Pakistan Newsletter - Spring 2018

Code of Corporate Governance for Listed Companies

Since its first implementation in the year 2002, the Code of Corporate Governance, for listed companies of the country, has witnessed various changes over the period. A round has recently been carried out by Securities and Exchange Commission of Pakistan (SECP) for a 360 degree review of corporate governance practices in the country. As a result we have a new Code effective from January 01, 2018, providing for deferred compliance with its certain requirements, including composition of Board of Directors (“the Board”) and their training under the Directors’ Training Program. New Code is also applicable to all other entities where their statutes and underlying licensing requirements require compliance with the Code.

Significant developments encompass, increased representation of independent directors on the board of listed companies, to dilute dominance of strong sponsors and resolve matters related to conflict of interest. It is now mandatory requirement for chairman of Audit Committee and Human Resource & Remuneration Committee, to be an independent director. Newly enacted Companies Act, 2017 provides for selection of independents from a directory to be maintained by the SECP. Because companies would call for representation of independents from an exhaustive list of directors, opinion makers in the country are of the view that, moving forward, increased representation of independent directors may result in their empowerment, as a pressure group for the industry as a whole. 

While new Code ensures gender diversity, requiring one female director on the Board; interalia, it also requires reconstitution of existing committees and proposes composition of new sub-committees of the board; namely i) Nomination Committee and ii) Risk Management Committee. Besides annual evaluation of the Board’s own performance, the Code requires placement of a formal mechanism for evaluating performance of Board’s sub-committees. Specific attention is also given to responsibilities of chairman of the Board, contents of directors’ report, qualification of Chief Financial Officer (CFO) and Chief Internal Auditor, business risk policies, its reviews and whistle blowing mechanism.

Changes in Accounting Framework for Companies

After enactment of the Companies Act, 2017 (“the Act”), SECP has notified certain changes in accounting framework, for companies incorporated in Pakistan. Prevalent requirements are tabled below, at a glance:

Sno.

Classified Company

Applicable Accounting Framework

1

Public Interest Company

 

  • Listed Company

International Financial Reporting Standards

  • Non-listed Company

2

Large Sized Company

 

  • Non-listed Company

International Financial Reporting Standards

  • Foreign Company with turnover of PKR 1 billion (approx. 10 million USD) or more

Non-listed licensed Company (Not for Profit Organizations – NPOs) having annual gross revenue of PKR 200 million (approx. 2.0 million USD) or more

International Financial Reporting Standards and Accounting Standards for NPOs.

3

Medium Sized Company

 

  • Non-listed Public Company

International Financial Reporting Standards for SMEs 

  • Private Company

Foreign Company with turnover less than PKR 1 billion (approx. 10 million USD)

Non-listed licensed Company (Not for Profit Organizations – NPOs) having annual gross revenue less than PKR 200 million (approx. 2.0 million USD).

Accounting Standards for NPOs

4

Small Sized Company

 

  • Private Company

Revised Accounting and Financial Reporting Standards for Small Sized Entities