Corporate governance rules have a direct impact on the investor confidence. After corporate failures in some of the big firms like Enron and Worldcom Sarbanes Oxley Act was implemented in US. Following the global practice, SECP also implemented Code of Corporate Governance in 2002, which was revised in 2012.
The attitude towards implementations of the code of corporate governance in the two countries seems quite different. In US SOX is implemented by the parliament and hence making it legally enforceable. In Pakistan, it is implemented by SECP and stock exchange. Also in US, SEC strongly recommends adoption of COSO framework for internal controls, whereas it has not been driven in Pakistan with the same intensity. This again is not a direct comparison in the code of conducts rather it shows the attitude of the governing bodies towards corporate governance.
The first clause of SOX is a public company oversight board that is a nongovernmental, nonprofit board to oversee the auditors of public companies to protect investors. Firms conducting audits of public companies must register with PCAOB. Such a board is missing in Pakistan’s code of governance and hence the check on external auditors is still lacking according to SECP. SOX has also empowered PCAOB to carry out inspection of large audit firms. In Pakistan, an independent body to set standards and to keep a check on external auditors is missing. An external board can help improve standards of corporate governance and ameliorate transparency and disclosure.
Sec 302 of SOX requires officers of the company to certify annual and quarterly reports submitted to the SEC. The certification confirms that the officers have reviewed the reports, and reports are free of material misstatements or omissions, should list all deficiencies in the internal control, and should list instances of fraud and employees involved and details of any significant changes in internal controls and structures. However, this particular...