Securities scanner: CAs, valuers and CSs could come under Sebi ambit

Securities scanner: CAs, valuers and CSs could come under Sebi ambit

Chartered accountants and company secretaries may soon come under the ambit of the capital markets regulator. The Securities and Exchange Board of India will issue rules that will put the onus on chartered accountants, company secretaries, cost accountants, valuers and monitoring agencies to get companies to comply with securities regulations and act in the interests of public shareholders. Currently, most of them are not regulated by Sebi.




The proposal was taken to the regulator’s board on March 28 and a discussion paper will be issued soon, said a Sebi board member. “Investor confidence is fundamental to the successful operation of the securities market. That confidence depends on investors having credible and reliable financial information when making decisions about capital allocation,” Sebi said in an internal note to its board.

SEBI has observed that auditors have been negligent while auditing books of listed companies with several inconsistencies in financial statements being ignored. The regulator wants to ensure that annual reports and financial statements, which are relied upon by public investors, are accurate.




“The information gone through rigour of an external audit or examination are the basis of most of the investment and financial decisions of stakeholders. The external auditors/examiner by virtue of their independence and professional competence are considered as principal gatekeepers or conscience keepers.

The fiduciaries’ effort or lack thereof in flagging reporting concerns has the potential to impact confidence in the securities market and the financial system,” the Sebi note said. Chartered accountants and company secretaries are governed by the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India, respectively. The new rules will bring their activities related to securities market under Sebi’s ambit.

Long-Felt Need Being Addressed

The decision to broaden the scope of securities rules comes against the backdrop of Sebi’s investigation into the alleged financial irregularities at Fortis HealthcareBSE 1.65 % and Religare. The regulator noticed that financial statements of some of the companies are incorrect, and is likely to order a forensic audit of the books.




Sebi passed an interim order against Ricoh IndiaBSE -4.99 % for alleged fund diversion and falsification of books. It also barred Price Waterhouse in the Satyam accounting fraud case. “Auditors are a strong line of defence for internal checks and balance for a company,” said Shailesh Haribhakti, chairman, Haribhakti & Co LLP, a chartered accountancy firm. “The recent aberrations call for an effective vigil mechanism as enunciated in the Companies Act. In many instances, there have been deliberate attempts to hide the trail.”

The new rules will spell out the actions that can be taken by Sebi in the event these entities fail to fulfil such obligations. Auditors and valuers will have to ensure the certificate of audit, valuation or due diligence issued to any company is true in all material aspects, the senior Sebi official quoted above said. They will also have to disclose any conflict of interest with respect to any assignment to the company and intermediary. They should not sign or issue any certificate without disclosing the material discrepancy, the official said.




“If auditors and others fail to comply with these rules, Sebi would take stringent action against them,” the official said. SN Ananthasubramanian, a practising company secretary and former president of the Institute of Company Secretaries of India, said Sebi is trying to close the gaps between what is intended, what is written and how it is interpreted. “A long-felt need is being addressed. It should have a salutary impact on the professional attitude towards regulatory compliance.”

The The Economic Times, New Delhi, 04th March 2018

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