The Securities Exchange Board of India (SEBI) recently released an advisory saying that IPO-bound companies were required to audit their financial statements in compliance with the Indian Accounting System (Ind-AS). But the move may hurt smaller companies that still continue to use the old Indian Generally Accepted Accounting Principles (IGAAP) standards.
While companies that are looking to list themselves convert their financial statements from IGAAP to Ind-AS at the time of filing, the new regulation would see companies re-audit the statements themselves under Ind-AS standards.
“Just before Diwali, SEBI asked all merchant banks to ensure that companies that have converted their draft prospectus Ind-AS with their financial statements, now go back and re-audit those statements. This is a big problem for smaller companies, for whom Ind-AS was not applicable in the years before it went public,” an anonymous banker told the Mint.
Also read: Flexibility of Ind-AS poses 'model risk', auditors must challenge managements, validate outputs: RBI Gov
“Big companies are already on Ind-AS, so they will not have any problem with it. Most of the companies in today’s IPO pipeline are Ind-AS-compliant, so the move should not cause any major disruption, but many smaller companies will face problems,” the banker added.
Experts say it can take about two months for companies to re-audit their financials for the past 2-3 years under the Ind-AS standards. With companies hoping to cash in on India’s red hot equity market that has seen companies raise millions with their public offerings, two months can mean that they lose that precious window of opportunity. The enforcement of the new standards has also led to confusion since the new regulation was released as guidance to the bankers instead of an official notification.
This is not the only change that SEBI has announced in recent days. The market regulator was also planning to introduce a 'T+1' system of trade settlements in a graded manner after various representations from foreign investors.
SEBI also recently decided to bring in a two-tiered structure to standardise and ensure uniformity in the benchmarking of mutual fund (MF) schemes.
Companies could previously convert their financial statements from IGAAP to Ind-AS standards at time of filing but now they will be required to re-audit their financials in compliance with Ind-AS.
(Edited by : Shoma Bhattacharjee)
First Published: IST