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Last Updated : Jun 12, 2019 03:23 PM IST | Source:

EXCLUSIVE: SEBI's new plan to tackle financial fraud is to start auditing companies

To safeguard the interests of users of such financial statements, it wants to detect financial manipulation at the nascent stage

Tarun Sharma @talktotarun

With a string of financial scandals having rocked many listed companies over the last two years, market regulator SEBI is planning to up the level of monitoring: it will set up a dedicated team at the exchange level to examine audit reports.

It hopes that through this, it will be able to detect financial manipulation at an early stage.

For preparing the concept paper on framework for examining the quality of financial reporting, SEBI met with exchanges on May 10, after which exchanges submitted a joint proposal on May 24.


At the meet, SEBI clearly mentioned that if a company does not reply in the time-bound period as specified by the exchanges, the demat account of promoters and the promoter group, as mentioned in the company's latest shareholding pattern filled with the exchanges, would be frozen. After sending the showcause notice and two reminders, exchanges can freeze the demat account.

If the company fails to reply, the promoters, directors and key management personal, including the compliance officer of the company, will be debarred from accessing the securities market for a period as deemed fit by SEBI.

Such companies will be transferred to SEBI's forensic audit firm and a reference would be sent to the National Financial Reporting Authority (NFRA) as well.

More powers to exchanges

SEBI will propose amendments to its Listing Obligations and Disclosure Requirements (LODR). It will power exchanges to call for an explanation, including underlying documentary evidence from the listed entity as and when required by the exchanges, to support disclosures made in the financial statement. At present, exchanges don't delve into or examine in-depth the financial statements submitted by companies.

Initially, exchanges will take up only those cases referred by SEBI’s forensic accounting cell only. At a later stage, exchanges will need to examine financial reportage of all listed companies to ascertain financial manipulation or weakness.

The regulator is planning to make it compulsory for auditors to declare on April 15 the list of companies audited by them in the last one year to avoid a conflict of interest between companies and auditor.
Sebi chairman Ajay Tyagi had at an event in 2017 mentioned for the first time the possibility of the regulator carrying out parallel audits.

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First Published on Jun 12, 2019 03:23 pm
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