The Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost & Management Accountants of Pakistan (ICMAP) have been jointly organizing the Best Corporate Report Award since the year 2000. The objective is to encourage transparent, timely and accurate information enabling shareholders, investors, lenders, regulators, analysts, employees and other stakeholders for taking informed decision. The award has been instrumental in encouraging entities to follow transparency and in preparing their annual reports according to the international best practices.
This year 100 companies submitted their annual reports for the competition, which is 20% (approx.) of the listed companies. It is encouraging to note that this year five unlisted companies participated in the competition vis TCF, Sadaqat Limited (a Textile Company), Shahid Afridi Foundation, The First MicroFinance Bank Ltd. and Takaful Pakistan Limited.
Another award namely the Best Sustainability Report Award was initiated in 2011 by the Evaluation Committee, which is aimed at promoting responsible reporting by entities covering economic, environmental and social performance of the business. It helps in making local businesses aware of the international best practices and to facilitate these businesses obtaining investments by potential investors.
Quality of disclosures in Pakistan
I am pleased to mention that the disclosures made in annual reports of Pakistan are at par with the disclosures made by the companies in developed countries, and even in some cases are better.
Evaluation Process
Annual reports are adjudged in accordance with the published Criteria through a transparent evaluation process. After issuance of revamped criteria for Best Corporate Report 2018 the Evaluation Committee has issued the criteria for 2019 which is based on International Integrated Reporting Framework
BCR 2019 Criteria is based on:
The International Integrated Reporting Framework
International Standard Auditing ISA 720 "The Auditor's Responsibilities Relating to Other Information": and IFRS Practice Statement Management Commentary by IASB.
Transparency in Non listed Public Interest Companies including Mutual Fund, Public Sector Companies and NPOs
Unfortunately majority of Listed and many non-listed Public Interest Companies including Mutual Fund, Public Sector Companies and NPOs do not meet the basic requirements as given in the BCR criteria in the preparation of their annual report hence they do not participate in the competition. Even in most of the cases annual reports are not available on website.
Further, the large size NPOs/NGOs operating in Pakistan who receive substantial amount in the form of zakat and donation, usually lack transparency and their annual reports are usually not published or placed on their websites.
However, there are exceptions eg TCF which has been participating for last many years by publishing transparent annual reports, and has also got recognition at SAFA level awards competition. I am pleased to see that this year Shahid Afridi Foundation also participated. Our committee encourages other NPOs (which are classified as Large Size Companies as per Third schedule of the Companies Act 2017) to follow the BCR criteria for making transparent annual reports.
Pakistan ROSC 2018 - Policy recommendations relating to Disclosure and Transparency
The Report on the Observance of Standards and Codes (ROSC) is the joint initiative of the World Bank and IMF. ROSCs summarize the extent to which countries observe certain internationally recognized standards and codes. For Corporate Governance, ROSC assess the degree to which a country observes the G20/OECD Principles of Corporate Governance.
Pakistan ROSC 2018 (published in the current year) included some policy recommendations relating to Disclosure and Transparency which include: Disclosure of beneficial (indirect) ownership. (incorporated in revised BCR 2019 Criteria)
A stand-alone disclosure regulation would maintain the focus on disclosure and transparency to clarify and harmonize requirements. Relevant regulations are somewhat scattered across different documents including the PSX Rules.
Interestingly other ROSC Policy recommendations for Disclosure and Transparency are either already in our law or covered in the BCR Criteria. Few examples are:
Profile of board members
Material foreseeable risk factors and risk appetite statement
Board and committee charters, and committee composition and mandates
Policies disclosures for risk management policy, internal controls policy) related party transaction policies remuneration policies
Recommendation to SECP
At the moment it is required that a listed company shall make available its annual and quarterly financial statements for the last 10 years, where applicable, on its website, whereas there is no proper guideline for contents of annual report. Therefore, ROSC 2018 also recommended a stand-alone disclosure regulation.
(Rule 25 of the Companies (General Provisions and Forms) Regulations, 2018. SECP SRO 1225 of 8th October, 2018). Previously SRO 634 of July 10,2014 requires that annual reports of current and previous two years be placed on website).
The Committee recommends SECP to encourage companies viz. Listed Companies ,Public Sector Companies and Non Profit Organizations (NPOs), to follow initially on a voluntary basis BCR Criteria 2019, as it was done in case of NPOs where ICAP Guidelines for NPOs was made to follow as guidelines by SECP and later it was adapted as standard framework for NPOs for reporting in the Third Schedule of the Companies Act 2017.
Recommendations to Pakistan Stock Exchange (PSX)
a) The Committee had made recommendations last year to the CEO of PSX for providing some weightage in their Top 25 Companies Criteria for winners of BCR award.
b) It is noted that PSX Rule book also does not give guideline for contents of annual report. Therefore, we suggest that PSX to encourage listed companies to follow the BCR criteria for developing their annual reports.
I am thankful to BCR committee members, Task force members and Secretariat of both the Institutes for their valuable input, bringing the criteria to International level and organizing this event for the 19th consecutive year. Our sincere thanks are to all participating organizations also.