No provision in the SEBI Act to take action against auditors of listed firms: CA Institute

The CA Institute has opposed SEBI’s proposal to categorise chartered accountants as fiduciaries in the securities market, noting that there is no specific statutory provision under the SEBI Act to take action against auditors of listed companies.

Elaborating the stand of the CA Institute on the SEBI consultation paper on the proposed SEBI (Fiduciaries in the Securities Market) (Amendment) Regulations, CA Institute President Naveen Gupta said in his latest monthly message to members that the “proposed consultation paper issued by SEBI goes beyond the powers of SEBI.

“There is no specific statutory provision under the SEBI Act conferring powers on SEBI to take action against auditors of listed companies,” Gupta said. SEBI’s consultation paper was issued in July this year.

US court’s stand

Moreover, the monthly message also cited that the apex court of North Carolina, USA, has decided that auditors/accountants are not part of fiduciaries.

“Therefore, the consultative paper should not include chartered accountants as fiduciaries,” Gupta said.

Under the norms for fiduciaries proposed by SEBI in its consultation paper, defaulters would face stringent penal actions, including ban from securities markets and disgorgement of fees.

Those found guilty of providing wrong audit or valuation reports would have to cough up any unlawful gains they might have made in the process, according to the consultation paper.

Experts’ take

Amarjit Chopra, Chairman, National Advisory Committee on Accounting Standards, told BusinessLine that chartered accountants (as auditors) should not be categorised as ‘fiduciaries’.

“Chartered accountants as auditors don’t have any role in decision-making of the company. Auditors only have an opinion on the accounts prepared by the management. It is the directors of the company who take the commercial decisions and they have the fiduciary responsibility,” Chopra said.

In fact, Chopra went on to state that SEBI itself as capital market regulator had a ‘fiduciary’ responsibility towards investors.

SEBI must make public the reasons why investors are losing money in the market even as markets are making new highs, especially when the fundamentals of many companies and the economy don’t justify such high valuations.

Ashok Haldia, former Secretary of the CA Institute, said: “For Statutory Audit and other similar functions, the jurisdiction over auditors lies with the ICAI and rightly so. The situation may be different if a Chartered Accountant acts as a merchant banker. There has been debate for long on the multiplicity of regulators and a case for cross jurisdiction. This needs to be resolved by drawing a clear-cut boundary for exclusivity for areas core to the regulator, and commonality in approach and coordination for other areas.”

Present position

Currently, entities such as merchant bankers, rating agencies, custodians, debenture trustees and registrar to public issues are registered with SEBI.

However, some other fiduciaries such as practising chartered accountants and company secretaries, cost accountants, valuers and monitoring agencies are not registered with it.

It may be recalled that a high-level panel on corporate governance, headed by eminent banker Uday Kotak, had, among other things, suggested that the Securities and Exchange Board of India should have clear powers to act against auditors and other third-party fiduciaries with statutory duties in case of frauds as well as gross negligence.

SEBI had, in the consultation paper, said that it is already empowered to issue directions to any person associated with the securities market (including fiduciaries), in the interest of investors or for its orderly development.

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