KARACHI, Sept 11: The country's auditing and accountancy firms are anxiously waiting to see if the regulation of 'rotation of auditors' would remain in place or be waived. For some of the largest auditing firms, that means a big impact on their bill books.

Chairman, Securities and Exchange Commission of Pakistan (SECP) Dr Tariq Hasan, said on query by DAWN on Saturday that the Task Force formed to deliberate on the issue, would submit its recommendations to the SECP next week. According to the earlier schedule, the Report ought to have been presented by May 31.

More about the task force could not be gleaned from Dr.Tariq Hasan for the phone line dropped and communication could not be re-established. Yet, from sources closely affiliated with the auditing profession, it was learnt that the task force was headed by a retired senior Judge and comprised eight members, picked up from among various stake holders: the Accountancy bodies; managements of listed companies; the stock brokers and represented also perhaps by the Overseas Investors' Chamber of Commerce & Industry (OICC).

Like people in many other professionals, accountants are loathing to discuss matters concerning their business. They might as well want to erase from public memory the collapse of WorldCom and Enron-the biggest financial failures in US history. But it was those incidents that led Regulators all over the world to stir and enormous pressure was brought to bear on the accountancy profession. The winds of change that blew across the accountancy field in US and Europe, forced Regulators in this country as well to look afresh at the profession and enact new laws. Audit firms were asked to separate audit & taxation from consultancy, though that may not necessarily have resulted in loss of clients for firms because many big firms transferred those jobs to separately create associated consultancy firms.

But there has been a great deal of nervousness among audit firms about the Regulation (xxxviii) of the 'code of Corporate Governance', which proclaims: "All listed companies are required to change their external auditors every three years. If for any reason this is impractical, a listed company may at a minimum, rotate the partner in charge of its audit engagement after obtaining the consent of the SECP". However, in order to ensure smooth transition, the requirement was put into effect for general meetings held after December 31, 2003.

The SECP chairman pointed out to this scribe that the section contained the proviso, authorising SECP to waive the condition of rotation of auditors and accept the same firm as auditors also after the end of the mandatory period, provided "the partner in-charge" of the audit firm was rotated. Dr Hasan said that the SECP was taking up such requests from listed companies on case by case basis and one company had so far been authorised to retain the same external auditors with change of partner in-charge. "Such change is hilarious for partners in audit firms are generally aware of most of their clients and in case they are not they could easily get a brief and communicate with the previous partner in charge", said a proprietor of a small audit firm. Unless cleverly manipulated by big firms, the loss of clients issuing fat fee cheques, through rotation of auditors, would mean gain for tiny firms.

Members of The Institute of Chartered Accountants of Pakistan (ICAP) are entitled to audit books of accounts. There are currently 3,400 members on the rolls of ICAP and 393 audit firms. But for bigger companies and in particular the multinational firms, the choice of audit firms are almost always the top 8-10.

Affiliation with global bigs is another plus for local audit firms in attracting deep pocket clients. Pakistan's biggest firms are already in affiliation with the world's four biggest accountancy firms: A.F. Ferguson & Co is affiliated with PricewaterhouseCoopers; Taseer Hadi Khalid with KPMG; M. Yusuf Adil Saleem & Co. with Deloitte Touche Tohmatsu (DTT) and Fordes, Rhodes, Robson, Morrow with Ernst & Young. A little while ago, Fordes, Rhodes, Robson, Morrow (FRRM) and Sidat Hyder Qamar & Co. decided to merge, which went to create the first such institutional merger in Pakistan. A major local audit firm was earlier affiliated with Arthur Andersen. But accountants now want to shed Arthur Andersen -- once the world's fifth largest accountancy firm- from their memory as it fell from grace in the wake of Enron bankruptcy and WorldCom scandal.

The firm was the statutory auditor to both those global corporate giants that collapsed under the weight of 'obstruction of justice' indictment (Enron) and allegations of cooked up accounts (WorldCom).