SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
NIC Building, Jinnah Avenue, Blue Area, Islamabad
*******
No. 2(10)SE/SMD/2002- March 28, 2002
1. The Managing Director
Karachi Stock Exchange (Guarantee) Limited
Karachi.
2. The Managing Director
Lahore Stock Exchange (Guarantee) Limited
Lahore.
3. The Secretary
Islamabad Stock Exchange (Guarantee) Limited
Islamabad.
Subject: Code of Corporate Governance
Dear Sirs,
In supersession of our earlier directive of even number dated March 4, 2002,
the
Securities and Exchange Commission of Pakistan, for the purpose of establishing
a framework of
good corporate governance whereby a listed company is managed in compliance
with best
practices and in exercise of the powers conferred by sub-section (4) of section
34 of the
Securities and Exchange Ordinance, 1969 (XVII of 1969), is hereby pleased
to direct all stock
exchanges to insert the following clauses appropriately in their respective
listing regulations
immediately, which clauses shall be enforced in such manner and with effect
from such dates as
have been specified in the Appendix, namely:-
BOARD OF DIRECTORS
(i) All listed companies shall encourage effective representation of independent
nonexecutive
directors, including those representing minority interests, on their Boards
of
Directors so that the Board as a group includes core competencies considered
relevant in
the context of each listed company. For the purpose, listed companies may
take necessary
steps such that:
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(a) minority shareholders as a class are facilitated to contest election of
directors by
proxy solicitation, for which purpose the listed companies may:
! annex to the notice of general meeting at which directors are to be elected,
a
statement by a candidate(s) from among the minority shareholders who seeks
to contest election to the Board of Directors, which statement may include
a
profile of the candidate(s);
! provide information regarding shareholding structure and copies of register
of
members to the candidate(s) representing minority shareholders; and
! on a request by the candidate(s) representing minority shareholders and
at the
cost of the company, annex to the notice of general meeting at which directors
are to be elected an additional copy of proxy form duly filled in by such
candidate(s) and transmit the same to all shareholders in terms of section
178
(4) of the Companies Ordinance, 1984;
(b) the Board of Directors of each listed company includes at least one independent
director representing institutional equity interest of a banking company,
Development Financial Institution, Non-Banking Financial Institution (including
a
modaraba, leasing company or investment bank), mutual fund or insurance
company; and
Explanation: For the purpose of this clause, the expression "independent
director"
means a director who is not connected with the listed company or its promoters
or
directors on the basis of family relationship and who does not have any other
relationship, whether pecuniary or otherwise, with the listed company, its
associated companies, directors, executives or related parties. The test of
independence principally emanates from the fact whether such person can be
reasonably perceived as being able to exercise independent business judgment
without being subservient to any apparent form of interference.
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Any person nominated as a director under sections 182 and 183 of the Companies
Ordinance, 1984 shall not be taken to be an "independent director"
for the abovesaid
purposes.
The independent director representing an institutional investor shall be selected
by
such investor through a resolution of its Board of Directors and the policy
with
regard to selection of such person for election on the Board of Directors
of the
investee company shall be disclosed in the Directors' Report of the investor
company.
(c) executive directors, i.e. working or whole time directors, are not more
than 75%
of the elected directors including the Chief Executive:
Provided that in special circumstances, this condition may be relaxed by the
Securities and Exchange Commission of Pakistan.
Provided further that nothing contained in this clause shall apply to banking
companies, which are required by Prudential Regulation No.9 for Banks to have
not more than 25% of the directors as paid executives of the banks.
(ii) The directors of listed companies shall, at the time of filing their
consent to act as such,
give a declaration in such consent that they are aware of their duties and
powers under the
relevant law(s) and the listed companies’ Memorandum and Articles of
Association and
the listing regulations of stock exchanges in Pakistan.
QUALIFICATION AND ELIGIBILITY TO ACT AS A DIRECTOR
(iii) No listed company shall have as a director, a person who is serving
as a director of ten
other listed companies.
(iv) No person shall be elected or nominated as a director of a listed company
if:
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(a) his name is not borne on the register of National Tax Payers except where
such
person is a non-resident; and
(b) he has been convicted by a court of competent jurisdiction as a defaulter
in
payment of any loan to a banking company, a Development Financial Institution
or a Non-Banking Financial Institution or he, being a member of a stock
exchange, has been declared as a defaulter by such the stock exchange; and
(v) A listed company shall endeavour that no person is elected or nominated
as a director if
he or his spouse is engaged in the business of stock brokerage (unless specifically
exempted by the Securities and Exchange Commission of Pakistan).
TENURE OF OFFICE OF DIRECTORS
(vi) The tenure of office of Directors shall be three years. Any casual vacancy
in the Board of
Directors of a listed company shall be filled up by the directors within 30
days thereof.
RESPONSIBILITIES, POWERS AND FUNCTIONS OF BOARD OF DIRECTORS
(vii) The directors of listed companies shall exercise their powers and carry
out their fiduciary
duties with a sense of objective judgement and independence in the best interests
of the
listed company.
(viii) Every listed company shall ensure that:
(a) a ‘Statement of Ethics and Business Practices’ is prepared and
circulated annually
by its Board of Directors to establish a standard of conduct for directors
and
employees, which Statement shall be signed by each director and employee in
acknowledgement of his understanding and acceptance of the standard of conduct;
(b) the Board of Directors adopt a vision/ mission statement and overall corporate
strategy for the listed company and also formulate significant policies, having
regard to the level of materiality, as may be determined it;
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Explanation:
Significant policies for this purpose may include:
! risk management;
! human resource management including preparation of a succession plan;
! procurement of goods and services;
! marketing;
! determination of terms of credit and discount to customers;
! write-off of bad/ doubtful debts, advances and receivables;
! acquisition/ disposal of fixed assets;
! investments;
! borrowing of moneys and the amount in excess of which borrowings shall be
sanctioned/ ratified by a general meeting of shareholders;
! donations, charities, contributions and other payments of a similar nature;
! determination and delegation of financial powers;
! transactions or contracts with associated companies and related parties;
and
! health, safety and environment
A complete record of particulars of the significant policies, as may be determined,
along with the dates on which they were approved or amended by the Board of
Directors shall be maintained.
The Board of Directors shall define the level of materiality, keeping in view
the
specific circumstances of the listed company and the recommendations of any
technical or executive sub-committee of the Board that may be set up for the
purpose;
(c) the Board of Directors establish a system of sound internal control, which
is
effectively implemented at all levels within the listed company;
(d) the following powers are exercised by the Board of Directors on behalf
of the
listed company and decisions on material transactions or significant matters
are
documented by a resolution passed at a meeting of the Board:
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! investment and disinvestment of funds where the maturity period of such
investments is six months or more, except in the case of banking companies,
Non-Banking Financial Institutions, trusts and insurance companies;
! determination of the nature of loans and advances made by the listed company
and fixing a monetary limit thereof;
! write-off of bad debts, advances and receivables and determination of a
reasonable provision for doubtful debts;
! write-off of inventories and other assets; and
! determination of the terms of and the circumstances in which a law suit
may
be compromised and a claim/ right in favour of the listed company may be
waived, released, extinguished or relinquished;
(e) appointment, remuneration and terms and conditions of employment of the
Chief
Executive Officer (CEO) and other executive directors of the listed company
are
determined and approved by the Board of Directors; and
(f) in the case of a modaraba or a Non-Banking Financial Institution, whose
main
business is investment in listed securities, the Board of Directors approve
and
adopt an investment policy, which is stated in each annual report of the modaraba/
Non-Banking Financial Institution.
Explanation:
The investment policy shall inter alia state:
! that the modaraba/ Non-Banking Financial Institution shall not invest in
a
connected person, as defined in the Asset Management Companies Rules,
1995, and shall provide a list of all such connected persons;
! that the modaraba/ Non-Banking Financial Institution shall not invest in
shares of unlisted companies; and
! the criteria for investment in listed securities.
The Net Asset Value of each modaraba/ Non-Banking Financial Institution shall
be provided for publication on a monthly basis to the stock exchange on which
its
shares/ certificates are listed.
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(ix) The Chairman of a listed company shall preferably be elected from among
the nonexecutive
directors of the listed company. The Board of Directors shall clearly define
the
respective roles and responsibilities of the Chairman and Chief Executive,
whether or not
these offices are held by separate individuals or the same individual.
MEETINGS OF THE BOARD
(x) The Chairman of a listed company, if present, shall preside over meetings
of the Board of
Directors.
(xi) The Board of Directors of a listed company shall meet at least once in
every quarter of
the financial year. Written notices (including agenda) of meetings shall be
circulated not
less than seven days before the meetings, except in the case of emergency
meetings,
where the notice period may be reduced or waived.
(xii) The Chairman of a listed company shall ensure that minutes of meetings
of the Board of
Directors are appropriately recorded. The minutes of meetings shall be circulated
to
directors and officers entitled to attend Board meetings not later than 30
days thereof,
unless a shorter period is provided in the listed company’s Articles
of Association.
In the event that a director of a listed company is of the view that his dissenting
note has
not been satisfactorily recorded in the minutes of a meeting of the Board
of Directors, he
may refer the matter to the Company Secretary. The director may require the
note to be
appended to the minutes, failing which he may file an objection with the Securities
and
Exchange Commission of Pakistan in the form of a statement to that effect.
SIGNIFICANT ISSUES TO BE PLACED FOR DECISION BY THE BOARD OF DIRECTORS
(xiii) In order to strengthen and formalize corporate decision-making process,
significant issues
shall be placed for the information, consideration and decision of the Boards
of Directors
of listed companies.
Significant issues for this purpose may include:
! annual business plans, cash flow projections, forecasts and long term plans;
! budgets including capital, manpower and overhead budgets, along with
variance analyses;
! quarterly operating results of the listed company as a whole and in terms
of its
operating divisions or business segments;
! internal audit reports, including cases of fraud or irregularities of a
material
nature;
! management letter issued by the external auditors;
! details of joint venture or collaboration agreements or agreements with
distributors, agents, etc;
! promulgation or amendment of a law, rule or regulation, enforcement of an
accounting standard and such other matters as may affect the listed company;
! status and implications of any law suit or proceedings of material nature,
filed
by or against the listed company;
! any show cause, demand or prosecution notice received from revenue or
regulatory authorities, which may be material;
! default in payment of principal and/or interest, including penalties on
late
payments and other dues, to a creditor, bank or financial institution or default
in payment of public deposit;
! failure to recover material amounts of loans, advances, and deposits made
by
the listed company, including trade debts and inter-corporate finances;
! any significant accidents, dangerous occurrences and instances of pollution
and environmental problems involving the listed company;
! significant public or product liability claims likely to be made against
the
listed company, including any adverse judgement or order made on the
conduct of the listed company or of another company that may bear negatively
on the listed company;
! disputes with labour and their proposed solutions, any agreement with the
labour union or Collective Bargaining Agent and any charter of demands on
the listed company; and 9
! payment for goodwill, brand equity or intellectual property.
ORIENTATION COURSES
(xiv) All listed companies shall make appropriate arrangements to carry out
orientation courses
for their directors to acquaint them with their duties and responsibilities
and enable them
to manage the affairs of the listed companies on behalf of shareholders.
CHIEF FINANCIAL OFFICER (CFO) AND COMPANY SECRETARY
APPOINTMENT AND APPROVAL
(xv) The appointment, remuneration and terms and conditions of employment
of the Chief
Financial Officer (CFO), the Company Secretary and the head of internal audit
of listed
companies shall be determined by the CEO with the approval of the Board of
Directors.
The CFO or the Company Secretary of listed companies shall not be removed
except by
the CEO with the approval of the Board of Directors.
QUALIFICATION OF CFO AND COMPANY SECRETARY
(xvi) No person shall be appointed as the CFO of a listed company unless:
(a) he is a member of a recognized body of professional accountants; or
(b) he is a graduate from a recognized university or equivalent, having at
least five
years experience in handling financial or corporate affairs of a listed public
company or a bank or a financial institution.
(xvii) No person shall be appointed as the Company Secretary of a listed company
unless he is:
(a) a member of a recognized body of professional accountants; or
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(b) a member of a recognized body of corporate/ chartered secretaries; or
(c) a lawyer; or
(d) a graduate from a recognized university or equivalent, having at least
five years
experience of handling corporate affairs of a listed public company or corporation.
REQUIREMENT TO ATTEND BOARD MEETINGS
(xviii) The CFO and the Company Secretary of a listed company shall attend
meetings of the
Board of Directors.
Provided that unless elected as a director, the CFO or the Company Secretary
shall not be
deemed to be a director or entitled to cast a vote at meetings of the Board
of Directors for
the purpose of this clause. Provided further that the CFO and/ or the Company
Secretary
shall not attend such part of a meeting of the Board of Directors, which involves
consideration of an agenda item relating to the CFO, Company Secretary, CEO
or any
director.
CORPORATE AND FINANCIAL REPORTING FRAMEWORK
THE DIRECTORS’ REPORT TO SHAREHOLDERS
(xix) The directors of listed companies shall include statements to the following
effect in the
Directors’ Report, prepared under section 236 of the Companies Ordinance,
1984:
(a) The financial statements, prepared by the management of the listed company,
present fairly its state of affairs, the result of its operations, cash flows
and
changes in equity.
(b) Proper books of account of the listed company have been maintained.
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(c) Appropriate accounting policies have been consistently applied in preparation
of
financial statements and accounting estimates are based on reasonable and
prudent
judgment.
(d) International Accounting Standards, as applicable in Pakistan, have been
followed
in preparation of financial statements and any departure therefrom has been
adequately disclosed.
(e) The system of internal control is sound in design and has been effectively
implemented and monitored.
(f) There are no significant doubts upon the listed company’s ability
to continue as a
going concern.
(g) There has been no material departure from the best practices of corporate
governance, as detailed in the listing regulations.
The Directors’ Reports of listed companies shall also include the following,
where
necessary:
(a) If the listed company is not considered to be a going concern, the fact
along with
reasons shall be disclosed.
(b) Significant deviations from last year in operating results of the listed
company
shall be highlighted and reasons thereof shall be explained.
(c) Key operating and financial data of last six years shall be summarised.
(d) If the listed company has not declared dividend or issued bonus shares
for any
year, the reasons thereof shall be given.
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(e) Where any statutory payment on account of taxes, duties, levies and charges
is
outstanding, the amount together with a brief description and reasons for
the same
shall be disclosed.
(f) Significant plans and decisions, such as corporate restructuring, business
expansion and discontinuance of operations, shall be outlined along with future
prospects, risks and uncertainties surrounding the listed company.
(g) A statement as to the value of investments of provident, gratuity and
pension
funds, based on their respective audited accounts, shall be included.
(h) The number of Board meetings held during the year and attendance by each
director shall be disclosed.
(i) The pattern of shareholding shall be reported to disclose the aggregate
number of
shares (along with name wise details where stated below) held by:
! associated companies, undertakings and related parties (name wise details);
! NIT and ICP (name wise details);
! directors, CEO and their spouse and minor children (name wise details);
! executives;
! public sector companies and corporations;
! banks, Development Finance Institutions, Non-Banking Finance Institutions,
insurance companies, modarabas and mutual funds; and
! shareholders holding ten percent or more voting interest in the listed company
(name wise details).
Explanation: For the purpose of this clause, clause (b) of direction (i) and
direction (xxiii), the expression “executive” means an employee
of a listed
company other than the CEO and directors whose basic salary exceeds five
hundred thousand rupees in a financial year.
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(j) All trades in the shares of the listed company, carried out by its directors,
CEO,
CFO, Company Secretary and their spouses and minor children shall also be
disclosed.
FREQUENCY OF FINANCIAL REPORTING
(xx) The quarterly unaudited financial statements of listed companies shall
be published and
circulated along with directors’ review on the affairs of the listed
company for the
quarter.
(xxi) All listed companies shall ensure that half-yearly financial statements
are subjected to a
limited scope review by the statutory auditors in such manner and according
to such
terms and conditions as may be determined by the Institute of Chartered Accountants
of
Pakistan and approved by the Securities and Exchange Commission of Pakistan.
(xxii) All listed companies shall ensure that the annual audited financial
statements are
circulated not later than four months from the close of the financial year.
(xxiii) Every listed company shall immediately disseminate to the Securities
and Exchange
Commission of Pakistan and the stock exchange on which its shares are listed
all material
information relating to the business and other affairs of the listed company
that will affect
the market price of its shares. Mode of dissemination of information shall
be prescribed
by the stock exchange on which shares of the company are listed.
This information may include but shall not be restricted to information regarding
a joint
venture, merger or acquisition or loss of any material contract; purchase
or sale of
significant assets; any unforeseen or undisclosed impairment of assets due
to
technological obsolescence, etc.; delay/ loss of production due to strike,
fire, natural
calamities, major breakdown, etc.; issue or redemption of any securities;
a major change
in borrowings including any default in repayment or rescheduling of loans;
and change in
directors, Chairman or CEO of the listed company.
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RESPONSIBILITY FOR FINANCIAL REPORTING AND CORPORATE COMPLIANCE
(xxiv) No listed company shall circulate its financial statements unless the
CEO and the CFO
present the financial statements, duly endorsed under their respective signatures,
for
consideration and approval of the Board of Directors and the Board, after
consideration
and approval, authorize the signing of financial statements for issuance and
circulation.
(xxv) The Company Secretary of a listed company shall furnish a Secretarial
Compliance
Certificate, in the prescribed form, as part of the annual return filed with
the Registrar of
Companies to certify that the secretarial and corporate requirements of the
Companies
Ordinance, 1984 have been duly complied with.
DISCLOSURE OF INTEREST BY A DIRECTOR HOLDING COMPANY’S SHARES
(xxvi) Where any director, CEO or executive of a listed company or their spouses
sell, buy or
take any position, whether directly or indirectly, in shares of the listed
company of which
he is a director, CEO or executive, as the case may be, he shall immediately
notify in
writing the Company Secretary of his intentions. Such director, CEO or executive,
as the
case may be, shall also deliver a written record of the price, number of shares,
form of
share certificates (i.e. whether physical or electronic within the Central
Depository
System) and nature of transaction to the Company Secretary within four days
of effecting
the transaction. The notice of the director, CEO or executive, as the case
may be, shall be
presented by the Company Secretary at the meeting of the Board of Directors
immediately subsequent to such transaction. In the event of default by a director,
CEO or
executive to give a written notice or deliver a written record, the Company
Secretary shall
place the matter before the Board of Directors in its immediate next meeting:
Provided that each listed company shall determine a closed period prior to
the
announcement of interim/ final results and any business decision, which may
materially
affect the market price of its shares. No director, CEO or executive shall,
directly or
indirectly, deal in the shares of the listed company in any manner during
the closed
period.
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AUDITORS NOT TO HOLD SHARES
(xxvii) All listed companies shall ensure that the firm of external auditors
or any partner in the
firm of external auditors and his spouse and minor children do not at any
time hold,
purchase, sell or take any position in shares of the listed company or any
of its associated
companies or undertakings:
Provided that where a firm or a partner or his spouse or minor child owns
shares in a
listed company, being the audit client, prior to the appointment as auditors,
such listed
company shall take measures to ensure that the auditors disclose the interest
to the listed
company within 14 days of appointment and divest themselves of such interest
not later
than 90 days thereof.
CORPORATE OWNERSHIP STRUCTURE
(xxviii)Every company which is proposed to be listed shall, at the time of
public offering, offer
not less than Rs. 100 million or 20% of the share capital of the company,
whichever is
higher, to the general public unless the limit is relaxed by the stock exchange
with the
approval of the Securities and Exchange Commission of Pakistan.
DIVESTITURE OF SHARES BY SPONSORS/CONTROLLING INTEREST
(xxix) In the event of divestiture of not less than 75% of the total shareholding
of a listed
company, other than a divestiture by non-resident shareholder(s) in favour
of other nonresident
shareholder(s) or a disinvestment through the process of privatization by
the
Federal or Provincial Government, at a price higher than the market value
ruling at the
time of divestiture, it shall be desirable and expected of the directors of
the listed
company to allow the transfer of shares after it has been ascertained that
an offer in
writing has been made to the minority shareholders for acquisition of their
shares at the
same price at which the divestiture of majority shares was contemplated. Where
the offer
price to minority shareholders is lower than the price offered for acquisition
of
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controlling interest, such offer price shall be subject to the approval of
the Securities and
Exchange Commission of Pakistan.
AUDIT COMMITTEE
COMPOSITION
(xxx) The Board of Directors of every listed company shall establish an Audit
Committee,
which shall comprise not less than three members, including the chairman.
Majority of
the members of the Committee shall be from among the non-executive directors
of the
listed company and the chairman of the Audit Committee shall preferably be
a nonexecutive
director. The names of members of the Audit Committee shall be disclosed in
each annual report of the listed company.
FREQUENCY OF MEETINGS
(xxxi) The Audit Committee of a listed company shall meet at least once every
quarter of the
financial year. These meetings shall be held prior to the approval of interim
results of the
listed company by its Board of Directors and before and after completion of
external
audit. A meeting of the Audit Committee shall also be held, if requested by
the external
auditors or the head of internal audit.
ATTENDANCE AT MEETINGS
(xxxii) The CFO, the head of internal audit and a representative of the external
auditors shall
attend meetings of the Audit Committee at which issues relating to accounts
and audit are
discussed.
Provided that at least once a year, the Audit Committee shall meet the external
auditors
without the CFO and the head of internal audit being present.
Provided further that at least once a year, the Audit Committee shall meet
the head of
internal audit and other members of the internal audit function without the
CFO and the
external auditors being present.
TERMS OF REFERENCE
(xxxiii)The Board of Directors of every listed company shall determine the
terms of reference of
the Audit Committee. The Audit Committee shall, among other things, be responsible
for
recommending to the Board of Directors the appointment of external auditors
by the
listed company’s shareholders and shall consider any questions of resignation
or removal
of external auditors, audit fees and provision by external auditors of any
service to the
listed company in addition to audit of its financial statements. In the absence
of strong
grounds to proceed otherwise, the Board of Directors shall act in accordance
with the
recommendations of the Audit Committee in all these matters.
The terms of reference of the Audit Committee shall also include the following:
(a) determination of appropriate measures to safeguard the listed company’s
assets;
(b) review of preliminary announcements of results prior to publication;
(c) review of quarterly, half-yearly and annual financial statements of the
listed
company, prior to their approval by the Board of Directors, focusing on:
! major judgmental areas;
! significant adjustments resulting from the audit;
! the going-concern assumption;
! any changes in accounting policies and practices;
! compliance with applicable accounting standards; and
! compliance with listing regulations and other statutory and regulatory
requirements.17
(d) facilitating the external audit and discussion with external auditors
of major
observations arising from interim and final audits and any matter that the
auditors
may wish to highlight (in the absence of management, where necessary);
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(e) review of management letter issued by external auditors and management’s
response thereto;
(f) ensuring coordination between the internal and external auditors of the
listed
company;
(g) review of the scope and extent of internal audit and ensuring that the
internal audit
function has adequate resources and is appropriately placed within the listed
company;
(h) consideration of major findings of internal investigations and management's
response thereto;
(i) ascertaining that the internal control system including financial and
operational
controls, accounting system and reporting structure are adequate and effective;
(j) review of the listed company’s statement on internal control systems
prior to
endorsement by the Board of Directors;
(k) instituting special projects, value for money studies or other investigations
on any
matter specified by the Board of Directors, in consultation with the Chief
Executive and to consider remittance of any matter to the external auditors
or to
any other external body;
(l) determination of compliance with relevant statutory requirements;
(m) monitoring compliance with the best practices of corporate governance
and
identification of significant violations thereof; and
(n) consideration of any other issue or matter as may be assigned by the Board
of
Directors.
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REPORTING PROCEDURE
(xxxiv) The Audit Committee of a listed company shall appoint a secretary
of the Committee.
The secretary shall circulate minutes of meetings of the Audit Committee to
all
members, directors and the CFO within a fortnight.
INTERNAL AUDIT
(xxxv) There shall be an internal audit function in every listed company.
The head of internal
audit shall have access to the chair of the Audit Committee.
(xxxvi) All listed companies shall ensure that internal audit reports are
provided for the review of
external auditors. The auditors shall discuss any major findings in relation
to the reports
with the Audit Committee, which shall report matters of significance to the
Board of
Directors.
EXTERNAL AUDITORS
(xxxvii) No listed company shall appoint as external auditors a firm of auditors
which has not
been given a satisfactory rating under the Quality Control Review programme
of the
Institute of Chartered Accountants of Pakistan.
(xxxviii)No listed company shall appoint as external auditors a firm of auditors
which firm or a
partner of which firm is non-compliant with the International Federation of
Accountants'
(IFAC) Guidelines on Code of Ethics, as adopted by the Institute of Chartered
Accountants of Pakistan.
(xxxix) The Board of Directors of a listed company shall recommend appointment
of external
auditors for a year, as suggested by the Audit Committee. The recommendations
of the
Audit Committee for appointment of retiring auditors or otherwise shall be
included in
the Directors’ Report. In case of a recommendation for change of external
auditors before
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the elapse of three consecutive financial years, the reasons for the same
shall be included
in the Directors’ Report.
(xl) No listed company shall appoint its auditors to provide services in addition
to audit
except in accordance with the regulations and shall require the auditors to
observe
applicable IFAC guidelines in this regard and shall ensure that the auditors
do not
perform management functions or make management decisions, responsibility
for which
remains with the Board of Directors and management of the listed company.
(xli) All listed companies are required to change their external auditors
every five 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 Securities
and Exchange
Commission of Pakistan.
(xlii) No listed company shall appoint a person as the CEO, the CFO, an internal
auditor or a
director of the listed company who was a partner of the firm of its external
auditors (or an
employee involved in the audit of the listed company) at any time during the
two years
preceding such appointment or is a close relative, i.e. spouse, parents, dependents
and
non-dependent children, of such partner (or employee).
(xliii) Every listed company shall require external auditors to furnish a
Management Letter to
its Board of Directors not later than 30 days from the date of audit report.
(xliv) Every listed company shall require a partner of the firm of its external
auditors to attend
the Annual General Meeting at which audited accounts are placed for consideration
and
approval of shareholders.
COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
(xlv) All listed companies shall publish and circulate a statement along with
their annual
reports to set out the status of their compliance with the best practices
of corporate
governance set out above.
(xlvi) All listed companies shall ensure that the statement of compliance
with the best practices
of corporate governance is reviewed and certified by statutory auditors, where
such
compliance can be objectively verified, before publication by listed companies.
(xlvii) Where the Securities and Exchange Commission of Pakistan is satisfied
that it is not
practicable to comply with any of the best practices of corporate governance
in a
particular case, the Commission may, for reasons to be recorded, relax the
same subject
to such conditions as it may deem fit.
Yours truly,
(Shahid Ghaffar)
Commissioner (SM)
Appendix
| Clause Reference | Brief Description | Manner of enforcement | Effective Date |
|
(i)
(ii) (iii) and (iv) (vi) (x), (xi)and (xii) (xiv) (xvi) and(xvii) (xix) (xxvii) (xxx),(xxxi),(xxxii),
(xliii) (xlv) and (xlvi) |
Representation of independent non-executive Internal Audit Rotation of external auditors Management letter issued by external auditors |
||