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Pakistan has ordinary regulatory framework; forming of audit oversight board crucial

Interview with Mohammad Iqbal Ghori – FCMA, President ICMA-Pakistan

Profile

Mohammad Iqbal Ghori has over twenty five years of diversified professional experience, including 15 years in the public sector regulatory bodies. He began his career quite early in 1990 and after 12 years in the private sector, he started his dynamic career in the public sector by joining the Faisalabad Electric Supply Company Ltd (FESCO) in 2002 as Manager Finance. In 2007, he took up the position of Director Performance Monitoring and Corporate Finance at Pakistan Electric Power Company (PEPCO) where he was later promoted to the rank of Director General. His last employment in the regulatory body was at FESCO where he transformed a loss-making company into a profitable organization. This is now a role model for other energy regulators. He remained part of the top management team of government and participated in strategic decision making relating to the power sector regulation. He also worked closely with the World Bank, ADB, USAID as well as the Ministry of Water & Power, WAPDA, PEPCO, NEPRA and other stakeholders for devising plan to make power sector public sector enterprises financially sustainable. Currently, in addition to his honorary responsibility as President of ICMA Pakistan, he is associated with M/s. Sadaqat Limited — a leading textile exporting house — as Director Strategic Planning and Chief Operating Officer (COO) of Sadaqat Power Limited. He also holds the portfolio of Chairman, Committee on Government and Public Sector Enterprises Accounting of South Asian Federation of Accountants (SAFA). At ICMA Pakistan, he is chairing various committees including Education, Research & Publications, Corporate Governance Advisory Board and Cost Accounting Standards Board.

PAGE: YOUR VIEWS ABOUT THE REGULATORY FRAMEWORK AND ROLE OF REGULATORS IN PAKISTAN?
IQBAL GHORI: Not much impressive, rather quite dismal. The regulators’ role is marked with poor governance; inefficiency; lack of motivation to perform and non-proactiveness in identifying and ensuring timely solutions. These regulatory bodies have demonstrated lack of commitment to address complex issues related to their sectors. They are operating in comfort zones, remaining altogether oblivious of negative repercussions of their negligence on the economy.
It is my candid opinion that some wonderful projects in different sectors had been initiated in the past for the betterment of country; however, unfortunately, the regulators not only failed to comprehend these policies but also kept them isolated from national priorities. The dismal performance of regulators has not only put the country at stake in terms of governance, industry growth and economic stability but also casted a bad image at global level. The ill planning and mismanagement, especially in energy sector, have resulted in high cost of doing business.
Our exports are declining persistently and investment inflows are also witnessing a downward trend. I am of firm opinion that the regulators need to change their mindsets and improve their performance. The government should also take some concrete measures to tackle bad governance in regulatory bodies through strong vigilance and improving competencies of relevant human resource. There is a need for a fool-proof management system to evaluate performance of regulators.

PAGE: WHAT IS YOUR OPINION ABOUT THE QUALITY OF AUDIT IN THE COUNTRY?
IQBAL GHORI: The quality of audit practice in Pakistan needs complete restructuring. There is need for bringing radical changes in existing legal financial audit and reporting framework. The pathetic performance of both auditors and regulators has put the interests of all stakeholders at stake.
The existing monitoring system lacks stringent mechanism to check malpractice by audit firms to compromise on audit quality. Due to lack of transparency and compromising attitude of regulators, the investors, audit firms and accounting bodies are being denied a level playing field.
Recently, the default by statutory auditors of brokerage houses is an ample proof of deteriorating quality of audit. I think there is need for promoting the audit quality to enhance public confidence in audit process and financial reporting. Quite unfortunately, the audit of financial statements by statutory auditors has become an annual ritual and over the years the term ‘audit report’ has lost its credibility as it merely represents an ‘Accounting Compliance Report’.
The auditors focus mostly on compliance of international standards on accounting, reporting and audit, which has limited application in Pakistan. There is no reporting by auditors on the mismanagement, frauds or leakages of funds.

 

PAGE: WHAT IS THE SOLUTION TO IMPROVING AUDIT QUALITY AND OVERSIGHT?
IQBAL GHORI: The only solution to improving audit quality is to establish an independent ‘Audit Oversight Board’ or a ‘Financial Reporting Council (FRC) in line with global trend. This has now become crucial for upholding the quality and standard of financial reporting in Pakistan and safeguarding the interests of all the stakeholders, including the business, trade, industry, professionals and the public at large.
In many countries such independent oversight bodies are working effectively, such as the Financial Reporting Council (FRC) in UK; Public Company Accounting Oversight Board (PCAOB) in USA; Financial Reporting Council in Nigeria; Financial Reporting Council in Mauritius; Financial Reporting Council in Australia; Financial Services Agency in Japan; Abu Dhabi Accountability Authority (ADAA); Botswana Accounting Oversight Authority; and Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB). The working of these independent oversight boards and reporting council has eventually led to strengthening the financial sectors and increase in investment inflows in these countries.
In South Asia, Sri Lanka is pioneer in establishing an independent financial reporting body way back in 1995. In Bangladesh, a ‘Financial Reporting Act, 2015’ was passed by its Parliament on 6th September 2016.
In India, the government is all set to establish a new regulatory body by the name and title of ‘National Financial Regulatory Authority (NFRA)’ which would oversee quality of service of professionals and monitoring and enforcing compliance with accounting standards. It is high time that the Pakistan government should also think seriously to follow the international best practices in auditing profession. This would have far reaching impact on our economy as it would stimulate private sector growth; promote foreign investments inflow and strengthen the country’s financial architecture.

PAGE: HOW MANAGEMENT ACCOUNTANTS CAN HELP INDUSTRY IN PRESENT ECONOMIC SCENARIO?
IQBAL GHORI: The business environment in Pakistan is now changing fast. The exemptions and subsidies are now being gradually withdrawn by the government. The protected regime is also being discouraged, except for only few sectors.
The business costs, both external and internal, are escalating. The energy costs have become a major bottleneck for the industry. The cost of compliance and cost of doing business are getting ‘out of control’ especially for small and medium sized enterprises. Our exports are on a persistent decline due to low cost of production and many industries, especially textile units, are closing down.
In this dismal scenario, the management accountants are the rights professionals who can come to the rescue of trade and industry to help them in overcoming their internal weaknesses and bringing efficiency in their operations and organizations. With their technical expertise in cost management, they can help the businesses in increasing cost efficiency of their products; improving overall processes and production techniques and ensuring better utilization of organizational resources.

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