You would be aware that Provident Fund (PF) disclosure requirements has been introduced by the Securities and Exchange Commission of Pakistan (SECP) under sub clause 4(iii) and 4(i) of Part III of the revised Fourth and Fifth Schedule (the Schedules) of the Companies Ordinance, 1984 (the Ordinance) as per SECP’ SRO 183(1)/2013 and SRO 182(1)/2013 dated March 4, 2013 respectively. In terms of the requirements of the Schedules companies are now required to disclose following PF related information:
- Size of the fund/trust
- Cost of investments made
- Percentage of investments made
- Fair value of investments
There has also been added a requirement to disclose breakup of investment made by the PF/ trust into the categories as provided by the Section 227 of the Companies Ordinance, 1984. These are required both in absolute amounts and in terms of the percentage and size of the PF/ trust. In addition, a statement of compliance is required in the financial statements that investments out of the PF/ trust have been made in accordance with the provisions of Section 227 of the Companies Ordinance, 1984 and the applicable Rules there under.
Practically, audit of PF is usually carried out after the statutory audit for the financial year is complete. The statutory auditor may also be different from the PF auditor and in many cases audit of PF remains pending for number of years and therefore, the PF disclosures in the financial statements of the Company can only be based on unaudited figures.
We would like to inform you that Institute’s views on the practical difficulties discussed above have been submitted to the SECP. We have raised our concern that merely by showing a line item in the financial statements, disclosing on the basis of unaudited figures of PF, will give the incorrect implication that it has been duly audited. This disclosure would not serve any purpose because the auditor’s opinion covers whole of the financial statements and consequently, such disclosures would be against the premise of transparency and completeness. The Institute recommended to the SECP that PF disclosures requirements should be modified. The unaudited balances be placed outside the financial statements, as they are for information purposes only and not covered by the auditor during performance of his procedures.
SECP appreciated Institute’s views that ideally disclosure should be based on the audited PF accounts prepared at the date of closing of the company’s financial year.
However, SECP informed that it had observed number of non-compliances in the form of delayed payments to the PF/ trust and investment by the PF/ trust which is against the requirements of the Ordinance and applicable PF Rules. In view of this, the SECP felt that PF regime is required to be refreshed due to lack of centralized monitoring resulting in expectation gap in the minds of stakeholders of PF.
On Institute’s concerns regarding impact of such disclosure on the liability of company’s auditor, the SECP clarified that PF disclosures are neither intended to and nor will add additional responsibility on statutory auditor of a company; rather the management will remain liable to ensure compliance with the requirements of applicable laws. The requisite disclosure will also not be against the premise of transparency and completeness because mere mentioning of the status “unaudited” will adequately clarify all such doubts. It is highly unlikely that a misstatement in the PF disclosure note by a company’s management can ever have a material and pervasive impact on the true and fair view of the financial statements, as long as the actual liability of the company to the PF stands correctly recorded.
Keeping the above in view, practicing members are advised obtaining PF unaudited financial statements/confirmation of PF assets from the Trustees of PF to ensure that such disclosures are based thereon.
Members are advised to take note of the above.