Reviewing audit reports of Sensex cos not enough: Experts
25 Jan 2009, 1119 hrs IST, PTI
Stock market experts are skeptical about the effectiveness of SEBI's decision to review the audit reports
of the stock index tracker companies to prevent a Satyam-like accounting fraud.
\"It is a good step, but it would be difficult to rule out such (Satyam-like) incidents completely as there are
some areas where promoters have some discretion. Even the existing checks and balances are also not
less,\" Value Researchonline CEO and mutual fund analyst Dhirendra Kumar told PTI.
Market regulator SEBI, in its recent decision, said that a peer review of the working papers (relating to
financial statements of listed companies) of auditors would be conducted in respect of the companies
constituting the NSE-Nifty 50 and the BSE Sensex.
The review comes on the heels of Satyam founder Ramalinga Raju disclosing a financial fraud amounting
to about Rs 7,800 crore in the company over several years.
Speaking on SEBI's decision, NexGen Capitals equity head Jagannadham Thunuguntla said that \"the
decision won't prevent such incidents, but it can put a sense of seriousness in the effective
implementation of the power given to auditor.\"
Bonanza Portfolio Research Head P K Agarwal said that \"the intention is good but implementation will be
an issue as the exercise involves various logistic issues. Auditing would involve a review by the third party
which could take lot of time.\"
Prime Database managing director Prithvi Haldea, however, thinks that SEBI's move would help in
preventing such fraud. \"The Sensex and Nifty companies constitute 60-70 percent of the market and so it
is a positive move in a right direction to prevent such frauds\", he added. SEBI also said the review of the
earning statement of some listed companies, on a random basis, outside the list of Nifty 50 and Sensex
would done.
NexGen's Thunuguntla said the SEBI's decision is positive in the right direction but is not sufficient to
bring back investors' confidence in general and foreign investors' confidence in particular.
He said, however, if the accounts are reviewed by the third parties, it will send strong message to the
investors.
On the issue of corporate confidentiality by such measures, Haldea said, \"corporate houses should only
fear if they commit any fraud.\"
Expressing a similar view, Nexgen's Thunuguntla added that considering the crisis in the market, the
measure would be better for the companies to bring back the confidence of the investors.

However, Agarwal said that's an issue, \"Nobody is questioning the good intention, but there might be
conflict of interest as there is a same set of agencies.\"
He further said that applying such measures randomly and spontaneously, rather than regularly, would be
a solution.
\"Instead of making it regular, random and spontaneous check should be done, so that logistics issues are
addressed, and there would be fear among corporate that accounts of any company might be checked,\"
he said.
Haldea said that the process would be random, but if too many companies get involved in such fraudulent
acts, then the review process could be made regular.
Thunuguntla sees nothing wrong if SEBI and ICAI do it on a regular basis, as they are responsible for
protecting the interest of investors.