ISLAMABAD (February 13 2009): The Securities and Exchange Commission of Pakistan (SECP) has informed the Competition Commission of Pakistan (CCP) that the SECP has the authority to give exemptions and relaxation's from the applicability of International Accounting Standards (IAS).
Sources in the SECP told reporters on Thursday that the commission has responded to the policy note of the CCP regarding IAS-39 Reporting Requirements. According to the SECP, the commission has proposed some effective mechanism needs to be developed and agreed upon to co-ordinate and discuss issues of concern between SECP and CCP.
The SECP has acknowledged advice regarding investor interest and the need to uphold the law in letter and spirit. The main function of the SECP is administration of corporate and financial laws in the best interest of the markets, the entire spectrum of stakeholders and the national economy generally.
The SECP's mandate is therefore, much broader than is being appreciated by CCP. The CCP should rest assured that any decision by SECP on the issue at hand will be well considered taking into account the ground realities, made after extensive debate with all stakeholders and definitely be within the boundaries of law.
The SECP has further clarified that no decision has been made by SECP on providing exemption from or relaxation of applicability of IAS-39 till the issuance of this letter (February 11), any such decision, if and when made, will be fully lawful as permitted by the provisions of the Companies Ordinance, 1984.
Companies are required to follow only those International Accounting Standards (IAS) while preparing their accounts as are notified by SECP. Logically so, SECP also has the power to grant exemptions from and relaxation's of the applicability of these standards.
In fact the accounting standards themselves acknowledge and accept the possibility of non-compliance of these standards by companies in certain circumstances. The SECP pointed out that the IAS specifically provides that companies not complying with a requirement of the IAS/IFRS must make a disclosure in their financial statements and state the financial impact of non-compliance with the said requirement.
This disclosure by the companies in the financial statements therefore, also addresses concern regarding the possibility of the investors being mislead or misinformed or potential violation of Section 10 of the Competition Ordinance, 2007. When contacted, CCP officials were of the view that the SECP has not challenged the contents of the policy note of the CCP.
Acknowledging SECP's significant role as a pre-eminent regulatory institution, the CCP said that the CCP policy note certainly did not suggest otherwise, nor did CCP policy note indicate that SECP would not do its duty in accordance with law. The CCP has assured that it would retain a measure of high esteem for SECP.
The CCP is confident that SECP will discharge its responsibilities in a credible manner and that it will do whatever it can to ensure consistency in accounting statements and that corporate profits are not misreported.
While CCP has accepted that a note in the financial statements regarding non-compliance with IAS/IFRS would meet the required disclosure requirement but, in and of itself, this may be insufficient to prevent ordinary investors from being misinformed (particularly if the non-compliance is inconsistent with the practice in previous years) – just as an untruthful advertisement misinforms even if the truth is revealed in small print.
As per CCP, under the circumstances, the CCP duty under law was best fulfilled through a formal, on-the-record, and transparent policy note in the public domain, and not through verbal communication or discussions.
Further, in this connection, we would like to reiterate the time-honoured view that the most courteous and responsible way to communicate in an office, and among institutions, is in writing. For the most part-barring only exceptional situations- regulation or law enforcement is not a cloistered virtue. It must be open, above board, and transparent to have the desired effect.
There is a need to improve communication between the CCP and the SECP. It is a matter of regret that SECP was not represented at the previous two meetings of Competition Consultative Group. The CCP would welcome the presence of SECP in future meetings of this group so that both the sides could benefit from invaluable feedback. Perhaps, trilateral, quarterly meetings among SECP, SBP, and CCP should be conducted at the institutional head level to exchange views, co-ordinate, and resolve issues, if any, CCP added.