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Managing Conflict of Interest - Organisation for Economic Co ... Managing Conflict of Interest - Organisation for Economic Co ...

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168 Managing Conflict of Interestthe banking sector; and the Institute of Chartered Accountants ofPakistan (ICAP), the primary regulator of those licensed to work asaccountants in Pakistan.Pakistan law contains several statutes that address conflict-ofinterestissues and outlines a comprehensive framework of disclosurerequirements. Key provisions of the Companies Ordinance 1984 2 thataim to mitigate conflict of interest and fraud are listed below:••••••••••••••••Loans to directors (S-195);Prohibition against the chief executive officer (CEO) engagingin a competing business (S-203);Provisions regarding investment in (including loans to) associatedcompanies (S-208);Disclosure of interest by directors (S-214);Provisions regarding the interest of other officers (S-215);Prohibition against voting by interested directors (S-216);Declaring a director to be lacking fiduciary behavior (S-217)Disclosure to members of a director’s interest in contractsappointing CEO and the corporate secretary (S-218);Registration of contracts, arrangements, appointments inwhich directors are interested (S219);Registration of directors’ shareholdings (S220);Disclosure by directors of their shareholdings (S-221);Submission of statements of beneficial ownership (S-222);Prohibition against short selling (S223);Provisions related to trading by directors, CEO, officers, andprincipal shareholders (S-224);Provisions related to the employees’ provident fund (S-227);Maintenance of proper books of account by all companies(S-230);2The purpose of the Companies Ordinance 1984 is to ensure the viability andgrowth of corporate enterprises, the protection of investors and creditors,the promotion of investment, and the development of the economy and mattersarising out of or in connection with enterprises that render immediateaction necessary. This law confers the power of enforcement on the Securitiesand Exchange Commission of Pakistan (SECP), formerly known as the CorporateLaw Authority (CLA). Source: Asian Development Bank. 2000. FinancialManagement and Governance Issues in Pakistan: Accounting and Auditing inPakistan, p. 18.ADB/OECD Anti-Corruption Initiative for Asia and the Pacific

Codes of Conduct in the Private Sector 169• Preparation of financial statements in line with applicableInternational Financial Reporting Standards (IFRSs) andmandatory requirements of the Ordinance (233, 234).Pakistan’s Accounting Framework: Consistent with InternationalBest PracticesIn Pakistan, listed companies are required to comply with theInternational Financial Reporting Standards issued by the InternationalAccounting Standards Board (IASB) as notified by the SECP.Except for IFRS-1 and IFRS-4, SECP has issued official notificationsregarding all the IFRSs for compliance in Pakistan. ICAP has alsodeveloped a strategy, whereby Pakistan is expected to becomefully compliant with IFRSs by 2009. Additionally, Pakistan has issuedtwo simplified financial and reporting standards for small and medium-sizedentities.Pakistan’s Code of Corporate GovernanceThe SECP has issued a Code of Corporate Governance, whichoutlines best practices in governance that all listed companies andbanks must comply with. This Code was drafted by ICAP’s Committeeand is enforced by SECP through its Rules of Stock Exchange.Relevant requirements are summarized below:• At least 25% of the board must comprise nonexecutivedirectors and at least one independent director.• A board director must not serve on the boards of morethan 10 listed companies, must be a taxpayer, and must notdefault on loans.• The board must define the responsibilities of the chairmanand CEO.• The board must approve the mission, vision, strategy, statementof ethics and business practices, and all major policies.A statement of ethics is required to be signed annually by allboard members and employees.• The board is required to exercise certain powers, approvethe key policy framework, and issue certain statements.• The chief financial officer (CFO) and the CEO must certify allfinancial statements before they are endorsed by the auditcommittee and approved by the board.ADB/OECD Anti-Corruption Initiative for Asia and the Pacific

168 <strong>Managing</strong> <strong><strong>Co</strong>nflict</strong> <strong>of</strong> <strong>Interest</strong>the banking sector; and the Institute <strong>of</strong> Chartered Accountants <strong>of</strong>Pakistan (ICAP), the primary regulator <strong>of</strong> those licensed to work asaccountants in Pakistan.Pakistan law contains several statutes that address conflict-<strong>of</strong>interestissues and outlines a comprehensive framework <strong>of</strong> disclosurerequirements. Key provisions <strong>of</strong> the <strong>Co</strong>mpanies Ordinance 1984 2 thataim to mitigate conflict <strong>of</strong> interest and fraud are listed below:••••••••••••••••Loans to directors (S-195);Prohibition against the chief executive <strong>of</strong>ficer (CEO) engagingin a competing business (S-203);Provisions regarding investment in (including loans to) associatedcompanies (S-208);Disclosure <strong>of</strong> interest by directors (S-214);Provisions regarding the interest <strong>of</strong> other <strong>of</strong>ficers (S-215);Prohibition against voting by interested directors (S-216);Declaring a director to be lacking fiduciary behavior (S-217)Disclosure to members <strong>of</strong> a director’s interest in contractsappointing CEO and the corporate secretary (S-218);Registration <strong>of</strong> contracts, arrangements, appointments inwhich directors are interested (S219);Registration <strong>of</strong> directors’ shareholdings (S220);Disclosure by directors <strong>of</strong> their shareholdings (S-221);Submission <strong>of</strong> statements <strong>of</strong> beneficial ownership (S-222);Prohibition against short selling (S223);Provisions related to trading by directors, CEO, <strong>of</strong>ficers, andprincipal shareholders (S-224);Provisions related to the employees’ provident fund (S-227);Maintenance <strong>of</strong> proper books <strong>of</strong> account by all companies(S-230);2The purpose <strong>of</strong> the <strong>Co</strong>mpanies Ordinance 1984 is to ensure the viability andgrowth <strong>of</strong> corporate enterprises, the protection <strong>of</strong> investors and creditors,the promotion <strong>of</strong> investment, and the development <strong>of</strong> the economy and mattersarising out <strong>of</strong> or in connection with enterprises that render immediateaction necessary. This law confers the power <strong>of</strong> en<strong>for</strong>cement on the Securitiesand Exchange <strong>Co</strong>mmission <strong>of</strong> Pakistan (SECP), <strong>for</strong>merly known as the <strong>Co</strong>rporateLaw Authority (CLA). Source: Asian Development Bank. 2000. FinancialManagement and Governance Issues in Pakistan: Accounting and Auditing inPakistan, p. 18.ADB/OECD Anti-<strong>Co</strong>rruption Initiative <strong>for</strong> Asia and the Pacific

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