2.1       Query on statutory positions

Enquiry:                    

Mr. ZAMS is a qualified Chartered Accountant and holds following positions in a same group:

  • Head of Internal Audit, Risk and Compliance in a Listed Modaraba, (on its payroll, dedicated function);
  • Head of Internal Audit (acting as coordinator to a outsourced auditor’s firm) of an Investment Bank;
  • Head of Internal Audit (acting as coordinator to a outsourced auditor’s firm) and Compliance Officer of a brokerage house; and
  • Head of Internal Audit (acting as coordinator to an outsourced auditor’s firm) of an asset management fund and its three associated funds.

Does COCG allow one person to hold multiple statutory positions?

 

Opinion:

The Committee considered the requirements given in the Code of Corporate Governance, 2012 (the Code) and the requirements given in the Companies Act, 2017.

The Code

The revised ICAP Code of Ethics for Chartered Accountants 2015 (the Code of Ethics) institutes the fundamental principles of professional ethics and provides a conceptual framework for applying those principles. One of the basic elements of the framework is ‘Independence’. It is important to note that independence of mind and in appearance is necessary to enable the chartered accountants to enable them to perform their functions without bias, conflict of interest or undue influence.

Your attention is drawn to the following sections of Part C of the Code of Ethics relating to Chartered Accountants in Business:

300.6    A chartered accountant in business shall not knowingly engage in any business, occupation, or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the fundamental principles.

 310.1  A chartered accountant in business may be faced with a conflict of interest when undertaking a professional activity. A conflict of interest creates a threat to objectivity and may create threats to the other fundamental principles. Such threats may be created when:

  •  The chartered accountant undertakes a professional activity related to a particular matter for two or more parties whose interests with respect to that matter are in conflict; or
  • The interests of the chartered accountant with respect to a particular matter and the interests of a party for whom the chartered accountant undertakes a professional activity related to that matter are in conflict.

 A party may include an employing organization, a vendor, a customer, a lender, a shareholder, or another party.

 A chartered accountant shall not allow a conflict of interest to compromise professional or business judgment.

 310.3    When identifying and evaluating the interests and relationships that might create a conflict of interest and implementing safeguards, when necessary, to eliminate or reduce any threat to compliance with the fundamental principles to an acceptable level, a chartered accountant in business shall exercise professional judgment and be alert to all interests and relationships that a reasonable and informed third party, weighing all the specific facts and circumstances available to the chartered accountant at the time, would be likely to conclude might compromise compliance with the fundamental principles.

 In view of the above, the Committee is of the view that the Head of Internal Audit of one group company of a listed company can hold similar position in any other listed company of the same group, only where independence is not impaired and conflict of interest is not created while performing his/her statutory responsibilities with the other role.

Further, appropriate safeguards should be applied, when necessary, to eliminate the threats to compliance with the fundamental principles created by the conflict of interest or reduce them to an acceptable level.

The Companies Act, 2017

You are advised to ensure compliance, to the extent applicable in your case, with the related definitions and sections of the Companies Act, 2017 which have been reproduced below for reference: (underline is ours)

2(45)    “officer” includes any director, chief executive, chief financial officer, company  secretary or other authorised officer of a company;

 Interest of officers. (1) Save as provided in section 205 in respect of directors, no other officer of a company who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the company shall,  unless he discloses the nature and extent of his interest in the transaction and obtains the prior approval of the board, enter into any such contract or arrangement.

             (2) ………………………

 Related party transactions. (1) A company may enter into any contract or arrangement   with a related party only in accordance with the policy approved by the board, subject to such conditions as may be specified, with respect to-

       a) to e) ……………………………

       f) such related party’s appointment to any office or place of profit in the company, its subsidiary company or     associated company:

Provided that where majority of the directors are interested in any of the above transactions, the matter shall be placed before the general meeting for approval as special resolution:

Explanation.- In this sub-section:

             (a) the expression “office of profit” means any office:

             (i) …………….

            (ii) where such office is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private   company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

             (c) the expression “related party” includes-

             (i) a director or his relative;

            (ii) a key managerial personnel or his relative;……………….

(July 07, 2017)