culture’ in respect of the accountancy industry took the necessary change for the better. He stated that it was the policy of the Commission to consult various quarters to obtain feedback on issues, and the Commission has had no inhibitions on seeking Institute of Chartered Accountants of Pakistan (ICAP’s) input on ‘technical’ points, but the regulator has to make its own decisions on whom and when to consult. “The Commission cannot compromise or dilute its regulatory responsibilities in the matter,” he said.

While admitting that the accountancy profession had made some progress towards Quality Control Reviews (QCRs) and member monitoring, Mirza said that the industry still had a long way to go. He said that the regulator can no longer ignore that the industry was generally taking a minimalist approach in complying with International Accounting Standards (IAS); disclosure levels were weak and the attempt had been made to avoid liability rather than to inform through adequate and timely disclosure of material information.

The SECP chairman said that accountancy firms would not be allowed to provide consultancy services to clients whose books they audit. He felt that ICAP should itself have followed the lead of four of the world’s big five (Pricewaterhouse Coopers; Ernst & Young; KPMG and Arthur Andersen) that had rejected the industry practice of taking up both the audit and consulting jobs of the same clients, but since the professional body here had taken no visible steps, the Commission was constrained to step in.

He said that the Commission was in the process of identifying services other than audit, which the auditors may carry out and those that raise the spectre of ‘conflict of interest’ and hence must be shed.

The question of rotation of auditors was also under the consideration of the Commission, he observed. The SECP chairman recommended that audit clients should desist from hiring staff of the external auditors to work for them as internal auditors, finance and management officers, etc. He also called for induction of an independent chief executive at ICAP.

The SECP chairman gave a broad hint that if ICAP was faced with constraints of resources, the commission may consider allowing certain classes or parts of audits to be performed by other professional bodies. He said that opening up of audit profession to others —as has been done in Thailand —could not be ruled out. “The over-riding concern of the Commission,” he said, “is to ensure the highest and most reliable standards of audits, which is the first requisite to attract large-scale investments in our capital markets.”