THE corporate sector is the engine of economic growth, and in spite of the problems like scarcity of funds, energy shortage, law and order and lack of infrastructure, economic recovery depends on it.
In this scenario, it is facing some more problems. The Securities and Exchange Commission of Pakistan (SECP), vide SRO 268(1)/2012 dated has restricted the appointment of auditors by companies, to audit firms possessing ‘Quality Control Rating.’
The SRO hits companies having turnover of one billion rupees or bank credit facility of Rs0.5 billion. Such companies would be required to install expensive accounting systems and keep highly paid accountants/staff.
As per quality control requirement, the auditors fees will range from Rs2.5-8 lakhs excluding other expenses like traveling, cost of stock taking and attending annual general meetings where audited accounts are discussed. This rate was fixed in 2008, and is due for substantial increase.
The corporate sector would be under great pressure owing to increase in the cost of doing business, which is much higher here than in India, Bangladesh and China.
There will be fewer audit firms to cater to larger number of companies, and due to monopolistic conditions, the corporate sector will be liable to pay more.
Ostensibly, the objective of the SRO is to bring the quality of audit in this country to the world standards, but it seems to be a covert operation to take over the functions of another institution called Institute of Chartered Accounts of Pakistan. The local corporate sector is too small and underdeveloped to be experimented with.
Unquoted company, taxed at a higher rate, are not allowed to have minority shareholders. The borrowings from banks are secured by personal guarantees of directors and assets pledged are evaluated by qualified evaluators.
The turnover in business comes to one million dollars only, which his too small compared to international standards. In India, Bangladesh and Sri Lanka such restriction do not exist.
By an Ordinance (1961) The Institute of Chartered Accountants of Pakistan was entrusted with the responsibility, authority and right to regulate the accounting profession.
Being a member of international financial bodies, the Institute assists its members in adoption of highest standards of auditing and attaining Quality Control Reviews. The institute’s work is far advanced than India or Sri Lankan counterparts.
However, improving audit quality is a slow process, due to inertia, financial constraints and lack of human resources. Almost 80 per cent of the audit firms have been unable to qualify for Quality Control Review. If the SRO is imposed, a majority of audit firms will suffer which in turn, will slow down the economic recovery.
Incremental changes last longer, are more beneficial and cause less upheaval. It is suggested that the said SRO be deferred till all stakeholders have been enabled to on board. This will help to avoid a turmoil.
The writer is a chartered accountant. e-mail arman.company@yahoo.com