SECP to Adopt Risk-Based Approach for Prescribing Auditors for Regulated Entities

The Securities and Exchange Commission of Pakistan (SECP) has decided to adopt a risk-based approach for prescribing a single Panel of Auditors for the SECP’s regulated entities including securities brokers and insurance/modaraba sectors.

The SECP document finalized on Monday revealed that the Commission, under the Securities and Exchange Commission of Pakistan Act, 1997 read with its administered regulations is empowered to maintain and issue a panel of auditors from which SECP-regulated entities may appoint auditors.

Currently, for the insurance and modaraba sector, a panel of auditors/ list of auditors has been specified by the Commission through Circulars/Letters. In this regard, Circular no. 21 of 2021 provides the approved list of auditors eligible to conduct an audit of insurance/ re-insurance/takaful entities. Further, various circulars and updates resting with Circular No. 21 of 2005 dated November 18, 2005, and Circular No. 28 of 2009 dated September 4, 2009, were issued for the approved list of auditors for modaraba companies. Furthermore, under the Securities Brokers (Licensing and Operations) Regulations, 2016, various categories of securities brokers shall appoint a statutory auditor from specific categories on the SBP panel of auditors as prescribed therein.

Under the SECP proposal, the said practice of issuing/specifying separate panels or lists for various SECP-regulated sectors may be streamlined by prescribing a single Panel of Auditors for SECP-regulated entities, which will follow a risk-based approach. Accordingly, entities with a higher degree of risk shall be required to appoint their auditors from a suitable category. Entities with low risk may appoint any auditor which has a QCR rating from ICAP.

The SECP has also issued a comparison of the current practice of selecting audit firms under applicable regulatory framework along with proposed categories of audit firms under a new SECP panel.

The Commission had initiated the process of constituting a panel of audit firms to conduct statutory audits of certain entities registered or licensed with SECP. In this regard, audit firms, having a satisfactory rating from the Institute of Chartered Accountants of Pakistan (ICAP), under its Quality Control Review (QCR) program were invited to apply for placement on the panel through prescribed application forms.

Based on the analysis of information submitted to SECP, audit firms will be categorized into the aforementioned categories and the subject panel will be notified along with necessary changes in the regulatory framework as explained in the ensuing section.

For finalizing the implementation of the SECP panel of auditors, consequential changes are necessary for the Securities Brokers (Licensing and Operations) Regulations, 2016, and the licensing regulations for the securities exchange, futures exchange, clearing house, and central depository. The SECP panel shall be issued after the aforementioned necessary consequential amendments have been finalized. Further, earlier circulars mentioned below issued by respective internal departments of the SECP such as insurance and modaraba will also be superseded by a new circular notifying a unified panel of auditors:

a) Circular no. 04 of 2014 dated January 31, 2014, and Circular no. 21 of 2021 dated July 6, 2021, of the Insurance Division for providing criteria for the enlistment of approved auditors for insurance companies and dissemination of approved list of auditors pursuant to section 48(1) of the Insurance Ordinance, 2000.

b) Various circulars and updates resting with Circular No. 21 of 2005 dated November 18, 2005, Circular No. 28 of 2009 dated September 4, 2009, and Letter dated July 02, 2021, issued by Policy, Regulation and Development Department (Modaraba Wing) of Specialized Companies Division.

The previous circulars issued by the Commission on the subject shall be superseded by a new Circular, which shall provide the approved panel of auditors for SECP-regulated entities under the SECP Act, 1997 read with applicable provisions of the regulatory framework governing various sectors.

The SECP-regulated entities specified within the circular shall appoint their auditors, to conduct the statutory audit with effect from the specified date of implementation, SECP added.



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