SEBI Tells ICAI to Suggest Accounting Rules For IPOs

Even as the Institute of Chartered Accountants of India (ICAI) is wrapping up its study on the valuation process in initial public offers, capital market regulator SEBI has asked the accounting body to study IPO reforms. Officials in the know say ICAI will suggest ways to make accounting treatment of IPOs more stringent, and find out ways for an efficient oversight on management of IPO funds.     

The proposed study would look into ways to raise the accountability of companies floating IPOs. This is seen by the government and SEBI as an area of concern. While SEBI has fast-tracked introduction of a mechanism to make the process of IPOs investor-friendly, the ministry of corporate affairs is looking into the discrepancies in valuation of IPOs.

The proposal was made during a recent meeting between SEBI chairman C B Bhave and officials of ICAI. Sources indicated SEBI’s proposal is aimed at tracking the irregularities that companies resort to while accounting IPO transactions. The idea is to plug the loopholes which companies often adopt to save themselves from being caught.

The government fears companies coming out with public offers often take investors for a ride by artificially raising the price of their scrips. The final draft of the Companies Bill 2008 has also shown concern for shareholders, who often suffer at the hands of companies. According to the bill, which is likely to be introduced in Parliament soon, company managers who misrepresent facts in their offer document will have to go to jail.

ICAI president Ved Jain said the institute is about to complete its study on IPO valuations. The study was initiated at the behest of ministry of corporate affairs, which wanted the regulator to study the pricing of IPOs and stock movements. Officials said the SEBI chief also discussed with ICAI the accounting standards affecting complex financial instruments.