It is a well known practice that audit firms and their professionals often present misleading reports on a company’s financial with ‘tailor made’ statements of accounts to befool investors and other stakeholders like banks while approving loans to the company initiated business projects.
The results become catastrophic at the end. To stop the practice the government has decided to form a ten-member regulatory council to monitor financial reporting by audit firms—a move that will bring an end to tailoring of accounts by listed companies to protect prospective investors from being cheated.
The decision to form the regulatory council came after a delay of over a year owing to opposition by chartered accountants and their audit firms with the adoption of the move by the cabinet at its weekly meeting on Monday last.
It was prompted by the recent pressure exerted by Asian Development Bank on the government to clear the way of the passage of the Financial Reporting Act- 2014 by the end of this month. The ADB said the failing of the government would end in withholding the release of $150 million fund meant for the capital market development, media report said.
The regulatory council to be comprised of ten-member will fix the standards and ethics for chartered accountants and auditors as highlighted in the major provision of the bill.
It will also formulate necessary rules and regulations to monitor auditing practices and ensure that standards for auditing set by the International Accounting Standards Board and International Auditing and Assurance Standards Boards are fully complied with.
The law will cover all public interest entities, including the corporate bodies, public companies, government autonomous bodies, NGOs, banks, financial institutions and insurance companies.
Under the law the government will appoint the chairman and the executive director of the council with the help of recommendation of a search committee to be set up for the purpose. The council will have four departments: standard setting, financial reporting monitoring, audit practice review and enforcement.
Any auditor or auditing firm that will not bee enlisted with the council will not be eligible to carry out audits and certify accounts of any public interest entity or provide any audit-related services.
The government will also form an appellate board to be named as Accounting and Auditing Appellate Authority. The move to set up such a regulatory body was initiated in 2008 by the past caretaker government as the Financial Reporting Ordinance 2008. But it remained abandoned under pressure from various interest groups. ADB is now working to bring the regulatory body to functioning.
Source: Weekly Holiday
