SEBI approves the revised procedure for dealing with qualified audit reports
The Securities and Exchange Board of India (SEBI) on 2 September 2015 notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations). The Regulation 33(4) of the Listing Regulations deals with the following:
Schedule VIII of the Listing Regulations lays down the manner of reviewing Form B accompanying the annual audited results. Additionally, SEBI through its circular dated 30 November 2015 prescribed the formats of Form A and Form B that would be filed by listed companies along with their financial results.
The SEBI held its board meeting on 12 March 2016 and through a press release - PR No. 56/2016, approved a revised mechanism to ‘review the audit qualifications contained in the audit reports’ in order to disseminate the impact of the audit qualifications on the financial statements without any delay. In order to streamline the process, following would be the revised procedure:
The SEBI has continuously endeavoured to enhance the quality of financial reporting by listed companies. The cumulative impact of audit qualifications on financial statements would serve to be useful information for then stakeholders.
It is not clear from the press release, whether the procedure laid down in Schedule VIII of the Listing Regulations might still be required to be followed (i.e. requirement of a review of qualifications by stock exchange(s), review by the Qualified Audit Report Review Committee and the Financial Reporting Review Board of the Institute of Chartered Accountants of India). If Schedule VIII procedure is not required to followed going forward, then the revised procedure for dealing with the qualified audit reports is a significant procedural change as it would help avoiding the potentially long drawn process of review. Additionally, it seems that companies would not be required to
We expect SEBI to issue a detailed guidance in this regard to remove ambiguities regarding the procedure to be followed for presentation of the impact of the qualified audit reports on the financial statements of the listed companies.
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