Pakistan adopts new corporate governance rules

New corporate governance regulations will come into effect in Pakistan from 1st January 2018 after their approval by the country’s Securities and Exchange Commission. Pakistan’s Companies Act, 2017, has also been passed, which provided the country’s framework for corporate governance of which the regulations formed a part.

The regulations replace Pakistan’s 2012 corporate governance code. Changes in the requirements include decreasing the limit of permissible directorship in listed companies of a director from seven to five. The regulations also aim to strengthen the presence and role of independent directors and company boards will be mandated to have at least two or one-third of the number of directors, whichever is higher, as independent directors.

Pakistan corporate governance

Pakistan enhances corporate governance

Additionally, independent directors shall be required to file a declaration confirming that statutory criteria for independence has been duly complied. The regulations will also boost the number of female directors on boards with the requirement that one female director is appointed within one year of notification of regulations or reconstitution of board whichever is later. Additionally, the SECP said that in order to encourage the inclusion of competent female directorship, companies are required to train at least one female executive under the directors’ training programme.

Financial Reporting Council publishes independent review of its enforcement sanctions

The UK’s Financial Reporting Council (FRC) has published a report of an independent review that was carried out into its enforcement sanctions that can be taken against in respect of actuaries and auditors.

The review was chaired by former Court of Appeal Judge Sir Christopher Clarke and has produced a number of recommendations for improvements. These include: greater attention should be given to the use of non-financial penalties to be imposed to maintain and enhance the quality and reliability of future audit and accountancy work; the removal of any requirement for tribunals to consider themselves bound by previous cases when determining the appropriate sanction to impose; and the adjustment of settlement discount provisions to encourage timely settlement.

The FRC said it welcomed the report and said would now carefully consider it in order to decide which recommendations to adopt and incorporate into revised sanctions guidance to ensure that sanctions imposed continue to be fair, effective and in the public interest.

Separately the FRC has published a report from its Financial Reporting Lab, which found that Investors want a better understanding of how boards identify and manage risk to protect the sustainability of companies.

The research found that since the financial crisis, companies have made enhancements to their risk reporting and investors have seen better engagement with them on how they are managing their risks. However, further improvements could be made and the report provides guidance and practical examples on how companies can find a balance between reporting that is specific, whilst not revealing commercially sensitive information.

Recently the FRC has also announced the topics for its 2018/19 thematic reviews. Within corporate reporting the FRC will focus on targeted aspects of smaller listed and AIM quoted company reports and accounts; the effect of the new International Financial Reporting Standards (IFRSs) on revenue and financial instruments on companies’ 2018 interim accounts; the expected effect of the new IFRS for lease accounting; and the effects of Brexit on companies’ disclosure of principal risks and uncertainties.

The FRC said it  aims to write to 40 smaller listed and AIM quoted companies prior to their year-end, informing them that it will review two specific aspects of their next published reports and accounts.  The specific aspects will be drawn from five areas that have recently featured in FRC thematic reviews or Financial Reporting Lab reports, where the FRC has published examples of what better quality disclosures might look like and which we believe will help companies meet our expectations.

Within the area of audit, the FRC said it would focus on transparency report and audit quality indicators.

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