ISLAMABAD, Feb 13: The Securities and Exchange Commission of Pakistan (SECP) said on Wednesday that its move to list firms for auditing of companies in different sectors was not designed to eliminate small audit firms from the race, but to bring more transparency and creditability to the auditing sector.

In a policy statement, the commission said the proposed ‘panel of auditors’ was to be developed by the SECP for listing of audit firms for auditing of companies in different sectors, like non-banking finance companies (NBFCs), insurance, non-banking listed companies and non-listed companies, having paid-up capital exceeding Rs7.5 million.

The panel is primarily intended to create compatibility between capacities of auditors and the requirement of the audit of a particular company.

“The creation of the panel and its periodic revision will promote more professional work,” the SECP observed.

It said there was nothing absolutely new in the initiative. In fact, the State Bank of Pakistan (SBP) had already issued a panel of auditors which it maintains under Section 35 of Banking Companies Ordinance, 1962.

The SBP requires scheduled banks and DFIs to appoint their auditors from amongst the approved panel. The panel is periodically reviewed by the SBP to accommodate new applicant firms and also to upgrade/downgrade firms on the basis of emerging evidence regarding them.

The SECP pointed out that it had invited applications on Jan 8 from chartered accountancy firms to create a panel of auditors.

The applications were initially called for up to Jan 31, a date which was subsequently extended to Feb 29.

On this initiative, some constructive proposals were received, but some apprehensions were also being made in submissions to the commission and in the media.

It is being apprehended by some that the creation of a panel of auditing firms was probably designed to favour some big auditing firms.

“This apprehension is not correct. On the contrary, the intentions are otherwise, and there is an effort to create a premium for professionalism and knowledge.”

It was pointed out that the SBP panel was already being used for banks and DFIs, and as there were few auditing firms on that panel, the SECP decided to create approved ‘panels of auditors’ so that the choice of companies to appoint qualified and experienced auditors is expanded to a fairly reasonable number of auditors which is not too restricted; the auditors appointed by a company have the knowledge of the specific sector of business of which he is going to conduct audit; and the auditors appointed have the capacity and skills to properly audit the particular business for which it is appointed.

The SECP is of the view that the creation of the panel would also help develop and up-grade auditing companies in Pakistan by inculcating further professionalism by obliging Periodical Quality Control Review of auditing firms by the Institute of Chartered Accountants Pakistan (ICAP).

Similarly, professionalism can be achieved through motivating audit firms to carry out internal and external reviews besides the selected ones done by the ICAP.

The firms will also become more conscious of the need for reviewing their procedure themselves so as to voluntarily improve quality of their audit.

The SECP says audit firms whose work in the past has not been satisfactory and lacked professionalism will have to reform themselves.

The SECP panel will take due account of the qualified persons engaged in an audit firm and encourage networking of Pakistani audit firms with international and national audit firms of repute.

The move, the commission believes, would encourage combination and amalgamation of single-member firms to two or three-member firms to increase the knowledge base.

Cognizant of the need to develop the auditing practices in Pakistan, an objective criteria had been developed by the SECP with the assistance of ICAP and senior (non-practicing) auditors. The salient features of the criteria were embedded in the application forms on which chartered accountancy firms were requested to apply for inclusion in the panel.

“This initiative of the SECP is being misinterpreted by some audit firms,” says the commission.

Therefore, it probably needs to be reiterated that the creation of panels of auditors is designed to expand the number of auditors available for specialised audit work and not restrict the panel which would be available for appointment of auditors of NBFCs, insurance companies, modarabas, brokerage, non-banking listed companies and non-listed companies with paid-up capital of Rs7.5 million or more by invoking the powers under Section 506 BB of the Companies Ordinance and section 48 of the Insurance Ordinance.