Sebi didn't want to get into turf war over regulating auditors: Ajay Tyagi

Regulator within its rights to take action against audit firms, says Sebi Chairman

Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), on Wednesday said that the market regulator did not want to get into a “turf war” over regulating auditors. He said that Sebi could not allow entities to audit listed companies if they did not perform their duties properly.

Terming audit firms as important gatekeepers, the Sebi chief said that they need to be held accountable if lapses are found in auditing listed firms. “Our position is very simple in case they are auditing listed companies, based on which investors base their decisions. If we find that the work has not been done properly, then in investors’ interest, the audit firms should not be allowed to audit listed companies for some time. We are well within our parliamentary mandate to see that they don’t do it and if they wish to challenge that, we shall challenge it too,” Tyagi said while addressing a conference of the Association of Investment Bankers of India (AIBI).

The comment assumes significance as the Securities Appellate Tribunal (SAT) had recently observed that Sebi had no power to debar auditors from auditing the books of a listed company. 

The observations were made during the hearing of an appeal filed by PwC in the Saytam accounting scandal. Sebi has challenged the SAT order in the Supreme Court, and managed to get a stay on the SAT’s observation.

Tyagi said that investor protection was a parliamentary mandate given to the market regulator, and audit firms should be held accountable in case of any lapses on their part. 

“To just say that one should refer the matter to the registering authority, is not acceptable,” said Tyagi. 

Sebi had also recently tightened rules pertaining to resignations of auditors from listed companies. The market regulator has said that an auditor will have to provide the review — limited or complete audit report — for the quarter during which it resigns. 

Regarding the IPO market, the Sebi chief said that there has been an improvement in activity lately, and that nearly a dozen issues worth over Rs 15,000 crore are in the pipeline.

Tyagi said that volatility in the market after the Infrastructure Leasing & Financial Services (IL&FS) episode had hurt the IPO sentiment.

The Sebi chief further said that there are no regulatory hurdles in the IPO market. “We have already reduced the fee for companies if the post-approval timeline lapses and companies re-apply for an IPO.”

Tyagi added that the regulator is open to more suggestions to remove hurdles in raising money through IPO. 

The Sebi chief also said that divestment from the government will excite the primary market. He said that Sebi has given its wishlist for the budget to the finance ministry, and it includes ways to increase the activities in the corporate bond market. 

On the dispute between the regulator and lenders as to who owns Karvy broking’s pledged shares, Tyagi said the regulator would honour the ruling of SAT. The Sebi chief that said if more brokers were found to be indulging in similar malpractice of misusing client securities, then Sebi would take action against them.

Chain of events

Acting against audit firms has been a contentious issue for the regulator

• January 2018: Sebi bars PwC from auditing listed firms for its role in the Satyam scam

• January 2018: PwC moves SAT against Sebi’s order

• September 2019: SAT observes Sebi has no power to debar auditors

• October 2019: Sebi challenges SAT ruling

• November 2019: SC stays SAT observation

• December 2019: Tyagi reaffirms Sebi within its rights to act against errant auditors