SEBI : Audit of accounts of members

Securities and Exchange Board of India (SEBI)

SR.EXECUTIVE DIRECTOR

To,

The Executive Director/Secretary
Bombay/Ahmedabad/Calcutta/Madras/Delhi/
Hyderabad/Madhya Pradesh/Bangalore/
Cochin/Uttar Pradesh/Pune/Ludhiana/
Gauhati/Mangalore/Magadh/Jaipur/
Saurashtra-Kutch/Vadodara/
Coimbatore/Bhubaneshwar

Dear Sir,

Audit of accounts of members

Reference is invited to circular no. F.1/5/SE/83, Government of India, Ministry of Finance, Department of Economic Affairs, Stock Exchange Division, dated May 31, 1984 (copy enclosed).

Para 7 of the circular enjoins that audit of the accounts of the members of stock exchanges should be completed within 6 months from the closing of the books of accounts. In individual cases, an extension for a period not exceeding 3 months may be granted by the concerned Executive Director/Secretary of the stock exchange, if he is satisfied that adequate reasons exist for granting such an extension.

Attention is also invited to Para 8 of the circular which requires stock exchanges to evolve a system of monitoring so that it is ensured that all their active members submit the audited report within the prescribed time. These reports are required to be examined and appropriate action should be taken on deficiencies by the stock exchanges.

You are requested to ensure that the members of your stock exchange strictly adhere to the time schedule fixed by the Ministry in this regard. A compliance report indicating the completion of audit of the accounts for the year 1991-92 of the members should be forwarded to SEBI by January 15, 1993. A list of individual cases where extension has been granted on the basis of adequate reasons may also be submitted, indicating the period of extension granted in each case separately. Action taken or initiated for non-compliance may also be intimated to SEBI.

Yours faithfully,
sd/-

C.B. BHAVE

No. F.1/5/SE/83
Government of India
Ministry of Finance
Department of Economic Affairs
Stock Exchange Division

To,

The President/ The Executive Director,
Bombay/Calcutta./Delhi/Madras/
Ahmedabad Stock Exchange

The President,
Bangalore/Hyderabad/Madhya Pradesh/Cochin/Uttar Pradesh/
Pune/Ludhiana/Gauhati Stock Exchange.

SUBJECT: Audit of Accounts of members of Stock Exchanges by Chartered Accountants

Dear Sir,

I am directed to refer to this Ministry’s letter of even number dated the 29th January, 4th March, 11th August, 1983 and 11th January, 1984 regarding the subject noted above and to say that this Ministry have since finalised the norms of audit of members of Stock Exchanges in consultation with the Institute of Chartered Accountants of India and representatives of the Stock Exchanges.

The nature and scope of the audit are given below:

1. The accounts of ‘active’ members of Stock Exchanges for every accounting year beginning after 31st March, 1984 shall be audited by qualified Chartered Accountants. An ‘active’ member of the Stock Exchange refers to a member who has done business in securities even for a single day in the accounting year.

2. The annual audit of accounts of a member of the Stock Exchange will be of the nature of the normal audit conducted in the case of companies, cooperative societies and other entities.

3. The audit will cover books of accounts and other documents as specified under Rule 15 of the Securities Contracts (Regulation) Rules, 1957. The above books of accounts and other documents should be maintained in such a manner that the following information also is readily available :-

a. Settlement for transactions in specified shares/securities (with clients and brokers on each settlement)

b. Transactions in non-specified shares/securities scrip-wise.

c. Shares/securities received from the clearing house and delivered to the clearing house.

d. Shares/securities from customers for sale and those delivered to the customers after the purchase.

It is clarified that it would be considered sufficient compliance with the above requirement if one or more of the above records are maintained in a composite form, provided they give the required information in a ready and clear manner.

4. In addition to the books and documents required to be kept as prescribed in paragraph 4 above, the members of Stock Exchanges may also at their option keep the following books :

a. Petty Cash Book

b. Order Book

c. Register of shares/securities sent for transfer

d. Register showing transfer of shares rejected by the company

e. Contract and transfer stamps register

5. The auditor should submit his report in the following form:

We have audited the attached balance-sheet of M/s. A.B.C. as at ___ and the profit and loss account for the year ended on that date thereto and report that :

a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

b. In our opinion, proper books of account and records as specified in Rule 15 of the Securities Contracts (Regulation) Rule, 1957 have been kept so far as appears from our examination of such books.

c. The stock broker has complied with the requirements of the stock exchange so far as they relate to maintenance of accounts and was regular in submitting the required accounting information to the stock exchange.

d. The balance sheet and the profit and loss account referred to in this report are in agreement with the books of account.

e. In our opinion and to the best of our information and according to the explanations given to us, the said balance sheet and the profit and loss account read together with the notes thereon give a true and fair view insofar as it relates tot he balance-sheet, of the state of affairs of M/s. ABC, and insofar as it relates to the profit and loss account, of the profit of M/s. ——————– for the year ended on that date.

6. The audit should be completed within six months of the date of closing of the books of account. In individual cases, an extension for a period not exceeding 3 months may be granted by the concerned Executive Director/Secretary of the Stock Exchange if he is satisfied that adequate reasons exists for granting such an extension. The audit report should be made out in triplicate and addressed to the member of the Stock Exchange. The member should submit, within 30 days of the receipt of the audit report, two of the copies of all the audit reports to the Executive Director/Secretary of the concerned Stock Exchange, who should submit quarterly one of the copies of all the audit reports received during a quarter to the Ministry within one month of the end of the quarter. The audit reports to be submitted to the aforesaid authorities need not be accompanied by the copies of the relevant profit and loss account and balance sheet. However, the said stock exchange authorities and/of the Ministry of Finance shall have a right to obtain a copy of the profit and loss account and/or the balance sheet wherever they consider necessary.

7. The Stock Exchanges would evolve a system of monitoring so that it is ensured that all their active members submit the report within the prescribed time. Besides, the reports so received should also be examined and appropriate action too should be taken on the deficiencies. The Stock Exchange would further see that condition regarding the submission of audit reports to Government are strictly observed

8. All active members of Stock Exchanges irrespective of their size shall be subject to the audit of their accounts.

Sd/-
(D.R. MEHTA)
Joint Secretary to the Government of India