The Securities and Exchange Board of India (SEBI) has offered several proposals to remove ambiguity in the respective party’s transactions (RPT) standards and increase transparency in audit reports. These steps have been taken at a time when many listed companies have appointed auditors with limited experience.
SEBI has suggested to include the existing 10 percent single business limit as well as a monetary limit from the auditing companies of listed companies. The proposed limit for large companies listed on exchanges is Rs 1,000 crore and Rs 50 crore for small and medium enterprises (SMEs).
For subsidiaries with non -financial records, the border will be determined at 10 percent of the standalone net worth, which will be calculated three months before the approval. If the net worth of a subsidiary is negative, SEBI in its consultation paper suggests using share capital and securities premium instead of 10 percent of the respective net worth.
The regulator has clarified that supporting assistant units whose accounts are combined with the listed holding company will be kept away from the requirement of RPT approval. SEBI can also make it necessary for auditing committees to review the qualifications and experiences of the signed partners of statutory auditors to ensure that they are in line with the size of the listed company.
SEBI says, “There have been allegations in recent times that some big listed companies have done the audit or inexperienced people or companies.” Although industry experts have accepted SEBI’s argument, but they have expressed concern over other aspects.
Ketan Dalal, managing director of Catalist Advisors, said, “Sign Wava can leave the partner firm and the total quality of the team always cannot showcase the qualification of the partner who signs. Some companies such as banks or insurers, also require field-specific expertise. Therefore, the experience of years becomes less important. ‘
SEBI has also given detailed information about the required minimum revelations before the appointment of the auditor. This includes the previous relationship with the promoters, the names of other listed firms or group companies, which they audit, the year of experience and any regulatory order against them. Companies will also have to disclose the total fees paid to the Secretarial Auditor on a joint basis. SEBI has also proposed to compulsorily disclose the Annual Secretaryial Compliance Report in the annual report.
First Published – February 9, 2025 | 10:44 pm IST