SEBI proposes to bring more transparency in audit of listed cos.

The SEBI Committee on Disclosures and Accounting Standards (SCODA) has recommended mandatory rotation of the partners of the audit firms every five years to ensure that the statutory auditors are not influenced by the company's management.

The committee has also discouraged any long-term association of an audit partner with the company's management as any long-term association may lead to complacency and defeat the true sense of independence of the auditors.

The committee also recommended that the approval of shareholders should be obtained for appointment of the statutory audit firm, while the responsibility for ensuring the independence of the firm will lie with the company's internal audit committee.

The company's internal audit committee should also be responsible for ensuring that the CFO has the necessary accounting or related financial management expertise though the CFO need not be a certified chartered accountant himself. The CFO can be a person who possesses "experience in financial or accounting or any other comparable experience or background which results in the individual financial sophistication," the committee said. Similarly, the CEO of a listed company should be suitably qualified in order to comply with financial literacy requirements of corporate governance, the committee said, though it refused to prescribe any professional qualification for such functionaries.

This is necessary as under Clause 49 of the Listing Agreement pertaining to 'corporate governance,' the CEO and CFO of the listed entity is required to certify that he has reviewed the financial statements and the cash flow statement for the year and that to the best of his knowledge and belief, these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading.