The Hindu Business Line : Big accounting firms may not be interested in SEBI's surveillance work

Recent reports speak of the intention of SEBI (Securities and Exchange Board of India) to create a separate outfit for stock market surveillance and investigation. On this, Mr N.R. Sridharan, a chartered accountant and former Director (Inspection & Investigation) in the Ministry of Company Affairs (MCA), takes on a few questions from Business Line.

Why the sudden need?

Under the existing provisions of Section 209A of the Companies Act, SEBI also has powers to carry out such inspections that come under its purview. The Board seems to have done very few such inspections, obviously for want of manpower. That is why the current thinking of entrusting the work to outsiders.

Do you foresee the creation of a panel, for the purpose, with the help of the ICAI (Institute of Chartered Accountants of India), as in the case of bank audits?

Possible. However, big accounting firms may not be interested in this work owing to the nominal fee, severe time constraint, and enormous volume of work. Also, subsequently, the investigator has to stand before the court of law as expert witness to tender evidence.

Has the MCA tried out the idea of engaging independent experts for surveillance work?

Yes, and the experience has often been bitter. External auditors entrusted with these assignments would resign halfway through, or come up with unsatisfactory reports. As a consequence, the MCA (and now the SFIO or Serious Fraud Investigation Office) have been entrusting the work to their own officers for the last two decades, and not engaging outside audit firms to carry out investigation under Sections 235, 237 and 247 of the Companies Act.

How far does the CA education and training equip CAs for the job that SEBI envisages?

CAs are well equipped for the task, because of their training and curriculum, and also wide exposure. Let's not forget that most frauds are accounting frauds. As a result, CAs are the most qualified for the task.

What other regulatory organisations can likewise benefit from CAs' services?

The IRDA (Insurance Regulatory Development Authority) and the Reserve Bank of India can also benefit, because both these organisations do not have adequate infrastructure and the required qualified manpower for surveillance work. Even the Revenue Department can think on these lines.

Can the CPE (continuing professional education) programs help CAs hone their `surveillance' skills?

Certainly, though the common minimum task is the same in most surveillance work. Programmes can be organised by the ICAI to focus on the investigation of corporate bodies, intermediaries such as brokers, merchant bankers, insurance companies, and NBFCs (non-banking finance companies). Importantly, persons who are associated with these companies as auditors should conduct the CPE programs.

How will an interdisciplinary team help in surveillance?

For instance, a document that a CA identifies as incriminating evidence in a company, can be certified by a lawyer as to whether it would stand the test of court scrutiny.

Possible internal controls that SEBI can put in place to avert financial crimes.

Periodical returns that are filed by companies with the stock exchanges should be carefully scrutinised. That will bring out the targets for investigation.

Is SEBI's surveillance going to overlap with SFIO's work?

No, the SFIO is concerned with investigations under the Companies Act, whereas what SEBI contemplates is investigation under the SEBI Act and the SCRA or the Securities Contract (Regulations) Act.

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