In Pakistan, company law has no or very little relevance to the economy or the society though, as observed by Patricia Hewitt, the UK Trade Secretary, it is, "rewriting the settlement between business and society for the modern economy."

The regulators have lived with the Company Law, 1913 that the country had inherited the day of independence almost 30 long years without modification of any valuable substance. Marvel the fact that the regulators are now living with the Companies Ordinance, 1984 (hereinafter, Ordinance) for the last 30 years.

The 'Ordinance 'is by and large an assembly of UK's Companies Act 1984 about which Professor Gower said: (it) "was in a worse state than at any time this century" and most of the countries do not now take UK's act as model".

"Our company law was largely created in the nineteenth century. But what was a source of competitive advantage to us then, is now a source of competitive disadvantage." "The law has got out of date", observed the UK Trade Secretary. In the UK, a bill has already been introduced in the British parliament that replaces the amended act to 1989 by a new act from a to z.

The above is not the end. The Companies Ordinance, 1984 has been rendered all the more out of sync with the modern times by including provisions from the archaic Companies Act, 1913.

Let us take the example of companies' categorization. The 'ordinance' provides for three categories, listed, non-listed-public and private companies. While for the purpose of reporting the listed companies are required to follow the 4th Schedule of the 'ordinance,' the latter follow the 5th Schedule, which extends many concessions and exemptions to them.

As its consequence, many companies whose balance sheet totals and turnover exceed or match the listed companies enjoy the concessions and exemptions from reporting and good governance regime due to their legal category.

This merry-go-round of concessions and exemptions to non-listed public and private companies has serious economic consequences. This encourages companies to stay away from listing and complying with the rigors of comprehensive reporting and abiding by the good governance regulations, which has reduced the size of the market from its potential peak.

The above is not the end. The Securities and Exchange Commission of Pakistan (SECP) has recently extended by implication the extra bonanza to public and private companies.

Paragraph (xxxiv) of Code of Corporate Governance issued on March 4, 2002 requires auditors' performance of listed companies only to be rated by the Institute of Chartered Accountants of Pakistan (ICAP).

To maintain that they are already governed by professional ethics and high quality performance does not stand to reason- auditors of listed companies are also subject to same high quality performance standards but are yet required to be monitored.

However, since in spite of substantial regulations and quite significant emphasis on performance quality, the corporate giants have crumbled globally like house of cards, it should not need any weatherman to figure out the performance level of the auditors of public and private companies.

It is an unbelievable bonanza both to the auditors and the management. The implication is that given the fact that the economic growth is the aggregate of economic activity of every business entity regardless of its size and category, the information generated by these companies is uncertain, which makes compilation of GDP and economic forecast unreliable.

The true denominators in regard to a company categorization are, "public accountability and separation of owners" rather than the legal category of a company. A private company can have as many as 30 members.

We know that not all of them sit on the board of directors. In the case of public companies, there can be any number of members and not all members can be directors. Thus in both instances, constituency exists for management accountability and detailed information for economic decision about the entity. (Is it correct?)

The Institute of Chartered Accountants of New Zealand has come closest to this essence of " public accountability and separation of owners" and makes it a condition precedent that in order to be eligible for concessions and exemptions on account of size, all of owners should be members of the entity's governing body. (Paragraph 3.11, ED 98, framework for differential reporting for entities applying the New Zealand equivalents to 'international financial reporting standards' regime, December 2004, the Financial Reporting Standards Board, Institute of Chartered Accountants of New Zealand).

Reference to Companies' Act and Corporation Legislation respectively of the UK and Australia show a radical shift from Companies'-Act-1913-based categorisation policy framework.

Rather than distinguishing the non-listed public and private companies into 'public' and 'private' companies, the two acts have adopted an altogether different route and distinguish companies into small and medium size companies (SMEs) on the basis of balance sheet, size, turnover and number of employees.

Section 77 of the UK's act in the parliament mandates all companies beyond the criteria of SMEs to be treated as major company. So does the New Zealand act: Paragraph 3.9, ED 98, cited above states: Size- 3.9-An entity is large if it exceeds any two of the following: (a) total income of $20 million; (b) total assets of $10.0 million; (c) 50 employees.)

To qualify as a small or medium size company, an entity has to meet at least two of the threshold limits. All companies that are not SMEs are treated as big companies and required to fully comply with the accounting standards, companies' act and its schedules.

Section 78 of UK's new companies' act mandates private companies who by virtue of size are major companies even to publish Operating Financial Review as the listed companies do.

A group shall be treated as qualifying as small or medium-sized in relation to a financial year. The SECP has already amended section 234 of Companies Ordinance, 1984 to incorporate differential accounting and a gazette notification about mechanism about what would determine an entity's status for the purpose of financial reporting regime is awaited.

A survey of the international practice adopted by other countries, e.g., the UK, New Zealand and Canada etc., shows that the combination of balance sheet total etc as above is the most robust, ideal denominator.

It is suggested that the SECP may fix the cap for balance sheet totals etc in its discretion according to the local conditions and set it as the denominator for company reporting regime.

Moreover, the non-listed public and private companies whose balance sheet total etc. exceed the prescribed limit should as well be declared to be major companies and required to follow accounting standards and reporting rules for listed companies, as other countries have done, including compliance with good governance regulations prescribed recently.

As stated above, doing may tend to increase the market size. Further, because such companies being major companies would be required to appoint auditors who are duly rated by the ICAP rather than the non-rated auditors for non-listed companies, the financial statements published by these entities would by definition be reliable as compared to information published by non-listed public and private companies.