2002 PLP 1835 (CLD)

The Council has reiterated that it is a professional requirement for practising Chartered Accountants to submit their audit working paper files for a Quality Control Review (QCR) by the Institute. Thus, practising members are directed to only accept audit engagements, if the client gives consent to a QCR. (142nd Meeting of the Council‑‑‑7th April, 2001)" "SCHDULE II (See sections 20A and 20D) PART I Professional misconduct in relation to Chartered Accountants in practice requiring action by a High Court A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he‑‑ (1) discloses information acquired in the course of his professional engagement to any person other than his client, without the consent of his client or otherwise than as required by any law for the time being in force."

4. According to learned counsel, disclosure of information acquired by the petitioner in the course of his professional engagement, without the consent of his client, squarely falls within the description of professional misconduct as set out in clause (1) of Part 1 of the 2nd Schedule to the Ordinance reproduced above. In the scheme of the Ordinance, as presently worded, it does not matter that the disclosure is to the respondent Institute or that it is in compliance of any directive issued by the Council.

5. It has further been argued by learned counsel for the petitioner that the 2nd Schedule to the Ordinance is part of the statute itself. Any directive issued by the respondent Institute or by the Council, which is violative of any statutory provision or the compliance of which will result in exposing the petitioner to a charge of professional misconduct, will not be enforceable being ultra vires the statute.

6. At this point, it needs to be noted that learned counsel for the petitioner has no grouse with the desire of the respondent Institute to ensure quality control in the accountancy profession. In fact, at the very outset he contended that the measures initiated by the Council, were well‑intentioned and necessary for maintaining the standards of the profession. His grievance, however, is that the directives of the council have been issued without a suitable amendment in the Ordinance. As a result, any disclosure of information made by the petitioner in compliance with the said directives, would automatically expose the petitioner to a charge of professional misconduct. This contention of the petitioner's learned counsel is borne out from the wording of clause (1) of Part 1 of the 2nd Schedule. The said clause does not create an exception in respect of disclosures made to the respondent Institute.

7. It was argued on behalf of the respondent Institute that the information sought by the directives reproduced above, was meant for the purpose of ensuring high professional standards. He also contended that the directives were in the line with the regulatory regimes in force in the accounting profession throughout the world. This may be so. Indeed from a bare reading of the impugned directives of the Council it is apparent that the objective for issuing the directives, cannot be faulted. The Council is mandated by the Ordinance to regulate and maintain proper standards for its members. The directives in themselves are meant for the purpose of monitoring the quality of professional work undertaken by the members of the Institute. Furthermore, as noted above, even the petitioner's learned counsel has accepted that assurance of the quality of professional performance is a legitimate, indeed, laudable objective.

8. The issue before me, however, is not the desirability of the directives issued by the Council. The question is as to whether the Council can require a member of the Institute such as the petitioner, to divulge information acquired by him in the course of his professional engagement without the consent of his client. The answer is both simple and obvious. As long as clause (1) of Part I of the 2nd Schedule exists in its present form, the Council cannot require any member of the respondent Institute whether directly or indirectly to disclose information because any such disclosure would clearly constitute professional misconduct.

9. In the above context, it was explained by Mr. Aslam Dossa, Executive Director, ICAP, that by means of the impugned letter of 27‑7‑1999 the Institute required the petitioner to furnish the names of such companies only where the petitioner had conducted a statutory audit. Upon being, questioned, he elaborated that by statutory audit, he meant such audit as was undertaken by the petitioner upon being appointed under the Companies Ordinance, 1984, as auditor of a company by the share holders of such company in its general meeting. The wording of the letter of 27‑7‑1999, reproduced above, however, does not confine itself to statutory audits only. It requires the petitioner to furnish to the Institute a list of companies audited by his firm regardless of whether such audit was conducted as auditor appointed under the Companies Ordinance or was undertaken otherwise.

10. Learned counsel for the petitioner contended that apart from statutory audits which were compulsory under law, there could be a number of reasons why a company might require its accounts to be audited. By way of example, he stated that a company might wish to detect embezzlement by employees or inefficiencies, in its accounting or operating systems. In such cases, it might well be the desire of the company that the audit be kept confidential. Such audit, according to the definition given by Mr. Aslam Dossa, would not be a statutory audit. Furthermore, according to Mr. Aslam Dossa, it is not the intention of the Institute to obtain names of those clients of the petitioner for whom the petitioner is not a statutory auditor, as described above. In view of the explanation given by Mr. Aslam Dossa on behalf of the respondent Institute, learned counsel for the petitioner stated that information as to the statutory audits undertaken by the petitioner was already, in the public domain as a result of the requirements of the Companies Ordinance and the statutory returns filed with the office of the Registrar thereunder. He, however, stated that the petitioner would have no objection in providing to the Institute a list of the companies in respect of which the petitioner's firm had undertaken a statutory audit.

11. Coming next to the directive of the Council, dated 6‑12‑1999 it is to be noted that once again a complete list of audit clients is required to be furnished by the petitioner. For the reasons given above, while discussing the contents of the letter, dated. 27‑7 3,899, this requirement also cannot be sustained except to the extent it relates to clients for which the petitioner's firm has acted as statutory auditor.

12. The directive of the Council, dated 6‑12‑1999. coercive as it contains the threat that members of the respondent Institute such as the petitioner, will loose their practising certificates if they do not comply with the said directive of the Council. The net effect of such threat is to members of the respondent institute to disclose received by them in the course of their engagement without the consent of their as such, expose themselves to penal I action for professional misconduct if they disclose such information. On the other hand, they are threatened with loss of livelihood through cancellation of their practising certificates if they do not. Members of the respondent Institute cannot be required by means of any directive or threatened coercive process to commit professional misconduct as defined in the 2nd Schedule to the Ordinance.

13. Paragraph 3 of the directive of 6‑12‑1999 is couched in language which is optional. The petitioner therefore, may choose not to include in his terms of engagement, the clause recommended by the Council in the aforesaid paragraph. In the circumstances, I do not find paragraph 3 of the directive of 6‑12‑1999 to be objectionable.

14. Coming next to the impugned directive, dated 7‑4‑2001, it was contended on behalf of the respondent Institute that the said directive did not require a member of the Institute to disclose client information without the client's consent. According to counsel, the said directive only required a member to confine. his audit engagements to clients who were willing to give their consent to the Institute's quality Control Review Programme. The object of the directive again, is to force an audit client of a member of the Institute to concur in disclosure of information, which otherwise would be confidential. The compulsion on such client would be particularly coercive in nature where the client is a company, required by law, to have its accounts audited by i a member of the respondent Institute. The directive, dates 7‑4‑2001 as such constitutes a form of indirect compulsion whereby the consent of a limited liability company is desired to be obtained for disclosure of otherwise confidential information through a threat to the petitioner's economic interests and to his ability to practise his profession.

15. Faced with this situation, learned counsel for the respondent Institute argued that if the respondent Institute was permitted to review, audit working paper files for the purpose of quality control, this alone would not result in any disclosure of client information without the client's consent. Learned counsel for the respondent as well as Mr. Aslam. Dossa, were asked to explain what was included in working paper files. They conceded that working paper files would include client information relating to the audit. It. therefore, follows that the review of such files by the respondent Institute would result in client information becoming available to the Institute. This again would fall within the ambit of F professional misconduct as defined in clause (1) of Part 1 of the 2nd Schedule.

16. Learned counsel for the respondent Institute also drew the attention of the Court to a letter, dated 28‑3‑2002 addressed by the Securities and Exchange Commission of Pakistan (SECP) to the stock exchanges in Pakistan. By means of the said letter the stock exchanges have been directed to insert, among others, the following clause in their listing Regulations: "External Auditors. (xxxvii) No listed company shall appoint as external auditors a firm of auditors which has not been given a satisfactory rating under the Quality Control Review Programme of the Institute of Chartered Accountants of Pakistan." It was argued on this basis that the Quality Control Review Programme of the respondent Institute had received recognition from SECP and further that listed Companies, by virtue of the above Regulations had become obliged to give their consent for disclosure of working paper files of their auditors to the respondent Institute. This may be so. However, it has no relevance in the context of the present case. The petitioner's case, as noted above, is not against the Quality Control Review Programme of the Institute. The petitioner merely seeks protection against directives of the Council which have the effect whether directly or indirectly of coercing him into committing an act of professional misconduct.

17. Learned counsel for the respondent Institute also argued that the above‑referred letter of SECP, dated 28‑3‑2002 had been issued under subsection (4) of the section 34 of Securities and Exchange Ordinance, 1969, and as a consequence, the stock exchanges in Pakistan were legally obliged to insert clause (xxxvii) reproduced above in their listing regulations. On this basis, he attempted to argue that review of the audit working paper files of the petitioner by the respondent institute had been legally mandated. It was, therefore, contended by him that transmission of such files by the petitioner to the respondent institute would not fall within the ambit of clause (i) of Part I of Schedule 2nd to the Ordinance because disclosure of information in the working paper files had become a requirement of the law. This argument of learned counsel, I am afraid, is far‑fetched and wholly misconceived. The exercise of powers by the SECP under section 34(4) of the Securities and Exchange Ordinance is merely meant to regulate the stock exchanges and, through' insertion of the above‑referred clause in the listed regulations, to regulate the conduct of Companies listed on the various stock exchanges in Pakistan. The aforesaid requirement of the SECP and of the newly added clause in the listing regulations cannot, by any stretch of reasoning, be construed as requiring the petitioner to disclose client information to the respondent institute without the consent of his client.

18. For the forgoing reasons, it is apparent that until suitable amendments are made in the Ordinance, the impugned directives cannot be enforced by the respondent Institute through the coercive process set out in Bye -Law 8(3) of the Chartered Accountants Bye‑Laws 1983 which has been cited in paragraph 2 of the impugned directive, dated 6‑12‑1999. S.A.K./N‑209/L Order accordingly.