ISLAMABAD, March 27: The Securities and Exchange Commission of Pakistan has directed the boards of directors of all listed companies to establish audit committees having powers to oversee their financial management, audit etc., to safeguard interests of small investors, according to an official source.

In order to ensure its credibility and autonomy, the SECP has ordered that the committee would comprise not less than three members, including the chairman, majority of whom would be from among the non-executive directors of the company. As regards the chairman, he/she would preferably be a non-executive director.

Unless it has strong reasons, the board of directors would be bound to act in accordance with the committee’s recommendations in all the matters such as the appointment of external auditors by the company’s shareholders. Besides, it would consider any questions of resignation or removal of external auditors, audit fees and provision by external auditors of any service to the company in addition to the audit of its financial statements.

The committee’s terms of reference empower it to determine appropriate measures to be adopted to safeguard the company’s assets, review quarterly, half-yearly and annual financial statements of the company on major judgmental areas, any changes in accounting policies and practices, compliance with applicable accounting standards as well as compliance listing regulations and other statutory and regulatory requirements.

It would, the directive goes on to state, facilitate 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).

As maintenance of investor confidence is of crucial importance in the functioning of a healthy capital market, the audit committee has been assigned the responsibility to monitor compliance with the best practices of corporate governance and identification of significant violations thereof.

Other functions of the committee would include:

• Review of management letter issued by external auditors and management’s response thereto;

• Ensuring coordination between the internal and external auditors of the company;

• Review of internal audit programme and ensuring that the internal audit function has adequate resources and is appropriately placed within the 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 company’s statement on internal control systems prior to endorsement by the Board of Directors;

• Determination of compliance with relevant statutory requirements; and

• Consideration of any other issue or matter as may be assigned by the board of directors.