SEBI mandates listed firms to disclose forensic audits to stock exchanges, aims to improve transparency

SEBI has asked listed companies to disclose the initiation of forensic audits against them to stock exchanges, in a bid to ensure greater transparency, news agency PTI reported. The move comes weeks after SEBI’s board approved proposals regarding the same. Post this, companies listed on the stock exchanges in India are now required to make disclosures about the fact of initiation of forensic audit along with the name of the entity initiating such audit and reasons for the same. The move is aimed to increase transparency. 

Additionally, SEBI’s new rule will also make it necessary for companies to inform the bourses about the final forensic audit report when the listed entity receives such a report. Firms have been allowed to post management comments along with such reports. “The move will create awareness among common investors about the company, its promoters and the usage of their hard earned money,” Neeraj Bhagat, of Neeraj Bhagat & Co; a Delhi-based Chartered Accountant firm had said earlier after SEBI’s board approved the proposal. The move is aimed at filling the gaps in availability of information. However, some market participants voiced concerns about the same, adding that some banks and non-bank lenders undertake such audits regularly when irregularities arise and should be exempted from making such disclosures. 

Apart from the new disclosure requirements, the market regulator made changes in rules for listed companies, which list their non-convertible debt securities, with regard to maintenance of asset cover and intimation about documents to debenture trustees. According to the report, listed entities will now have to maintain 100% asset cover, or asset cover as per the terms of offer document, sufficient to discharge the principal amount at all times for the non-convertible debt securities issued. With this, SEBI has now removed the framework that said maintenance of 100% asset cover will not be applicable in case of “unsecured debt securities issued by regulated financial sector entities eligible for meeting capital requirements as specified by respective regulators.”