Date:09/08/2005 URL: http://www.thehindubusinessline.com/2005/08/09/stories/2005080902630100.htm

Back Compliance with revised Clause 49 — SEBI must clarify scope of internal control, say experts

K.R. Srivats

New Delhi , Aug. 8

THE SEBI must clarify the scope of `internal control' for the purpose of compliance with the revised Clause 49 of the listing agreement, say experts in assurance services.

They also raise the issue of absence of clarity on when the first set of quarterly compliance report should be submitted to the stock exchanges - within 15 days from the end of quarter ended March 31, 2006 or within 15 days from the end of quarter ending on December 31, 2005.

Assurance services are basically an objective examination of evidence for the purpose of providing an independent assessment of risk management, control, or governance processes in an organisation.

In March this year, the SEBI had extended the date for ensuring compliance with revised Clause 49 from April 1 to December 31. Apart from requiring the audit committee to mandatorily review the existence, if any, of internal control weaknesses, the revised Clause 49 also mandates the management to comment about internal control systems and their adequacy in the management discussion and analysis report that should form part of the annual report.

Mr Monish Chatrath, Practice Director (Assurance Services), Grant Thornton India, told Business Line: "When you say control, the issue is whether it's all controls or only financial control. It has become a matter of interpretation. Because we don't find the term `financial' there (in revised Clause 49), one is inclined to interpret that it is not only financial but all controls."

He added that there has to be clarity on the areas or processes that should be covered under `internal control'.

Mr Chatrath said the Sarbanes-Oxley Act of the US clearly spelt out that the focus should be on "internal controls over financial reporting and disclosure controls." On the other hand, the UK's combined code specifies that the focus should be on "all material controls, including financial, operational, and compliance controls."

Mr Vishesh C. Chandiok, Partner and Director (International Business), Grant Thornton India, said that clarity on the scope of internal control would ensure that there is focus in the area for which there is a requirement; the rest could be considered good practices or best practices.