ISLAMABAD, March 21: The Securities & Exchange Commission of Pakistan (SECP) is likely to establish a statutorily independent body to function as a watchdog agency that will monitor the accounting/audit firms in the country, according to a reliable source.

At present the accounting profession is supposedly self- regulated through the Institute of Chartered Accountants of Pakistan (ICAP). But, as a capital market observer remarked, it was functioning more as a pressure group to defend its constituents and block progress than as the collective conscience of the profession.

Justifying regulation by the commission, a senior SECP official told Dawn here on Thursday the country had traversed a long way towards transparency and accountability in the corporate sector since the establishment of the commission as an autonomous entity. There, however, still remained a big gap in the system so far as adequate and timely disclosure of material information by the auditing firms was concerned.

Independent audit was also an essential condition of investor confidence, he pointed out.

This was evident from the fact that within the last six months, the SECP had initiated proceedings against as many as 14 audit firms in connection with the discovery of irregularities, involving 18 listed companies. These companies included: Mehmood Zubairi & Co, Mehmood Akhtar & Co, Suleman Ch. & Co, Kaleem & Co, Asif & Co, Ghafoor & Co, Sandhu & Co, Moosa & Co, Salman & Co, Awais Haider Zaman Rizwan, Kanwar Furqan Ali & Co, Muhammad Akbar Alam, Zakaria Loya & Co, and Taseer Hadi.

In one case, the Management of Ms Spencer was found to have made unlawful, interest-free, advance/investment amounting to Rs505 million in its associated company in gross violation of the companies ordinance.

The SECP, the source said, was now concentrating on improving corporate governance, transparent accounting practices and reliable disclosure through audits.

To achieve this, it was considered essential to minimize conflict of interest — a situation peculiarly present in the system of “self-regulation” prevalent in Pakistan. Enron, one of the biggest energy companies of the world, collapsed mainly because of misleading accounts and shady auditing by the auditors — Ms Anderson, he pointed out.

In Pakistan too, there has been no dearth of accounting scandals and failures in recent years. It is, therefore, being argued that self-regulation was not enough to maintain standards. Hence the need of an independent watchdog body under the direct aegis of the SECP.

In order to obviate malpractices concerning the auditors, the SECP recently issued a number of directives to the listed companies:

• to facilitate the Quality Control Review (QCR) process by requiring them to authorise their auditors to make available all audit working papers and other information;

• not to retain or hire an auditor found guilty of professional misconduct for a period of up to three years as may be determined by the SECP;

• not to hire their auditors as consultants or advisers or for the provision of other services.

The SECP recently enforced the Code of Corporate Governance which, inter alia, require rotation of auditors after 3-4 years, bans auditors and their families from investing in shares of their audit clients, etc.