First Notes - 18 March 2016
First Notes - 18 March 2016
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:
- Applicable formats of financial results
- Form A (for an audit report with an unmodified opinion), and
- Form B (for an audit report with a modified opinion).
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:
- Listed entities shall be required to disclose the cumulative impact of all the audit qualifications on relevant financial items in a separate form called ‘Statement on Impact of Audit Qualifications’ instead of the present Form B.
Such disclosure would be in a tabular form along with the annual audited financial results filed in terms of the Listing Regulations.
- In cases where there are no audit qualifications, the existing requirement of filing Form A signed by top officials/directors of the company and auditors shall not be necessary.
- The management shall have the right to give its views on the audit qualifications in the new form.
- The existing requirement of adjustment in the books of accounts (as per Schedule VIII of the Listing Regulations) of the subsequent year shall not be necessary. The new mechanism would be applicable from the financial year ended 31 March 2016, as well as for the earlier cases.
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
- submit revised pro-forma financial results, incorporating the effect of the modified opinion, to the stock exchanges, and
- present the accounting impact of the modified opinion as a prior period item in the financial statements of the subsequent year.
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.
© 2023 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
KPMG (Registered) (a partnership firm with Registration No. BA- 62445) converted into KPMG Assurance and Consulting Services LLP (a Limited Liability partnership firm) with LLP Registration No. AAT-0367 with effect from July 23, 2020.
For more detail about the structure of the KPMG global organization please visit https://kpmg.com/governance.
Connect with us
- Find office locations kpmg.findOfficeLocations
- Social media @ KPMG kpmg.socialMedia
Stay up to date with what matters to you
Gain access to personalized content based on your interests by signing up today