FREQUENTLY ASKED QUESTIONS ON THE CODE OF CORPORATE GOVERNANCE (REVISED)

Chairman's Message
The Commission has been actively involved in new initiatives for improving
transparency and disclosure in financial reporting of companies and for improving
their governance to protect the interests of investors. The Commission played a key
role in the introduction of the Code of Corporate Governance (the Code), which is the
first ever institutional effort of its kind in Pakistan. The Code is based on internationally
recognized principles and emphasizes openness, transparency and accountability in
the affairs of listed companies.
The Code was issued by the Commission after an extensive consultative process and
is the result of the joint efforts of the Commission and the Institute of Chartered
Accountants of Pakistan (ICAP). The initiative to develop a framework of good
governance, which addresses the objective circumstances in Pakistan, was taken in
December 1998 at the Fifth All Pakistan Chartered Accountants' Conference. The draft
Code was developed by a Committee representing ICAP, Institute of Cost and
Management Accountants of Pakistan (ICMAP), stock exchanges and the
Commission. Seminars were held in Karachi, Lahore and Islamabad to elicit opinion on
the provisions of the Code. In addition, the draft Code was placed on the websites of
ICAP and the Commission. There has also been extensive media debate on the
subject. Based on the recommendations received from various quarters, the Code was
finalized and issued in March 2002. It was subsequently incorporated in the listing
regulations of the three stock exchanges and is now applicable to all public listed
companies.
The Code primarily aims to establish a system whereby a company is directed and
controlled by its directors in compliance with the best practices so as to safeguard
the interests of diversified stakeholders. It proposes to restructure the composition of
the board of directors in order to introduce broad-based representation by minority
shareholders and by executive and non-executive directors. The Code emphasizes
openness and transparency in corporate affairs and the decision-making process and
requires directors to discharge their fiduciary responsibilities in the larger interest of
all stakeholders in a transparent, informed, diligent, and timely manner.
The Commission has identified a number of measures to facilitate effective
implementation of the Code. The queries of companies regarding the various
provisions of the Code are being addressed on a day-to-day basis. In addition, the
Commission will arrange workshops for directors/management of listed companies,
organize seminars and conferences for various stakeholders, issue publications on
corporate governance as well as carry out a feasibility for setting up an institute of
corporate governance in Pakistan. In line with its stakeholder awareness programme,
the Commission is pleased to present the FAQs - frequently asked questions - on the
Code of Corporate Governance, which we hope will further facilitate the smooth
implementation of the Code.
Khalid A. Mirza
1. What is the effective date for compliance with the Code of Corporate
Governance?
The manner and time of enforcement of each clause of the Code has been
specified in the appendix to the Code in the listing regulations.
While the requirement for rotation of external auditors of listed companies after every
five years was originally applicable from the forthcoming Annual General Meetings of
companies, it has now been phased in by the SEC. As a result, no regulatory action
will be taken by stock exchanges until December 31, 2003 against listed companies
that fail to rotate their auditors. However, after December 31, 2003, non-compliance
with the Code in this regard would render companies liable to action under the listing
regulations.
2. Is the Code applicable to modarabas and mutual funds?
The Code, being part of the listing regulations of the stock exchanges, is applicable to
all entities listed on the exchanges. The listed entities include not only companies but
also funds, such as modarabas and mutual funds. The requirements of the Code are,
therefore, applicable to modarabas and mutual funds. Furthermore, the requirements
of the Code relevant to the Board of Directors become applicable to management
companies of such funds, even if these companies are themselves not listed on the
stock exchanges.
3. Does the Code conflict with the Companies Ordinance, 1984?
The SEC considers the Code to be an extension of the requirements of the Companies
Ordinance, 1984 rather than in conflict with it. A number of amendments have recently
been made in the Companies Ordinance, 1984 for greater harmonization between the
provisions of the Code and the Companies Ordinance. Furthermore, the SEC draws
support from the decision of the Karachi High Court in the matter of Messrs Data
Textiles Limited vs. Karachi Stock Exchange and another, 1999MLD 108.The
Honourable High Court held, inter alia, that provisions contained in (Section 249 of) the
Companies Ordinance, 1984 do not override and cannot be interpreted to be in
derogation with the Listing Regulations framed under the Securities and Exchange
Ordinance, 1969, as both the enactments cover separate and distinct spheres.
4. What are the penalties for non-compliance with the Code?
Since the Code has been incorporated in the listing regulations of the stock
exchanges, a listed company may be suspended or delisted in case of non-
compliance with the various requirements of the Code.
5. What are the implications in case of non-compliance with clause (i) of the
Code?
The clause (i) of the Code is voluntary at the moment. This means that listed
companies are 'encouraged' to appoint minority shareholders and independent non-
executive directors on their Boards of Directors but no regulatory/ punitive action
would ensue in case they fail to do so.
6. What are the implications if an investor company fails to nominate an
independent director for appointment on the Board of its investee
company?
Clause (i) (b) of the Code is not mandatory. Therefore, no punitive action would
ensue, for the time being, in case an institutional investor fails to nominate a director
on the Board of Directors of its investee company.
What is the minimum amount of investment that would qualify a company
to nominate a director for appointment on the Board of its investee
company?
Which companies are referred to by the term " Non-Banking Financial
Institutions" in the Code?

No minimum amount of investment has been prescribed in the Code.
For the purpose of the Code, Non-Banking Financial Institutions include DFIs,
modarabas, leasing companies, housing finance companies, investment banks,
discount houses, venture capital companies, insurance companies and mutual
funds.
9. What is the difference between an Executive and a Non-executive director?
Executive directors are the working, whole-time directors of a company. Non-
executive directors, on the other hand, are largely independent persons who are
expected to lend an outside viewpoint to the Board of Directors of a company and do
not undertake to devote their whole working time to the company. The guiding factor
in distinguishing between executive and non-executive directors of a company is the
extent of their involvement in managing the affairs of the company.
An executive director cannot be categorically defined as a "paid director" and a non-
executive director as one who is "not a paid director". While the fact that a company
may not pay remuneration to its non-executive directors may facilitate their
classification as such, this rule cannot be applied uniformly to all companies since
payment of any remuneration to its directors is at the discretion of each company.
10. Can a broker be appointed as a director of a listed company?
The Code restricts election/ nomination of brokers on Boards of directors of listed
companies. However, the said clause is voluntary in nature. It is, therefore, at the
discretion of listed companies to comply with the relevant clause of the Code.
The SEC issued a directive on July 18, 2002 to brokers, brokerage firms and
incorporated brokerage houses registered under the Broker and Agents Registration
Rules, 2001. The directive is effective for elections of directors held after August 31,
2002. Under this directive, the following persons, registered with the SEC, have been
declared ineligible to become a director or nominee director of a listed company:
Broker;
Brokerage firm;
Director of an incorporated brokerage house;
Chief Executive Officer, Chief Financial Officer, Head of Internal Audit, research
analyst, trader, agent or nominee of a brokerage firm or an incorporated
brokerage house; and
Anyone holding controlling interest in an incorporated brokerage house.

The restriction has been relaxed in case of a listed company in which any of the
above stated have a minimum shareholding of 10% or more, provided that a broker/
brokerage firm or an incorporated brokerage house whose directors or nominee
directors are so represented on the Board of Directors of a listed company shall not
trade in the securities of such company.
11. What should be the format of declaration to be given by directors?
The SEC has recently introduced a standard format of declaration to be filed by
directors of listed companies. The format is laid down in Annexure A. The standard
format should be followed while filing declaration, along with consent to act as director,
on or after November 15, 2002.

12. Who would sign the 'Statement of Ethics and Business Practices'
developed by the Board of Directors of a listed company?
The 'Statement of Ethics and Business Practices' should be signed by all directors
and employees of listed companies. Employees, here, include managerial (top,
middle and lower management), clerical and secretarial staff. The requirement for
signing the Statement of Ethics and Business Practices is not applicable to such
employees of a listed company as are involved in support services, like peons,
drivers, etc.
13. Does the Board of Directors of a listed company need to specify by a
resolution the limits of materiality for the policies to be presented to the
Board?
The level of materiality should be determined by a resolution in the Board meeting.
14. Do the matters required to be decided by the Board through a resolution
under the Code have to be decided by the Board in a Board meeting as under
Section 196 (2) of the Companies Ordinance, 1984?
Only such matters as are considered to be material/ significant to a listed company
should be decided by its Board of Directors in a meeting in a manner similar to
Section 196 of the Companies Ordinance, 1984.
15. Can a committee of the Board of Directors decide the terms of employment
of the CEO and executive directors of a listed company?
A committee of the Board of Directors can only 'recommend' the terms and
conditions of employment of the CEO and executive directors to the Board. The
appointment, remuneration and terms of employment must, however, be approved
by the Board of Directors in a meeting.
16. What information should be circulated among directors of a listed company
along with the notice of a Board Meeting?
The agenda of the Board meeting and complete details of agenda items, including
working papers, should be circulated among the directors of a listed company along
with the notice of the Board meeting. These documents should be circulated at least
seven days before the meeting of the Board of Directors.
17. Do the qualifications prescribed for CFO and Company Secretary apply to
employees who are already in service of a listed company?
The qualification criteria for CFO and Company Secretary of a listed company are
applicable to new appointments only. The relevant clauses do not apply to
appointments made prior to the issuance of the Code.
18. Would the terms of employment of existing employees of a listed company,
working in the positions of CFO, Company Secretary and Head of Internal Audit,
need to be ratified in the manner laid down in clause (xv) of the Code?
The relevant clause of the Code is applicable to new appointments made by a listed
company on or after July 1, 2002. The terms and conditions of existing employees
need not be ratified in terms of the Code.
19. Can the same person be appointed as CFO and Company Secretary
of a listed company?
The terms of reference of the two positions are distinct. It is, therefore, preferred that
separate persons handle the functions of CFO and Company Secretary within a listed
company. However, due to resource constraints, small listed companies may decide to
appoint one person as CFO as well as Company Secretary, provided such person
possesses requisite qualifications for both positions. Companies, by virtue of their size,
would not be entitled to this relaxation. If the particular circumstances of a company
justify this relaxation, it may assign both functions to one person.
20. Can the positions of Company Secretary and Internal Auditor be given to
one person within a listed company?
No. The two positions carry minimal synergy and, therefore, should be performed
by separate persons.
21. Can a full time employee (including CFO and Company Secretary) of a listed
company hold a similar position in a group company?
The Code does not restrict any full time employee in a listed company from working
in a similar position in a group company. However, appropriate steps should be taken
by the Board of Directors of the companies concerned to ensure that additional
workload would not affect the quality of work performed by such employee and no
conflict of interest would arise as a result of holding similar positions in two group
companies. Separate persons must be appointed if the volume of work is extensive
or a conflict of interest exists.
22. Does the directors' report, containing the information specified in clause
(xix) of the Code, have to be published along with quarterly accounts?
The clause (xix) of the Code deals with directors' report to be attached to the annual
accounts of a listed company. Quarterly accounts should be circulated along with
directors' review on the affairs of the company which need not include the information
required by clause (xix) of the Code.
23. Should the disclosure in the directors' report regarding the number of Board
meetings held during a year include the number of resolutions passed by the
Board by circulation?
The number of resolutions passed by the Board of Directors of a listed company
through circulation should not be considered in determining the number of Board
meetings held during a year for the purpose of the Code.
24. Does the Code require quarterly accounts to be filed by listed companies
for each quarter?
The listed companies are required to comply with the earlier circulars of the SEC in
determining the period for and the manner in which quarterly accounts should be
published. The only requirement imposed by the Code is that these quarterly
accounts should be published and circulated along with directors' review on the
affairs of the company for the relevant quarter.
25. Who can perform limited scope review of half-yearly accounts of listed
companies?
Only statutory auditors appointed to conduct the annual audit of a listed company can
carry out a limited scope review of the company's half-yearly accounts.
26. Is there a standard format for Secretarial Compliance Certificate?
The SEC has recently introduced a standard format for Secretarial Compliance
Certificate to be filed by Company Secretaries. The format is laid down in Annexure
B and should be followed in respect of all accounting periods ending on or after
December 31, 2002.
27. What is meant by closed period?
The closed period, referred to in the Code, restricts the directors, CEO and executives
of every listed company from dealing in its shares, whether directly or indirectly. The
closed period should start from the day when any document/statement, which forms
the basis of price sensitive information, is sent to the Board of Directors and terminate
after the information is made public. It is expected that such a restriction would help
minimize the risk of insider trading by key management/directors of the company.
28. Does regulation 14(1) of the Listing Regulations of the Karachi Stock
Exchange apply to closed period?
The clause (xxvi) of the Code does not require closure of share transfer books of listed
companies for all shareholders in terms of regulation 14 (1) of the Listing Regulations.
While clause (xxvi) seeks to reduce insider trading, regulation 14 (1) provides that
listed companies should give sufficient notice of closure of share transfer books to the
stock exchanges so that the same can be notified to shareholders in advance.
29. Should the closed period be intimated to directors and stock exchanges?
Every listed company should advise its directors about the closed period at the time of
circulating agenda and working papers for Board meetings. Furthermore, the closed
period should be intimated to the stock exchanges to enable them to effectively
regulate the enforcement of the Code.
30. Who can be members of an Audit Committee?
The Audit Committee should be constituted from amongst the directors of a listed
company. The Code requires that the majority of members of the Audit Committee
should be from among the non-executive directors of the company. The remaining
members should be appointed from amongst the executive directors. The employees
of the company (including CFO and Head of Internal Audit) as well as its CEO should
not be represented on the Audit Committee.
31. If the existing Board of Directors of a listed company does not have
sufficient number of non-executive directors, how can the Audit Committee be
constituted in compliance with the Code?
Listed companies which do not have sufficient numbers of non-executive directors on
their existing Boards may encounter practical difficulties in appointing majority of
members of Audit Committees from among non-executive directors, in accordance
with the Code. In this regard, listed companies may request the SEC to relax the
relevant requirement of the Code. The SEC may, after considering the specific
circumstances of each company, relax the same, subject to such conditions as it may
deem necessary. It is expected, however, that new Boards of Directors would be
constituted at the time of next election so as to seek compliance with all the provisions
of the Code.
32. The Code requires that an Audit Committee should be constituted within a
listed company by July 1, 2002. Should it review accounts for the period ended
June 30, 2002?
The audit committees are encouraged but not mandatorily required to review
quarterly/annual accounts for the period ended June 30, 2002. However, they should
be fully involved in review of all accounts for periods ending after July 1, 2002.
33. Who can be appointed as the secretary of the Audit Committee?
The secretary of the Audit Committee may be appointed from among the employees
of the company. However, adequate assurance should be obtained that there would
be no conflicts of interest for the person so appointed. On this basis, it is preferred
that the Company Secretary be appointed as the secretary of the Audit Committee. In
case the positions of Company Secretary and CFO are held by the same person
within a company, the secretary of the Audit Committee should be appointed from
among the employees of the company who are not involved in the preparation and
maintenance of accounts of the company and the audit thereof.
34. Can a director of a listed company be appointed as the Head of Internal
Audit of the company?
The internal audit function of a listed company must be independent from the
management/directors of a listed company. Therefore, a director cannot be
appointed, in any capacity, in the internal audit function.
35. Can the internal audit function be outsourced to a professional firm?
The Code does not restrict outsourcing of internal audit function by a listed company.
However, it is essential that suitably qualified and experienced persons, who are
conversant with the company's policies and procedures, are engaged in internal audit.
In addition, these persons must be involved in the internal audit function on a full time
basis so as to achieve the objectives of the Code. While outsourcing the function, the
company must not, however, appoint its statutory auditors as internal auditors.
36. Do the provisions of Section 205 of the Companies Ordinance, 1984 apply
to internal auditor and members of Audit Committee?
The provisions of Section 205 of the Companies Ordinance, 1984 are applicable to
directors and officers of every company. An internal auditor falls within the definition of
"officer" provided in Section 2 (24) of the Ordinance. Hence, the particulars of internal
auditor should be maintained in the register of directors and officers and also filed with
the Registrar in Form 29 under Section
205. In case of members of audit committee, their particulars should be maintained
and filed in their capacity as directors of the company while duplication of particulars
is not desirable.
37. With regard to rotation of auditors, would the five-year period commence
from the issuance of the Code?
The period of engagement of an auditor before the issuance of the Code would be
considered in complying with the relevant clause of the Code. Thus, an auditor who
has been engaged by a listed company since the last five years or more, as on
December 31, 2003, must be changed not later than the AGM immediately following
December 31, 2003.

38. Is there a standard format for statement of compliance with best practices
that has to be published in annual reports of listed companies?
The SEC has recently introduced a standard format for compliance statement to be
published in annual reports of listed companies. The format is laid down in Annexure
C and should be followed in respect of accounting periods ending on or after
December 31, 2002.
39. Does a statement of compliance have to be issued with annual accounts for
the year ended June 30, 2002 since some of the provisions of the Code are
applicable from July 1, 2002?
The statement of compliance should be published in annual reports of listed
companies for the year ended June 30, 2002. This statement should set out the extent
of compliance by a company with the provisions of the Code that became effective
before June 30, 2002.


40. a. Does the Code apply to private/ unlisted companies in addition to the
listed companies?

b. Whether Clause (xiiia) of the Code is applicable to private companies and
unlisted public companies?

The Code, forming part of the Listing Regulations of the stock exchanges, is applicable
only on listed companies, not on private/ unlisted public companies, and the private/
unlisted companies are thus not required to furnish statement of compliance with the
Code, unless they have opted to adopt the Code voluntarily. However, all companies--
private, listed or unlisted, must ensure compliance with all such provisions (provisions
on Related Party transactions etc.) applicable on them under the relevant international
accounting standards.


41. Can both the offices of Company Secretary and Legal Advisor be held by one
person, since both of them are required to be lawyers under the Code and the
Companies (Appointment of Legal Advisors) Act, 1974, respectively?

Although there is no restriction in the Companies Ordinance, 1984 on one individual
holding a dual role, however, the position of legal advisor in a company is a key
appointment and is of executive nature, duties of which should not be expected to be
fulfilled by a person also engaged in other responsibilities.

Also, the SECP vide its circular No. 15 dated July 8, 2003, reinforces that companies
should engage full-time employees to perform functions of a whole time secretary.


42. Can a foreign national be appointed as the Head of Internal Audit of a listed
company in Pakistan?

There is no particular provision in the Companies Ordinance, 1984 or the Code,
restricting an individual of foreign nationality to assume the position of an officer/ head
of internal audit of a company listed in Pakistan.


43. a. Does the Clause (xlii) of the Code pertain only to Head of Internal Audit or
to the entire staff members of the Internal Audit Department of a listed
company?
b. Whether articles student of audit firms who are involved in audits of listed
companies during their articles, fall in the definition of employee in terms of
Clause (xlii) of the Code?

a. Clause (xlii) of the Code applies to everyone working in the capacity of an Internal
Auditor because the Code clearly uses the term Head of Internal Audit where it
requires to refer to the Head only and not the entire audit department, while in the said
clause, it only uses the term internal auditor.
b. Articles students of audit firms who are involved in audits of listed companies during
their articles are trainee students as per their contracts of training with the Institute of
Chartered Accountants of Pakistan, and therefore, do not fall in the definition of
employee in terms of Clause (xlii).


44. Is there no restriction on the audit firms who may resign at any time from
the post of statutory auditors from taking up the internal audit assignment of a
listed company?

A statutory auditor is an external auditor, and Clause (xlii) of the Code restricts an
external auditor from taking the internal audit assignment of a listed company.


45. Can the Head of Internal Audit be appointed as Secretary of Audit
Committee of a listed company?

The Secretary of the Audit Committee should be appointed from amongst the
employees of the company who are not involved in the preparation and maintenance
of accounts of the company and the audit thereof.

Moreover, the Clause (xxxii) of the Code states that:

The CFO, the head of internal audit and a representative of the external auditors shall
attend meetings of the Audit Committee at which issues relating to accounts and audit
are discussed. Provided that at least once a year, the Audit Committee shall meet the
external auditors without the CFO and the head of internal audit being present.

Provided further that at least once a year, the Audit Committee shall meet the head of
internal audit and other members of the internal audit function without the CFO and the
external auditors being present.

In view of the same, it is clear that the head of internal audit of a company cannot be
appointed as the Secretary of the Audit Committee since not only is he involved in the
internal audit of the company, but it is also compulsory for him to not be present in one
meeting of the Audit Committee with the CFO and external auditors that is to be held
once in a year. The Secretary of the Audit Committee, on the other hand would be
required to be present at every meeting of the Audit Committee and perform his duties
as prescribed in the following Clause of the Code:

xxxiv. The Audit Committee of a listed company shall appoint a secretary of the
Committee. The secretary shall circulate minutes of meetings of the Audit Committee
to all members, directors and the CFO within a fortnight.


46. a. Can an individual who has graduated from a foreign university in an
equivalent degree be considered as a graduate or equivalent for appointment as
a CFO?

b. If such person has his experience in handling accounts and finance in a listed
company outside Pakistan, would it be regarded as his experience for the
purposes of his qualification to become a CFO , as laid down in the Code?

c. If a person has no curricular as well as practical experience in Pakistan in
handling finance and accounts, would such a person be considered an
appropriate choice for appointment as the CFO of a listed company in Pakistan?

The educational qualification requirement for the CFO of a listed company in the Code
is either graduate from a recognized university or equivalent. The equivalence of
educational qualification is granted by Higher Education Commission (HEC) under
section 10 (1) (o) of the Higher Education Commission Ordinance 2002 and the
applicant may therefore be asked to provide an equivalence certificate from the HEC.
Educational qualification, if verified by the HEC, is sufficient requirement for the
purposes of the Code.

With regards to the professional experience, the requirement is at least five years in
handling financial or corporate affairs of a listed public company or a bank or a
financial institution. If the applicant has served at least five years in a listed company or
a bank or a financial institution and has handled financial or corporate affairs, inside or
outside Pakistan, he shall be deemed as eligible for the purpose.

Foreign education and qualification does not bar any person from pursuing his career
as CFO in Pakistan. The requirement of sub clause (b) of the clause (xvi) of the Code
should be read as a whole and, therefore, a person cannot be appointed as a CFO
unless he has both the required qualification and the experience.


47. In case of a holding company and a subsidiary (not wholly owned), both
being listed companies, can the holding company for the purpose of handling
operational and financial activities, provide professional services to the
subsidiary through a service contract?

The holding company may on its own provide professional services to its subsidiary.
However, due care should be exercised to comply with the directives of the SECP in
appointing external auditors to provide other professional services.


48. Whether requirement of clause (viii)(f) apply to all listed Modarabas/ NBFIs or
to only those Modarabas/ NBFIs whose main business is investment in listed
securities?

The requirement of clause (viii)(f) of the Code applies only to those Modarabas/ NBFIs
whose main business is investment in listed securities.


49. Whether the restrictions laid down in the clause (xl) of the Code are also
applicable to companies applying for listing at the Exchange through IPOs?

According to Section 1(2) of Listing Regulations, all Listing Regulations will be
applicable on all companies, whether they are applying for listing or are already listed.
Hence, the said restrictions also apply to companies applying for listing at the
Exchange through IPOs.


50. If the CEO and CFO of a company are out of country/ on leave, who will
endorse the financial statements in their place?

In view of Sub-Section (1) and (2) of Section 241 of the Companies Ordinance, 1984,
depending upon company policy, if there is an alternate executive officiating in the
capacity of the CEO or the CFO, then he would be competent to present the financial
statements before the Board of Directors of the company.


51. Whether the prior audit accounts or after audit accounts are required to be
initialed by the External Auditors before presenting to the Audit Committee?

In terms of the requirements of the Code, the Audit Committee or the Board of
Directors can only approve the duly reviewed or audited accounts in case of second
quarter and annual accounts respectively. The said requirement was put in place to
ensure that only accounts duly reviewed or audited, as the case may be, are presented
for approval o the Audit Committee and the Board of Directors before circulation.


52. a. Are consolidated accounts for the second quarter required to be reviewed
by the statutory auditors?

b. Is the requirement for the external auditors to initial the financial statements
before these are considered / approved by the Audit Committee and the Board of
Directors, inconsistent with the provisions of the Section 233 of the Companies
Ordinance , 1984 which states that responsibility for preparation of financial
statements lies with the directors of the company, and that the auditors express
their opinion after these have been prepared and approved by the directors?

The requirement for the auditors to initial the financial statements has been introduced
to ensure that only the accounts duly reviewed or audited are presented for the
approval of the Audit Committee and the Board.

The CEO and CFO are mandated to present to the Audit Committee and the Board,
annual accounts (both separate and consolidated) and second-quarter (only separate/
stand-alone) reviewed and initialed by external auditor, for the purposes of
identification, and as such, the responsibility of preparation of financial statements
rests with the management in accordance with provisions of the Companies
Ordinance, 1984.


53. Should listed companies be updating their websites accordingly to
disseminate financial information?

SECP vide its directives, from time to time, has directed the listed companies to
circulate their quarterly accounts in addition to half-yearly and annual accounts (as
required in the Companies Ordinance, 1984), and in case of difficulties in circulation of
the same to all shareholders, at least ensure publication of the same in two daily
leading newspapers (one English, one Urdu).

Also the Corporate and Financial Reporting Framework of the Code provides for
directors of listed companies to include summarized statements of key operating and
financial data of last six years in the Directors Report, and also details frequency of
financial reporting by companies.


54. Whether signing of Memorandum of Understanding by a listed company with
the banks to borrow huge amount, falls under the term material information for
the purposes of disclosure?

The decision to disclose such a Memorandum of Understanding should be left to the
Board of Directors of the Company, since an MoU does not create enforceable
obligations and undertakings therein might remain unfulfilled. So, no blanket ruling may
be laid down in this context, and each case needs to be treated on its own merits.
Also, clause (xxiii) which provides a list of material information, includes a major
change in borrowing, so any such MoUs are covered there.


55. In terms of the Clause (xxiii) of the Code, every listed company shall
immediately disseminate to the SECP and the stock exchange on which its
shares are listed all material information relating to business and other affairs of
the listed company that will affect the market price of its shares, including
information regarding a joint venture, merger or acquisition etc.

a. What does the word immediately used in the abovementioned clause
mean?
b. At what point of time does a company need to disseminate information to
SECP and the relevant Stock Exchange in case of acquisition of shares by
it of another company whether a listed or non-listed company?

a. The requirement of the Code to immediately disseminate any material
information relating to the business and other affairs of a listed company has
been laid down in the interest of the general public and to ensure that any
such information is communicated to all the market participants so as to
provide a level-playing field to them. A listed company is required to
disseminate any material information, likely to affect the price of its shares, to
the Securities and Exchange Commission of Pakistan and the relevant stock
exchanges, as soon as any such decision is taken/ finalized by its Board of
Directors in a meeting of the Board held for the purpose, immediately after
such Board meeting has taken place.
b. In case of any decision relating to acquisition of shares of a listed/ unlisted
company by a company, the Listed Companies (Substantial Acquisition of
Voting Shares and Take-overs) Ordinance, 2002 may be referred to, for
information on the timelines for dissemination of such decisions.


56. How can I resolve my queries pertinent to the Code?
Any queries on the Code should be referred to the Securities Market Division of the
SECP at:

Director (SE)
Securities Market Division
Securities and Exchange Commission of Pakistan
NIC Building, 63-Jinnah Avenue
Blue Area Islamabad, Pakistan
Musarat.jabeen@secp.gov.pk
Fax: (92 51) 9218595


Annexure A
To be attached with the consent to act as directors/ chief executive under section 184 of
the Companies Ordinance, 1984
DECLARATION WITH CONSENT TO ACT AS DIRECTORS
[See clause (ii)]
Name of Company
To
Enforcement and Monitoring Division,
Securities and Exchange Commission of Pakistan
Along with the consent to act as director(s) of
[1]
, I/ we
of ..... do solemnly and sincerely
declare that I/ we are aware of the duties and powers of directors under the Companies
Ordinance, 1984 and
[2]
...., memorandum and articles of association
of
[1]
.. and the listing regulations of
[3]
.. and have
read the relevant provisions contained therein.
Verified that the above is true to the best of my/ our knowledge and belief and that
nothing has been concealed.

Date:
Place:
Signature (s)
(Name (s) in block letters)
NIC number

______________________
[1]
Insert name of the company

[2]
Insert name of any other relevant law or strike out if not applicable

[3]
Insert names of the stock exchanges on which shares of the company are listed
Note:- The declaration need not be
(a) signed before a Magistrate or an officer competent to administer oaths; or
(b) stamped as an affidavit

Annexure B
SECRETARIAL COMPLIANCE CERTIFICATE
[See clause (xxv)]

Name of Company
To
Enforcement and Monitoring Division,
Securities and Exchange Commission of Pakistan
I of . being the Secretary of
[1]

certify, to the best of my knowledge and belief, that I am qualified to be
appointed as the Company Secretary of a listed company and that the secretarial and corporate
requirements of the Companies Ordinance, 1984, memorandum and articles of association of
[1]


.. and the listing regulations of
[2]
.. have been duly
complied with for the year ended .. * and that nothing has been concealed
or withheld in this regard.

Date:
Place:
Signature (s)
(Name (s) in block letters)
NIC number

* State exceptions in case of non-compliance.
______________________
[1]
Insert name of the company

[2]
Insert names of the stock exchanges on which shares of the company are listed
Note:- The declaration need not be
(c) signed before a Magistrate or an officer competent to administer oaths; or
(d) stamped as an affidavit

Annexure C
STATEMENT OF COMPLIANCE WITH THE
CODE OF CORPORATE GOVERNANCE
[See clause (xlv)]

Name of Company
Year Ended.
This statement is being presented to comply with the Code of Corporate Governance contained in
Regulation No. . of listing regulations of for the purpose of
establishing a framework of good governance, whereby a listed company is managed in
compliance with the best practices of corporate governance.
The Company has applied the principles contained in the Code in the following manner:
1. The Company encourages representation of independent non-executive directors and directors
representing minority interests on its Board of Directors. At present the Board includes at least
. independent non-executive directors and . directors representing minority
shareholders.
2. The directors have confirmed that none of them is serving as a director in more than ten listed
companies, including this Company.
3. All the resident directors of the Company are registered as taxpayers and none of them has
defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of
a stock exchange, has been declared as a defaulter by that stock exchange.
4. A casual vacancy occurring in the Board on .. was filled up by the directors within
.. days thereof.
5. The Company has prepared a Statement of Ethics and Business Practices, which has been
signed by all the directors and employees of the Company.
6. The Board has developed a vision/mission statement, overall corporate strategy and significant
policies of the Company. A complete record of particulars of significant policies along with the
dates on which they were approved or amended has been maintained.
7. All the powers of the Board have been duly exercised and decisions on material transactions,
including appointment and determination of remuneration and terms and conditions of
employment of the CEO and other executive directors, have been taken by the Board.
8. The meetings of the Board were presided over by the Chairman and, in his absence, by a
director elected by the Board for this purpose and the Board met at least once in every quarter.
Written notices of the Board meetings, along with agenda and working papers, were circulated at
least seven days before the meetings. The minutes of the meetings were appropriately recorded
and circulated.
9. The Board arranged . orientation courses for its directors during the year to apprise
them of their duties and responsibilities.
10. The Board has approved
[1]
appointment of CFO, Company Secretary and Head of Internal
Audit, including their remuneration and terms and conditions of employment, as determined by
the CEO.
11. The directors report for this year has been prepared in compliance with the requirements of
the Code and fully describes the salient matters required to be disclosed.
12. The financial statements of the Company were duly endorsed by CEO and CFO before
approval of the Board.
13. The directors, CEO and executives do not hold any interest in the shares of the Company
other than that disclosed in the pattern of shareholding.
14. The Company has complied with all the corporate and financial reporting requirements of the
Code.
15. The Board has formed an audit committee. It comprises . members, of whom are
non-executive directors including the chairman of the committee.
16. The meetings of the audit committee were held at least once every quarter prior to approval of
interim and final results of the Company and as required by the Code. The terms of reference of
the committee have been formed and advised to the committee for compliance.
17. The Board has set-up an effective internal audit function/ or has outsourced the internal audit
function to .. who are considered suitably qualified and experienced for the purpose and
are conversant with the policies and procedures of the Company and they (or their
representatives) are involved in the internal audit function on a full time basis.
18. The statutory auditors of the Company have confirmed that they have been given a
satisfactory rating under the quality control review programme of the Institute of Chartered
Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor
children do not hold shares of the Company and that the firm and all its partners are in
compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as
adopted by Institute of Chartered Accountants of Pakistan.
19. The statutory auditors or the persons associated with them have not been appointed to
provide other services except in accordance with the listing regulations and the auditors have
confirmed that they have observed IFAC guidelines in this regard.
20. We confirm that all other material principles contained in the Code have been complied with[1] except for the following, towards which
reasonable progress is being made by the Company to seek compliance by the end of next accounting year.

Signature (s)
(Name (s) in block letters)
Chairman / CEO

Note: Any exception to the above should be adequately noted with reasons.
______________________
[1] in caseof new appointments madeafter the application of theCodeof CorporateGovernance
[1] Deleteif not applicable

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
SECURITIES MARKET DIVISION
*****


Annexure A

1. a. Does the Code apply to private/ unlisted companies in addition to the listed
companies?

b. Whether Clause (xiiia) of the Code is applicable to private companies and unlisted
public companies?

The Code, forming part of the Listing Regulations of the stock exchanges, is applicable
only on listed companies, not on private/ unlisted public companies, and the private/
unlisted companies are thus not required to furnish statement of compliance with the
Code, unless they have opted to adopt the Code voluntarily. However, all companies--
private, listed or unlisted, must ensure compliance with all such provisions (provisions
on Related Party transactions etc.) applicable on them under the relevant international
accounting standards.


2. Can both the offices of Company Secretary and Legal Advisor be held by one person,
since both of them are required to be lawyers under the Code and the Companies
(Appointment of Legal Advisors) Act, 1974, respectively?

Although there is no restriction in the Companies Ordinance, 1984 on one individual
holding a dual role, however, the position of legal advisor in a company is a key
appointment and is of executive nature, duties of which should not be expected to be
fulfilled by a person also engaged in other responsibilities.

Also, the SECP vide its circular No. 15 dated J uly 8, 2003, reinforces that companies
should engage full-time employees to perform functions of a whole time secretary.


3. Can a foreign national be appointed as the Head of Internal Audit of a listed company in
Pakistan?

There is no particular provision in the Companies Ordinance, 1984 or the Code,
restricting an individual of foreign nationality to assume the position of an officer/ head
of internal audit of a company listed in Pakistan.


4. a. Does the Clause (xlii) of the Code pertain only to Head of Internal Audit or to the
entire staff members of the Internal Audit Department of a listed company?
b. Whether articles student of audit firms who are involved in audits of listed
companies during their articles, fall in the definition of employee in terms of Clause (xlii)
of the Code?

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a. Clause (xlii) of the Code applies to everyone working in the capacity of an Internal
Auditor because the Code clearly uses the term Head of Internal Audit where it
requires to refer to the Head only and not the entire audit department, while in the said
clause, it only uses the term internal auditor.
b. Articles students of audit firms who are involved in audits of listed companies during
their articles are trainee students as per their contracts of training with the Institute of
Chartered Accountants of Pakistan, and therefore, do not fall in the definition of
employee in terms of Clause (xlii).


5. Is there no restriction on the audit firms who may resign at any time from the post of
statutory auditors from taking up the internal audit assignment of a listed company?

A statutory auditor is an external auditor, and Clause (xlii) of the Code restricts an
external auditor from taking the internal audit assignment of a listed company.


6. Can the Head of Internal Audit be appointed as Secretary of Audit Committee of a listed
company?

The Secretary of the Audit Committee should be appointed from amongst the employees
of the company who are not involved in the preparation and maintenance of accounts of
the company and the audit thereof.

Moreover, the Clause (xxxii) of the Code states that:

The CFO, the head of internal audit and a representative of the external auditors shall
attend meetings of the Audit Committee at which issues relating to accounts and audit
are discussed. Provided that at least once a year, the Audit Committee shall meet the
external auditors without the CFO and the head of internal audit being present.

Provided further that at least once a year, the Audit Committee shall meet the head of
internal audit and other members of the internal audit function without the CFO and the
external auditors being present.

In view of the same, it is clear that the head of internal audit of a company cannot be
appointed as the Secretary of the Audit Committee since not only is he involved in the
internal audit of the company, but it is also compulsory for him to not be present in one
meeting of the Audit Committee with the CFO and external auditors that is to be held
once in a year. The Secretary of the Audit Committee, on the other hand would be
required to be present at every meeting of the Audit Committee and perform his duties
as prescribed in the following Clause of the Code:

xxxiv. The Audit Committee of a listed company shall appoint a secretary of the
Committee. The secretary shall circulate minutes of meetings of the Audit Committee to
all members, directors and the CFO within a fortnight.


7. a. Can an individual who has graduated from a foreign university in an equivalent
degree be considered as a graduate or equivalent for appointment as a CFO?
3

b. If such person has his experience in handling accounts and finance in a listed
company outside Pakistan, would it be regarded as his experience for the purposes of his
qualification to become a CFO , as laid down in the Code?

c. If a person has no curricular as well as practical experience in Pakistan in handling
finance and accounts, would such a person be considered an appropriate choice for
appointment as the CFO of a listed company in Pakistan?

The educational qualification requirement for the CFO of a listed company in the Code
is either graduate from a recognized university or equivalent. The equivalence of
educational qualification is granted by Higher Education Commission (HEC) under
section 10 (1) (o) of the Higher Education Commission Ordinance 2002 and the
applicant may therefore be asked to provide an equivalence certificate from the HEC.
Educational qualification, if verified by the HEC, is sufficient requirement for the
purposes of the Code.

With regards to the professional experience, the requirement is at least five years in
handling financial or corporate affairs of a listed public company or a bank or a financial
institution. If the applicant has served at least five years in a listed company or a bank or
a financial institution and has handled financial or corporate affairs, inside or outside
Pakistan, he shall be deemed as eligible for the purpose.

Foreign education and qualification does not bar any person from pursuing his career as
CFO in Pakistan. The requirement of sub clause (b) of the clause (xvi) of the Code
should be read as a whole and, therefore, a person cannot be appointed as a CFO unless
he has both the required qualification and the experience.


8. In case of a holding company and a subsidiary (not wholly owned), both being listed
companies, can the holding company for the purpose of handling operational and financial
activities, provide professional services to the subsidiary through a service contract?

The holding company may on its own provide professional services to its subsidiary.
However, due care should be exercised to comply with the directives of the SECP in
appointing external auditors to provide other professional services.


9. Whether requirement of clause (viii)(f) apply to all listed Modarabas/ NBFIs or to only
those Modarabas/ NBFIs whose main business is investment in listed securities?

The requirement of clause (viii)(f) of the Code applies only to those Modarabas/ NBFIs
whose main business is investment in listed securities.


10. Whether the restrictions laid down in the clause (xl) of the Code are also applicable to
companies applying for listing at the Exchange through IPOs?

According to Section 1(2) of Listing Regulations, all Listing Regulations will be
applicable on all companies, whether they are applying for listing or are already listed.
4
Hence, the said restrictions also apply to companies applying for listing at the Exchange
through IPOs.


11. If the CEO and CFO of a company are out of country/ on leave, who will endorse the
financial statements in their place?

In view of Sub-Section (1) and (2) of Section 241 of the Companies Ordinance, 1984,
depending upon company policy, if there is an alternate executive officiating in the
capacity of the CEO or the CFO, then he would be competent to present the financial
statements before the Board of Directors of the company.


12. Whether the prior audit accounts or after audit accounts are required to be initialed by
the External Auditors before presenting to the Audit Committee?

In terms of the requirements of the Code, the Audit Committee or the Board of Directors
can only approve the duly reviewed or audited accounts in case of second quarter and
annual accounts respectively. The said requirement was put in place to ensure that only
accounts duly reviewed or audited, as the case may be, are presented for approval o the
Audit Committee and the Board of Directors before circulation.


13. a. Are consolidated accounts for the second quarter required to be reviewed by the
statutory auditors?

b. Is the requirement for the external auditors to initial the financial statements before
these are considered / approved by the Audit Committee and the Board of Directors,
inconsistent with the provisions of the Section 233 of the Companies Ordinance , 1984
which states that responsibility for preparation of financial statements lies with the
directors of the company, and that the auditors express their opinion after these have been
prepared and approved by the directors?

The requirement for the auditors to initial the financial statements has been introduced
to ensure that only the accounts duly reviewed or audited are presented for the approval
of the Audit Committee and the Board.

The CEO and CFO are mandated to present to the Audit Committee and the Board,
annual accounts (both separate and consolidated) and second-quarter (only separate/
stand-alone) reviewed and initialed by external auditor, for the purposes of
identification, and as such, the responsibility of preparation of financial statements rests
with the management in accordance with provisions of the Companies Ordinance, 1984.


14. Should listed companies be updating their websites accordingly to disseminate financial
information?

SECP vide its directives, from time to time, has directed the listed companies to
circulate their quarterly accounts in addition to half-yearly and annual accounts (as
required in the Companies Ordinance, 1984), and in case of difficulties in circulation of
5
the same to all shareholders, at least ensure publication of the same in two daily leading
newspapers (one English, one Urdu).

Also the Corporate and Financial Reporting Framework of the Code provides for directors
of listed companies to include summarized statements of key operating and financial data
of last six years in the Directors Report, and also details frequency of financial reporting
by companies.


15. Whether signing of Memorandum of Understanding by a listed company with the banks
to borrow huge amount, falls under the term material information for the purposes of
disclosure?

The decision to disclose such a Memorandum of Understanding should be left to the
Board of Directors of the Company, since an MoU does not create enforceable
obligations and undertakings therein might remain unfulfilled. So, no blanket ruling may
be laid down in this context, and each case needs to be treated on its own merits.
Also, clause (xxiii) which provides a list of material information, includes a major
change in borrowing, so any such MoUs are covered there.


16. In terms of the Clause (xxiii) of the Code, every listed company shall immediately
disseminate to the SECP and the stock exchange on which its shares are listed all material
information relating to business and other affairs of the listed company that will affect the
market price of its shares, including information regarding a joint venture, merger or
acquisition etc.

a. What does the word immediately used in the abovementioned clause mean?
b. At what point of time does a company need to disseminate information to SECP and
the relevant Stock Exchange in case of acquisition of shares by it of another
company whether a listed or non-listed company?

a. The requirement of the Code to immediately disseminate any material information
relating to the business and other affairs of a listed company has been laid down in the
interest of the general public and to ensure that any such information is communicated
to all the market participants so as to provide a level-playing field to them. A listed
company is required to disseminate any material information, likely to affect the price of
its shares, to the Securities and Exchange Commission of Pakistan and the relevant stock
exchanges, as soon as any such decision is taken/ finalized by its Board of Directors in a
meeting of the Board held for the purpose, immediately after such Board meeting has
taken place.
b. In case of any decision relating to acquisition of shares of a listed/ unlisted company
by a company, the Listed Companies (Substantial Acquisition of Voting Shares and
Take-overs) Ordinance, 2002 may be referred to, for information on the timelines for
dissemination of such decisions.