Sebi proposes to tighten rules for auditors, valuers; seeks feedback

Regulator seeks feedback from market participants in a month

The Securities and Exchange Board of India (Sebi) is planning to tighten the norms governing auditors, chartered accountants (CAs), company secretaries (CSs), valuers and monitoring agencies that undertake third-party fiduciary assignments under the securities laws. 

The new rules, once effective, will bring the activities of these entities with regard to listed companies under Sebi’s ambit. Currently, most of them are not regulated by the markets regulator. 

Sebi has asked auditors to ensure that certificates or reports issued by them are true in all material respects and they must exercise all due care, skill and diligence with respect to all processes involved in the issuance of the report or certificate. 

Further, the regulator also proposed giving the board of directors of a company the authority to take appropriate action after conducting an investigation against an individual or firm that violates any regulations or submits a false certificate or report. 

Sebi has issued a consultation paper in this regard, seeking feedback from market participants in a month. 

“Investor confidence is fundamental to the successful operation of the securities market. That confidence depends on the investors having credible and reliable financial information when making decision about capital allocation,” it said in a consultation paper issued on Friday. 

Sebi wants to ensure that annual reports and financial statements, which are relied upon by public investors, are accurate. Auditors would be responsible to report in writing to the audit committee of the listed company or the compliance officer in case of violation of the securities law, it noted. 

Sebi has observed that auditors have been ignorant while auditing books with a lot of discrepancies in the financial statements. This has been highlighted by Sebi’s expert committee on corporate governance, headed by Uday Kotak. 

In the report, the Kotak-panel recommended that Sebi should have clear powers to act against auditors and other third-party individuals or firms with statutory duties under the securities regulations. 

The power should be provided in case of gross negligence and not just in case of fraud/connivance, Sebi quoted the suggestion in the consultation paper. 

The move was triggered by several instances of audit lapses where CAs, auditors and valuers have come under the regulatory glare. Economic frauds such as Punjab National Bank’s Letter of Undertakings scam, earnings leaks on social-media platforms and so on have also prompted Sebi to spell out such actions.

With inputs from Reuters