Errors in financial statements: SECP penalises auditor of listed company

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has begun penalising listed companies and their auditors for making mistakes and typo errors in their financial statements.

According to an order issued by the SECP against a listed company here on Wednesday, the SECP declared that the stance of the Authorized Representative that mistakes and typo errors in the financial statements have no material impact on the health of financial statements is not plausible on the grounds that it is the responsibility of the auditor to ensure that correct disclosures are provided in its report to the members and any inaccurate information in the audit report makes the negligence more significant as it impacts the overall stakeholders, especially in case of listed companies where the auditor is required to be extra cautious.

The SECP has gone through the facts of case, quoted references, considered the written submissions of the Respondents in light of the relevant provisions of the Companies Act. In this context, it is noted that the Auditor and its Authorized Representative have accepted the anomalies in disclosures in financial statement for the year 2020 and misreporting in the audit report for year 2020, citing them as typographical errors however’, similar errors/ misrepresentation relating to disclosure about related party is observed in the audit report for the year 2021. The frequency/ repetition of same typographical error in audit reports of two consecutive years reflects failure of the auditor in discharging its duties and obligations in terms of Section 253 of the Act. It is further observed that as per note to financial statements for the year 2020 and 2021, the company is engaged in generation, distribution and sale of electricity. The balance sheet does not reflect existence of any stock in trade, whereas, the Auditor, has misreported that the Company generates revenue from sale of stitched and unstitched cloth for the year 2020 and that the stock in trade balance of the company constitutes 48 per cent of total assets of the company for the year 2021.

Therefore, in view of the aforesaid, the SECP has concluded that the company failed to discharge its responsibilities in accordance with the provisions of Section 249 of the Act and hence, liable for penalty in term of Section 253 of the Act. The SECP, therefore, in exercise of the powers conferred under Section 253 of the Act, imposed a penalty of Rs50,000 on the auditor, the SECP added.

Copyright Business Recorder, 2022