The violations including failure to furnish financial statements and hold an annual general meeting attract financial penalties, besides triggering criminal proceedings. PHOTO: FILE
Ernst & Young Ford Rhodes and KPMG Taseer Hadi and Co - the top chartered accountant firms - have not signed financial statements for the first half of 2017 and third quarter (July-September) of 2017. Yet, the PIA management and the board decided to upload these statements on its website.
Due to the auditors’ refusal to sign the accounts, the PIA management has not been able to finalise the audited annual financial statement for 2017. The audited financial statements for 2018 have also not been prepared.
It is rare that a public listed company faces such a situation where the statutory auditors refuse to give an opinion on the financial statements. The auditors usually decline to give an opinion in case of possibility of fraud, element of misreporting and lack of data, according to a chartered accountant.
PIA incurring Rs3b loss every month, says CEO
PIA’s failure to comply with the regulations puts a question mark over the work of the Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Stock Exchange (PSX).
The violations that include failure to furnish financial statements and hold the annual general meeting attract financial penalties, besides triggering criminal proceedings.
Sources in PIA told The Express Tribune that the auditors refused to express their opinion on the financial statements due to the missing record. The external statutory auditors told the management that they would have to give an adverse opinion due to the missing record.
When contacted, KPMG’s senior partner Amir Jamil replied, “PIA is our client and we would not like to comment on this”. EY’s country management partner Asim Siddiqui did not respond to the request for comment.
Sources said the record went missing during conversion of the company’s previous system into Oracle Enterprise Resource Planning (ERP) that kept record of day-to-day business transactions, said the sources.
The last Pakistan Muslim League-Nawaz (PML-N) government had decided to convert PIA from a corporation into a company and the SECP’s Companies Act of 2017 is now applicable to PIA.
The absence of PIA’s audited financial statements also put a question mark over the ongoing exercise of preparing the next five-year strategy to revive the ailing national flag carrier. The Pakistan Tehreek-e-Insaf (PTI) government has removed PIA from the active privatisation list in the hope that it would be able to revive it.
PIA Chief Executive Officer Air Marshal Arshad Malik said on Tuesday that PIA was currently suffering an operational loss of Rs3 billion per month.
SECP’s version
The annual financial statements of PIA for the year ended December 2017 were due to be approved in the annual general meeting of the company by April 2018, under provisions of the Companies Act 2017, said an SECP spokesman.
As the company failed to do so, he said, the commission initiated action under the Companies Act in May 2018, which is currently under way.
The SECP spokesman said in October 2018, PIA approached the commission and sought direction to hold the overdue AGM for 2017 by November 24, 2018 on the grounds that preparation of the financial statements was delayed due to implementation of Oracle ERP.
He said the commission then requested the company to furnish the auditor’s certificate regarding status of the financial statements (the time required for completion) and comply with other relevant requirements for filing the application.
“PIA has not yet reverted back and the aforementioned proceedings are in process,” he added.
What the law say when a company violates it
The SECP Act says that every company shall hold an annual general meeting within 16 months from the date of its incorporation and, thereafter, once in every calendar year within a period of 120 days. In case of failure to hold the AGP, the SECP has the authority to impose up to Rs500,000 penalty.
However, the SECP has the authority to initiate criminal proceedings that could lead to up to five years of imprisonment, in case a company fails to furnish the annual financial statements.
PIA’s version
The statutory auditors were still working and they had not refused to give opinion on the annual financial statement for 2017, claimed Mashud Tajwar, the spokesman of PIA.
But he did not respond to the question that if the auditors did not refuse to give their opinion, then why PIA uploaded unsigned quarterly and half yearly reports of 2017 on its website.
The spokesman said 2017’s annual financial statement had not been approved yet. Tajwar said the ERP system was the need of the hour. He said the PIA management had also informed the SECP and the PSX about the reasons for not approving the annual financial statement.
Published in The Express Tribune, January 17th, 2019.
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