Availability of reliable financial information reflecting the organization’s state of affairs is significant to all the relevant stakeholders, most notably to its owners. The importance of the same increases ten-fold in case of companies listed on stock exchanges as the owners are not at the helm of the affairs, instead for this purpose, rely on the agents of the company, aka Board of Directors. In order to protect investors’ interest a regulatory regime has to be in place, which in our case is the Securities and Exchange Commission of Pakistan.
Amongst many measures that SECP takes from time to time in order to keep the capital markets reliable, one has been the introduction of the Code of Corporate Governance back in 2002, which is part of the Stock Exchange listing regulations. Directors, in the companies’ annual reports, give a statement of compliance and the statutory auditors issue a review report on the same.
Apart from many of the other aspects in this Code, one of the most important one that is touched upon is the subject of Internal Control. Internal Controls is a broad category that includes the need for controls over financial reporting as well as many other areas. The discussion here, however, is confined to Internal Control over Financial Reporting.
In this regard as per the Code of Corporate Governance, Directors are required to ensure the following and make a statement on it in the annual financial statements: