The Securities and Exchange Commission of Pakistan (SECP) has termed submission of audit report by companies, on the published financial statements, sans signature of the auditor as violation of section 257 of the Companies Ordinance, 1984. The SECP has issued an order in this regard here on Tuesday. According to the SECP order, the commission has disposed of the proceedings initiated against an insurance company and the Audit Engagement Partner for not complying with the provisions of Section 257 of the Companies Ordinance, 1984 (the "Ordinance").
The provisions of Section 257 of the Ordinance states that the "Signature on audit report, etc (1) Only the person appointed as auditor of the company, or where a firm is so appointed in pursuance of sub-section (2) of section 254, only a partner in the firm practising in Pakistan shall sign the auditor's report or sign or authenticate my other documents of the company required by law to be signed or authenticated by the auditor."
In terms of the provisions of Section 233(3) and Section 242(1) of the Ordinance and the Commission's Circular No 02 of 1999 dated January 13, 1999, annual financial statements shall be accompanied by the auditor's report, which shall be made up in compliance of Section 257 of the Ordinance.
The Audit Report on the published financial statements of the company for the year ending December 31, 2012 did not contain the signature of the Auditor of the Company and also did not state the date of signing the audit report, as required under Section 257 of the Ordinance.
The comments on the abovementioned observation were sought from the Company, in response of which, the Company had filed the signed Auditor's Report, vide the Company's letter dated November 11, 2013. It appeared that the Company and the Auditor for the year ending December 31, 2012 have contravened with the requirement of Section 257 of the Ordinance, for which the Commission may take action as provided under Section 259 of the Ordinance.
Accordingly, the Show Cause Notice was issued on March 28, 2014 under Section 257 of the Ordinance to the Chief Executive Officer and the Directors of the Company and the Audit Engagement Partner of the Auditor, calling upon them to show cause as to why the penalty, as provided under Section 259 of the Ordinance, should not be imposed on them for not complying with provisions of Section 257 of the Ordinance.
The SECP has carefully examined and given due consideration to the written and verbal submissions of the Company, its Directors and the Management of the Company (through their authorised representative, the Chief Financial Officer of the Company), as well as those of the Auditor (through the Auditor's representatives), and have also referred to the provisions of the Ordinance. The SECP was of the view that there has been an established default of Section 257 of the Ordinance, as the Auditor's Report filed with the financial statements of the Company for the year ending December 31, 2012 did not contain the signature of the Auditor and also omits the date of signing of the Auditor's Report, as required by the provisions of Section 257 of the Ordinance. However, later on a signed Auditor's Report on those financial statements were filed vide the Company's letter dated November 11, 2013.
It has further proved that the Auditor of the Company had provided the signed and dated copy of the Auditor's Report to the Company, as reflected in the Auditor's letter dated April 7, 2014 though late. After carefully examining the arguments and studying the facts and findings of the case, the default of Section 257 of the Ordinance is established. Therefore, the penalty as provided under Section 259 of the Ordinance can be imposed onto the Company, its Directors and/or its Chief Executive Officer, and the Auditor.
In exercise of the power conferred on SECP under Section 259 of the Ordinance, the SECP, instead of imposing penalty, take a lenient view, and thus, condone the Company, its Directors and its Chief Executive Officer, and also the Auditor, due to the fact that the Company has filed the requisite Auditor's Report, duly signed and dated subsequently, as mentioned hereinabove, and that the aforesaid contravention of Section 257 of the Ordinance has not harmed the interests of the shareholders and the policyholders of the Company. However, the Company has hereby issued a stern warning that in case of similar non-compliance in future a stronger action against the company will be taken, the SECP added.