Sebi to bar auditors if audit fails to give a true picture
MUMBAI: A Securities and Exchange Board of India (Sebi) panel on corporate governance is considering whether an auditor should be barred from scrutinizing the books of listed companies if an audit is ineffective and fails to spot financial discrepancies. It’s the first time Sebi is considering an active monitoring of the role of auditors, currently governed by the Institute of Chartered Accountants of India.
The debate on the role and responsibility of auditors started again after some listed banks reported bad loans that diverged widely from the assessment of the Reserve Bank of India (RBI). Sebi sought clarifications from the lenders on bad loan divergences and also sought information from their auditors.
“Of course we sought information from auditors. In fact, this is one of the areas that Sebi’s governance panel is examining — that is, how Sebi can step in to monitor the role of auditors. We can bar them from audit of the listed companies, if audit is found to be ineffective, or also from auditing any Sebi-regulated entities,” said S Raman, whole-time member, Sebi, in an interview.
Raman is set to demit office on September 6; he is the last Sebi member from the tenure of former chairman UK Sinha’s tenure, which ended on March 1.
On June 2, Sebi had set up a 21-member panel under the chairmanship of Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank Ltd, to advise it on issues relating to corporate governance in Indian firms.
“All those associated with the preparation and audit of financial statements, annual reports and other statutory prescriptions of listed companies need to be conscious of their expected roles in furthering credibility in the governance architecture,” said SN Ananthasubramanian, practising company secretary and former president of the Institute of Company Secretaries of India. “In this context, the proposal to debar (errant auditors) conforms sequentially to recent developments like continuation of NFRA (National Financial Reporting Authority) in Companies Act 2013 and reported crackdowns on professionals following revelations of shell companies.”
Sebi has debarred chartered accountants under powers granted to it by Section 11(B) of Sebi Act. Sebi is empowered to bar entities from the market if their conduct is harmful to the interests of investors.
The panel is expected to submit its report to Sebi by the end of September after which the report would be put up for public comments before the regulator finalises the corporate governance rules. Corporate governance standards have been a subject of debate following the removal of Cyrus Mistry as Tata Sons Ltd chairman and Vishal Sikka’s resignation as CEO of Infosys Ltd.