With a view to streamlining the existing process for review of audit qualifications contained in the audit reports of the listed entities, the
Securities and Exchange Board of India (SEBI), in consultation with SEBI
Advisory Committees, the Institute of Chartered Accountants of India (ICAI),
stock exchanges and industry bodies, has notified the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2016 on 25 May 2016.
In addition, on 27 May 2016 SEBI issued a circular, CIR/CFD/CMD/56/2016 (the SEBI Circular) which prescribes operational details to be followed by listed entities for implementing this process.
SEBI, on 2 September 2015 notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations). These prescribed the requirements for listed entities to submit audited financial results for the financial year along with Form A, for an audit report with an unmodified opinion and Form B for an audit report with a modified opinion. Form B and the accompanying annual audit report would be reviewed by the stock exchanges and SEBI’s Qualified Audit Report Review Committee. Based on the direction issued by SEBI, the listed entity would be required to carry out the necessary steps for rectification of the modified opinion and/or submission of revised pro forma financial results.
SEBI, through its press release - PR No. 56/2016 on 12 March 2016, announced a revised procedure for review of 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.
Overview of revised procedure
The SEBI Circular prescribed the following operational details for implementing the revised procedure as per the amendment to the Listing Regulations:
The revised procedures are applicable for all the annual audited standalone/consolidated financial results (as applicable) submitted by the listed entities for the period ending on or after 31 March 2016.
The SEBI Circular operationalises the revised procedure approved by SEBI in its meeting held on 12 March 2016, signifying SEBI’s continued efforts towards increased transparency in financial reporting.
The dispensing of the requirements of Schedule VIII of the Listing Regulations and of making adjustments to the books of accounts of the subsequent year is a welcome step towards streamlining the process of review of audit qualifications.
Further, the disclosure of the impact of audit qualifications, along with the
management’s views, at the time of submitting financial results is expected to
provide timely and relevant information to users of financial reports and enable them to make informed investment decisions. The quantification of the impact of audit qualifications can also assist users in their evaluation of the financial results.
It is important to note that the SEBI circular requires the submission of the
Statement on Impact of Audit Qualifications to the stock exchanges along with the annual audited financial results. However, since the SEBI Circular applies to financial results for periods ending on or after 31 March 2016, companies that have already submitted their annual financial results to the exchanges may need to separately submit this statement where there is a modified opinion.
To access the text of the SEBI circular, please click here.
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