CAs, CS, valuers may face disgorgement, penalties from Sebi

Chartered accountants, company secretaries, cost accountants and valuers may have to forfeit their fees and face penalties if they are found lacking in their dealings with listed firms, according to a new set of norms being considered by Sebi. The role of auditors and valuers has come under the scanner in a number of high-profile cases recently involving PNB, WhatsApp and Fortis as also the Satyam and Kingfisher frauds earlier. Sebi is looking to enhance the oversight to check such frauds with new regulations for fiduciaries in the securities markets, a senior official said.
It will require additional disclosure requirements and greater scrutiny of financial statements by auditors and other third party entities, he said.

Sebi may finalise rules which will put the responsibility on chartered accountants, company secretaries, cost accountants, valuers and monitoring agencies to get firms to comply with securities regulations and act in the interests of shareholders, he added. If such entities are found lacking in their dealings, Sebi may disgorge the wrongful gains, including the fee earned, along with an interest of 12 per cent per annum from the date of default.

Besides, the regulator may ask them not to directly or indirectly issue any certificate or report. Also, it may refer the case Institute of Company Secretaries of India (ICSI) or Institute of Chartered Accountants of India (ICAI) or any other other appropriate authority. Further, Sebi may issue warning, launch adjudication proceedings and initiate prosecution against the entities for any default. The Securities and Exchange Board of India (Sebi) has prepared a draft consultation paper in this regard and the final regulations would be put in place after taking into account comments from all stakeholders on the consultation paper.

Asked about the rationale behind a new set of norms, the official said that investor confidence is fundamental to the successful operation of the securities market and it depends on investors having credible and reliable financial information when making decisions about capital allocation. "One of the prime objectives of Sebi is to ensure that there should be full, timely and accurate disclosure of financial results and other information that is material to investors' decision," he said, pointing to alleged lapses at various levels in cases like WhatsApp leak of financial results, the PNB scam and the matters concerning Fortis and Satyam-PwC.

Information which has gone through various third-party fiduciaries such as auditors, merchant bankers, rating agencies, cost accountants and valuers are often considered as "basis of most of the investment and financial decisions of the investors", the official said, adding that these entities are seen as "principal gatekeepers or conscience keepers". Hence, there must not be any lack of efforts in flagging lapses or potential risks, he said.

While entities such as merchant bankers, rating agencies, custodians, debenture trustees and registrar to public issues are registered with the capital markets regulator under specific regulations, some other fiduciaries like practising chartered accountants and company secretaries, cost accountants, valuers and monitoring agencies are not registered with Sebi.