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While these two steps are expected in the near-to-medium term, the Sebi board meeting tomorrow is expected to make it mandatory for companies to disclose the percentage of promoter shareholding that is encumbered, or in other words, pledged or hypothecated with some other entity or person. Companies, at present, only give the quantum of promoter holding in their quarterly reports without specifying if they are pledged with any lender or not.
Also, most companies, as on date, have only an in-house team to undertake their internal audit. Satyam Computer Services Ltd, where promoter by B Ramalinga Raju cooked up a Rs 8,000-crore accounting fraud, did not have an external auditor for undertaking its internal audit. Of course, it had a statutory auditor in Pricewaterhouse that relied on management inputs and statements while certifying the internal audit.
A top Sebi official told The Indian Express that companies listed on the bourses could be forced to appoint external auditors by suitably amending the listing agreement they enter into with the stock exchanges. Further, the capital market regulator is likely to randomly scrutinise the financial statements of companies and even demand a restatement of profits if needed. As a first step to meet this objective, Sebi had last week decided to subject all index (Nifty and Sensex) companies to a peer review of their financial statements by an auditor from a regulator-empanelled list.
External auditors have a lesser probability of getting influenced by top company officials such as the CEO and the CFO. Additionally, they can bring fresh perspective as well as expertise to undertake technology, treasury or supply chain audits. In-house audit teams have limited career growth prospects within the company and also face constraints in investing for acquiring new skills and techniques.
In its board meeting tomorrow, Sebi will also make it compulsory for promoters to disclose their shareholding if part of it is pledged or hypothecated. An official said that in their quarterly statements, companies would be required to disclose the percentage of shares encumbered within the overall promoter holding. “This will give a clear idea of the effective control a promoter has in a company,” the official said. In Satyam’s case, almost half of Raju’s shareholding was pledged with a clutch of lenders.
Sunil Chandiramani, National Director, Advisory Services, Ernst & Young, said even among the top 500 companies in India, less than 50 per cent, had appointed an external auditor to undertake the internal audit. “While it is true that the audit committee chair decides the remuneration of the internal audit head, it is an exception than a norm,” he said. The audit committee itself comprises only independent directors in the board of a company.
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Sebi on its own or through a hired agency:1. Get the list with addresses of alleged 50,000 employees who are supposed to be On Satya,'s roles and secure from them their income from the employer, which they must have for filing their annual tax rebate.2. Put an advertisement asking public who owe from Satyam under various heads, and amount received during the year under these heads
SEBI must play a more pro-active role rather than doing a pst mortem There is urgent need to tighten corporate governance and improve compliance practices.
SEBI should conduct the audit of HCL without delay specially for the year 2006-2007.
As usual SEBI is having knee-jerk reaction to each scam that takes place. The existing regulations on Corporate Governance are sufficient, problem lies in their implementation in spirit, rather than in letter. If the promoters are interested in syphoning of money, having external firms doing internal audit will not help. After all they will also be appointed by the Audit Committee comprising of "independent" directors, who are friends of the promoters.
Sir,The CARO is in force. If it is extended to be applicable to all companies across board, the Central Government should extend the scope of the Cost Auditor of the company wherein it can ensure the verity of the Internal Auditing procedure adopted by the company. This way the Government can not only ensure the elimination of fraud but also the Corporate Governance. I feel that the SEBI should see to it that it works as real regulator.
let it be mandatory to distribute dividends if it shows extraordinary profit and it should not be allowed to defer dividend for years as in the case of Airtel,then showing false profit will not surface