ISLAMABAD, Feb 13: The Securities and Exchange Commission of Pakistan (SECP) on Friday granted relaxation in accounting treatment for equity securities held by companies under the head, ‘available for sale’ as required under International Accounting Standards (IAS 39) till Dec 31, 2009.

The relaxation, granted through a statutory regulatory order (SRO), allows companies and mutual funds to recognise impairment losses resulting from valuation of listed equity securities held as ‘available for sale’ in terms of IAS ‘Financial Instrument: Recognition and Measurement’ (IAS 39) to market price as quoted on the stock exchange on Dec 31, 2008, under ‘equity’. The SRO specifies certain steps to be taken in the recognition of such treatment in accounts, significant among them being: The amount taken to equity, including any adjustment/effect for price movements during the quarter of calendar year 2009 should be taken to profit and loss account on a quarterly basis during the calendar year ending on Dec 31, 2009, and the amount taken to equity, should be treated as a charge to profit and loss account for the purpose of distribution as dividend.

The notification also pointed out that all companies and mutual funds opting for the said accounting treatment, should disclose prominently on the face of their balance sheets, profit and loss accounts and directors’ reports parameters used by them in determination of the value of their investments and the figures arrived at under regular and especially-opted accounting treatment, assuring that they complied with the requirements of International Accounting and Reporting Standards regarding disclosure of such departures.

An SECP press release said that the relaxation had been granted on representations by a wide spectrum of stakeholders, including the Mutual Funds Association, Insurance Association of Pakistan, Pakistan Banking Association, Leasing Association of Pakistan; Modaraba Association of Pakistan, Karachi Stock Exchange and the corporate sector.

Stakeholders had requested relaxation in the said accounting treatment, citing prevalent market conditions, the closure of stock markets for four months and very low trading volumes on the stock markets which had made the application of impairment tests (i.e., arriving at fair valuation) difficult.

The commission said that the relaxation was introduced through proper coordination and consultation with the State Bank to ensure a consistent accounting treatment across the country.

“The final decision on this issue was taken by both regulators (the SBP and the SECP) unanimously and simultaneously so that the uncertainty that had recently been generated on this issue should come to an end because many companies were … finalising their annual accounts and half-yearly accounting statements,” the SECP stated.

It added that the commission had granted the facility in exercise of powers conferred under the Companies Ordinance of 1984 and the Securities and Exchange Commission of Pakistan Act of 1997.

The SECP contended that detailed meetings were held with all the relevant institutions and bodies, including ICAP and major chartered accountancy firms. And that throughout the period, close coordination and consultation was maintained with the SBP.

The SECP observed that a meeting had been convened by ICAP at their head office in Karachi on Feb 7, in which stakeholders said that the current economic conditions in the country were “rare circumstances” and the plunge in the equity markets were not considered a fair reflection of equity values.

The SECP notification said: “Those companies willing to follow full requirements of IAS 39 are encouraged to do so”

The State Bank on Friday allowed banks and other financial institutions to adopt the SECP notification for the treatment of impairment loss, as recognised on Dec 31, 2008, on valuation of listed equity investment held in Available for Sale (AFS) category.

A circular issued by the SBP told banks and DFIs: “This will be subject to full disclosure and restriction on dividend as required vide para 3 and para 1 (III) of the said notification”. STOCK MARKET REACTS: Investors at the Karachi Stock Exchange greeted the SECP notification with enthusiasm, injecting zest into a market that had been lifeless for the past few weeks.

The KSE-100 index shot up by 227 points on Friday, mainly in the second half of the trading session after the SECP decision was made public.

Most of the first and second tier stocks closed on their ‘upper circuit’, the maximum permissible rise of five per cent from the previous day’s closing value.