ISLAMABAD, Sept 14: A research paper suggests that adoption of Oxley Act in Pakistan — US legislation for accounting and investor protection — will be more effective for transparent internal controls, creation of a better audit environment and increased value forinvestors.The perceived barriers to implementation of the Act are the time and effort involved in implementing the internal controls it requires and unavailability of qualified human resources to implement, test and verify those controls, as required by Section 404.

The research was the outcome of a discussion on ‘Sarbanes Oxley and Pakistan: way forward?’ conducted by ACCA Pakistan.

The jurisdiction of the much talked about Sarbanes — Oxley Act, also known as SOX, extends beyond the US. There is no documented research on the possible impact of external legislations, such as SOX on Pakistani businesses.

According to the paper, although the Act is an external legislation, a number of companies in Pakistan, mainly multinationals or local listed companies aspiring for a listing on a US Stock Exchange or a merger or acquisition with a US listed company, were partially affected by the SOX legislation. SOX-compliant companies in Pakistan are generally implementing only Section 404 of the Act in Pakistan.

Based on interviews with key stakeholders, the paper recommends that the Securities and Exchange Commission of Pakistan (SECP), in line with international best practices, may consider regulating the accounting and auditing profession in Pakistan through an independent board.

The paper also recommends that future review of Code of Corporate governance should realistically explore the possibility of inclusion of some of the provisions of the Sarbanes Oxley Act in the revised Code of Corporate governance.

In this context, it has been recommended that management’s assessment of internal controls and external auditors’ verification of this assessment, in line with Section 404 of the Sarbanes-Oxley Act may be included in the revised Code of Corporate Governance.

The concept of whistle-blowing also needs to be introduced in the revised Code of Corporate Governance. Companies should be encouraged to have whistle-blowing policies and whistle blowers protection mechanisms.