SR EXECUTIVE DIRECTOR
October 27, 1993
The President/Executive Director
of All the Stock Exchanges
Submission of Audit Certificates by brokers.
Please refer to our letter No.SMD/SED/0012/92, dated December 31, 1992 regarding the aforesaid subject. In this regard, I draw your attention to the Circular No. F1/5/SE/83, of Govt of India, Ministry of Finance, Department of Economic Affairs, Stock Exchange Division, dated May 31, 1984 (copy enclosed). You may kindly intimate to us the number of members who are yet to file the Audit Reports with the Stock Exchange and the members who have been given extension to file such reports.
You may recall that last year the audit reports for 1991-92 were received very late and the members had pleaded that they were not aware of this requirement. The Exchanges were required to take penal action but the action was mild on account of the fact that it was the first year of serious implementation. This year all Exchanges must take stringent action to ensure that the reports are received in time. For those members not following the deadline deterrent action may be taken.
You may give us the details of the action taken by you alongwith the names of the members who have not complied with the time limit. Your reply should reach us by December 5, 1993.
C. B. BHAVE
cc: Regional Offices.
Government of India
Ministry of Finance
Department of Economic Affairs
Stock Exchange Division
New Delhi, the 31st May, 1984.
The President/ The Executive Director,
Ahmedabad Stock Exchange.
Bangalore/Hyderabad/Madhya Pradesh/Cochin/Uttar Pradesh/
Pune/Ludhiana/Gauhati Stock Exchange.
I am directed to refer 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 nature of the normal audit conducted in the case of companies, co-operative 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.
4. 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.
5. In addition to the books and documents required to be kept as prescribed in paragraph 4 above, the members of Stock Exchange 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
6. The auditor should submit his report in the following format:
We have audited the attached balance-sheet of M/s. ABC as at _ for the year ended on that date.
7. 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 exist 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 the audit reports to the Executive Director/Secretary of the concerned Stock Exchange, who would 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/or 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 considered necessary.
8. 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 be examined and appropriate action should be taken on the deficiencies. The Stock Exchanges would further see that condition regarding the submission of audit reports to Government are strictly adhered.
9. All active members of Stock Exchanges irrespective of their size shall be subject to the audit of their accounts.
D. R. MEHTA)
Joint Secretary to the Government of India