KARACHI (February 26 2004): The Sindh High Court has suspended, till the next date of hearing, the operation of the Securities and Exchange Commission of Pakistan (SECP) directive which provides that “all listed companies are required to change their external auditors every five years and those who finds it difficult may rotate the partner in charge of its audit engagement after SECP consent”.
Justice Musheer Alam of SHC on Wednesday in his short order said, “A prima facie case for suspension of the impugned directive dated 28.3.2002 (SECP) has been made out. Accordingly, operation of the impugned directives are suspended till the next date.”
The SHC has issued notices to the parties and the deputy attorney general for 5.3.2004.
The order was passed in a suit filed by A F Fergusons, Chartered Accountants, challenging the legality of the SECP directives through its lawyer Zahid F. Ibrahim.
The directive of the SECP which has been suspended provides that all listed companies are required to change their external auditors every five years. If for any reason that is impractical, a listed company may at a minimum rotate the partner in charge of its audit engagement after obtaining the consent of the SECP.
The Code of Corporate Governance containing directive regarding compulsory rotation of auditors was issued by the SECP in pursuance of its authority under section 34(4) of the SECP Ordinance 1969.
According to the A.F. Ferguson suit, SECP has no power to issue this kind of directive under section 34(4) of the SEC Ordinance and that the SECP had transgressed the authority conferred by such law.
It was also contended by A. F. Ferguson that the SECP directive is in violation of the right of shareholders to select auditors of their choice under the Companies Ordinance, 1984.