ROLE OF COST AND MANAGEMENT ACCOUNTANT IN LEASING BUSINESS
By Syed Jamil Ahmed Rizvi,
FCMA Director Research
Nov 20 - 26, 2000
The Securities & Exchange Commission of Pakistan circulated draft of Leasing Companies [Establishment and Regulation] Rules, 2000 recently and invited comments from Institute of Cost and Management Accountants of Pakistan.
The Institute offered a comprehensive proposals for the benefit of leasing business in Pakistan. Technical and professional improvements offered by ICMAP have been incorporated, in spirit in the S.R.O 663 (I)/2000 dated September 25, 2000.
Under the rules, the leasing companies are required to raise their capital to Rs. 200 million, in order to provide a base large enough to operate profitably maintaining economy of scale.
Relaxation has been provided in the rules with regard to debt equity ratio (60:40) and current ratio (1:1) requirements with a view to facilitating the small entrepreneurs who are considered the main beneficiaries of leasing operations.
It would be compulsory for every leasing company to become a member of the Leasing Association of Pakistan and adopt its code of conduct. According to sub-section (ii) of Section 7, a leasing company shall appoint its chief executive and at least one of the directors having senior management level experience in financial sector preferably in leasing sector for at least five years.
Section 7 (iii) of terms and conditions of operations prescribe the qualification of its chief accounting officer who is a chartered accountant or a Cost and Management Accountants or a person having Masters' Degree in Commerce or Business Administration with finance specialization and experience of at least five years of accounting in a responsible position.
Section 7 (vii) of these Rules defines the verification and audit procedure of financial exposures.
While granting any facilities, that total facilities availed by any borrower or lessee from Non-Bank Financial Institutions and Banks does not exceed ten times of the equity of the borrower or lessee and obtain copy of accounts relating to the business of each of its borrower/lessee for analysis and record in the following manner, namely.
(a) Where the exposure exceedsTen million rupees.
Accounts duty audited by:
(i) the practising chartered accountant; or
(ii) the practising Cost and Management Accountant in case of a borrower or lessee other than a public company or a private
company which is a subsidiary of a public company.
(b) Where the exposure exceeds two million rupees but does not exceed ten million rupees.
Accounts duly signed by the borrower or lessee and counter-signed by:-
(i) the Internal Auditor of the leasing company; or
(ii) a chartered accountant; or
(iii) a Cost and Management Accountant in case of a borrower other than a public company or a private company which is a subsidiary of a public company.
(c) Where the exposure exceeds one million rupees but does not exceed two million rupees.
Accounts duly signed by the borrower of lessee.
(d) Where the exposure does not exceeds one million rupees.
Such documentary evidence of the means and Investment of the borrower or lessee as may be determined by the management of leasing company.
Section 8(1) Prescribes limits on exposure according to which Liabilities, excluding contingent liabilities of a leasing company shall not exceed seven times of its equity during first two years of its operations and ten times of the equity in the subsequent years.
Section 8(2) states that Contingent liabilities of a leasing company shall also not exceed seven times of its equity during the first two years of its operations and ten times of the equity in the subsequent years.