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General Manager

Secondary Market Department

Email: ravindran@sebi.gov.in

SMD/Policy/Cir-2/2003

January 10, 2003

 The Executive Director/Managing Director

Of All the Stock Exchanges

 Dear Sir/Madam,

Sub: Amendment to Listing Agreement – Clause 32 and Clause 41.

The Accounting Standards Committee of SEBI (ASC) has been set up as a Standing Committee, under the Chairmanship of Shri Y H Malegam, inter-alia to review the continuous disclosure requirements of the listed companies. The Committee considered the issues with regard to disclosure by listed companies in respect of loans/ advances and investments, disclosure of audit qualifications and actions thereon, present disclosure requirements under listing agreement etc. and has made following recommendations:-

Disclosure of loans/ advances and investment in its own shares by the listed companies, their subsidiaries, associates etc .

 1. The following disclosure requirements shall be prescribed for the listed companies in the annual accounts of the company.

 Sr.No  In the accounts of  Disclosures of amounts at the year end and the maximum amount of loans/ advances/ investments outstanding during the year.
1. Parent
  • Loans and advances in the nature of loans to subsidiaries by name and amount.
  • Loans and advances in the nature of loans to associates by name and amount
  • Loans and advances in the nature of loans where there is
    • (i) no repayment schedule or repayment beyond seven years or
    • (ii) no interest or interest below section 372A of Companies Act by name and amount.
  • Loans and advances in the nature of loans to firms/ companies in which directors are interested by name and amount
2 Subsidiary Same disclosures as applicable to the parent company in the accounts of subsidiary company.
3 Parent Investments by the loanee in the shares of parent company and subsidiary company, when the company has made a loan or advance in the nature of loan.

Note : 1) For the purpose of the above disclosures the terms “parent” and “subsidiary” shall have the same meaning as defined in the Accounting Standard on Consolidated Financial Statement (AS21) issued by ICAI.

2) For the purpose of the above disclosures the terms ‘Associate’ and ‘Related Party’ shall have the same meaning as defined in the Accounting Standard on “Related Party Disclosures (AS 18)” issued by ICAI

3) For the purpose of above disclosures directors interest shall have the same meaning as given in Sec 299 of Companies Act.

The above disclosures shall be applicable to all listed companies except for listed banks.

Implementation

 It has been decided to amend Clause 32 of the listing agreement to incorporate the above additional disclosure requirements.

Quarterly review of un-audited results

  It shall be prescribed for the listed companies that un-audited quarterly results shall be subjected to Limited Review from the quarters ending on or after June 30, 2003

 Implementation:

 Currently only half yearly results of listed companies are subjected to limited review by the auditors. It has been decided to amend Clause 41 of the listing agreement to incorporate that un-audited quarterly results shall also be subjected to Limited Review from the quarters ending on or after June 30, 2003. All other provisions of Clause 41 relevant to half yearly limited review shall now be applicable to limited review of un-audited quarterly results.

 Publication of consolidated financial results along with stand-alone financial results

3. Requirement of publication of consolidated financial results along with stand-alone financial results shall be applicable on annual basis only. However, companies may have option to publish consolidated financial results along with stand alone financial results on a quarterly/half yearly basis.

 Implementation 

It has been decided to amend Clause 41 of the listing agreement to provide that publication of consolidated annual financial results along with stand-alone annual financial results shall be mandatory and the companies shall continue to have the option to publish consolidated financial results along with stand alone financial results on a quarterly/half yearly basis.

 Disclosure of Audit qualifications and action thereon

4. The current provisions of the listing agreement requires companies to furnish details regarding audit qualifications and in case of audit qualifications, stock exchanges shall ask the companies to explain:

  • why there is audit qualification in their accounts,
  • why the company failed to publish accounts without audit qualifications and
  • when the company will remove the qualifications and publish account without qualifications.

In addition to the above the stock exchanges shall also be required to inform Securities and Exchange Board of India (SEBI) in cases where companies have failed to remove audit qualifications.

Implementation :

It has been decided that in addition to the present requirement of stock exchanges asking companies, in case of audit qualifications, to explain

  • why there is audit qualification in their accounts,
  • why the company failed to publish accounts without audit qualifications and
  • when the company will remove the qualifications and publish account without qualifications.

the Exchanges shall also be required to inform SEBI within 7 days from the date of submission of the relevant audited results of cases where companies have failed to remove audit qualifications.

The Exchanges are advised to amend the listing agreement accordingly and confirm compliance in this regard immediately.

Yours faithfully,

S. RAVINDRAN

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