Firms denied peer review certificate may be barred from auditing
As the Securities & Exchange Board of India, or Sebi, and the Institute of Chartered Accountants of India (ICAI) tighten the supervision of auditors, those that fail to obtain a peer review certificate may be barred from auditing listed companies, according to an ICAI functionary.
Sebi, the stock markets regulator, has already appointed peer reviewers for auditors of companies that constitute the 30-share Sensitive Index of the Bombay Stock Exchange and the National Stock Exchange’s 50-share Nifty.
| WHAT IT IS ALL ABOUT |
| WHAT IS PEER REVIEW? It involves scrutiny of an auditor’s working notes by a chartered accountant |
| WHAT IS THE SCOPE? At present, Sebi is getting a peer review of the companies are part of the Sensex and Nifty. The idea is to expand it to other listed companies later |
| WHY IS IT BEING DONE? The Satyam fraud has prompted Sebi to initiate the exercise |
| WHEN WILL IT BE DONE? The process was to be completed by February but it has been delayed. The proposal is to start peer review of other companies from this year |
| HOW IS IT BEING DONE? Sebi has appointed peer reviewers on its own, while ICAI is beefing up its peer review board to take up more companies later |
According to officials of ICAI, which regulates the profession of chartered accountancy, the plan is to include all listed companies in this system. In a few years, the scope of the review may be expanded to companies that intend to list, once they file the draft red herring prospectus with Sebi.
As ICAI gears up for peer review of all listed entities, Sebi officials said they would take up companies randomly.
The peer review would cover auditors’ notes, which are not made public.
“We do not expect many problems, as our auditors have a good track record. If we do not find any major problems in the peer review process, we can confidently tell the world that Satyam was a one-off episode. The action against auditors will depend on the extent of the lacunae,” a Sebi official said.
For review of companies that are part of the indices, Sebi has appointed peer reviewers. ICAI is so far not involved with the process that will cover the audit work for 2007-08 and the third quarter of 2008-09.
Sebi intends to scrutinise the peer review papers on its own before giving the green light.
At present, ICAI has a Peer Review Board with a panel of chartered accountants, who would conduct the scrutiny of the notes of the auditors. It has called for applications from more chartered accountants to carry out the process.
“We set it up a few years ago with the objective to improve the quality requirements and Sebi’s proposal for expanding the scope is the first regulatory reference that we have received,” said an ICAI functionary.
There are nearly 1,800 firms that have audited listed companies. To conduct a peer review of all the listed firms, assuming that a chartered accountant did three-four reviews, nearly 500 professionals will be required.
The review of the index companies is running behind schedule; February 28 was the original deadline. The proposal was to extend the scope from April, but auditors would be busy with annual results. In case of companies that propose to list, ICAI said the process would have to start after a couple of years.
