AUDITORS  Responsibility with regards to , Amendment in Clause 41 of the Listing Agreement.

 LIMITED REVIEW

  As per instructions of SEBI, the stock exchanges have recently revised the listing agreements by amending clause 41 thereof. ( See circular no. SMD-11 POLICY CIR-082000). The amended clause now requires all listed companies to publish their quarterly unaudited results in a prescribed manner giving certain specific disclosures and following a prescribed format in addition to publishing the quarterly results such companies also have to prepare half- yearly results for the first two quarters and these half-yearly results are to be subjected to a limited review by the auditors of the company.

QUARTERLY RESULTS:

Listed companies will have to furnish unaudited financial results on a quarterly basis with effect from the quarter ending on March 31, 2000 within one month from the end of quarter to the stock exchange. The Board of Directors or its sub-committee should take on record the unaudited quarterly results, which shall be signed by the managing Director/ director.

The Company will have to make an announcement of the aforesaid results to the stock exchanges where its securities are listed, immediately after the market hours on the date of the Board meeting or meeting of a sub-committee of Board of Directors in which the unaudited financial results are placed and also within 48 hours of the conclusion of the Board or its sub-committee meeting in at least one English daily newspaper circulating in the whole or substantially the whole of India and in one newspaper published in the language of the region where the registered office of the company is situated.

The company shall inform the stock exchange where its securities are listed about the date of the board meeting at least seven days in advance and shall also issue immediately a press release in at least one national newspaper and one regional language newspaper about the date of aforesaid Board or its sub committee meeting.

In respect of results for the last quarter, if the company intimates in advance to the stock exchanges that it will publish audited results within 3 months from the end of the last quarter, then in such a case, unaudited results for the last quarter need not be published/ given to the stock exchanges.

The quarterly results shall be prepared on the basis of accrual accounting policy and in accordance with uniform accounting practices adopted for all the periods on quarterly basis.

HALF YEARLY RESULTS

Apart from the requirements to prepared and publish the quarterly results, effective from half year ending 31^st March 2000 there is an additional requirement of preparation of half yearly results for the first two quarters of the Company’s financial year. It is pertinent to note in this context that although the unaudited results published for the second quarter will also include the cumulative figures for the half year but the half yearly results as such are not required to be separately published. They are required to be subject to a limited review by the auditors of the company and the review report together with the accompanying half yearly results as approved by the Board of Directors are to be submitted to the stock exchanges within two months from the close of the half year.

 The half yearly results are required to be prepared in the same format and following the same disclosure requirements as are required for the unaudited quarterly results. If the sum total of the first and second quarterly unaudited results in respect of any item varies by 20% or more from the respective half yearly results as determined after the “ Limited Review” by the auditors, the company shall send a statement explaining the reasons to the stock exchanges along with the Review report. Such explanatory statement needs to be approved by the Board of Directors prior to submission to the stock exchange.

 LIMITED REVIEW

As per SEBI circular no. SMD/POLICY/CIR-26/2000 the Review Report shall be in the following format:

“ We have reviewed the accompanying statement of unaudited financial results of ( Name of the company) for the period ended. The statement is the responsibility of the company’s management.

A review of interim financial information consists principally of applying analytical procedures for financial data and making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the generally accepted auditing standards the objective of which is the expression an opinion regarding the financial statements taken as a whole. Accordingly we do not express such an opinion.

Based on our review conducted nothing has come to our notice that causes us to believe that the accompanying statement of unaudited financial results has not disclosed the information required to be disclosed in terms of Clause 41 of the listing agreement including the manner in which it is to be disclosed, or that it contains any misstatement.”

The prescribed reporting format has a few important implications. One, is that the scope of review will be substantially limited in comparison with normal year end audits. It will basically entail application of analytical procedures and gathering information by way of inquiries with concerned persons. Secondly, it will not be an expression of opinion on correctness or fairness of the statement. Based on his review, the auditor is only required to give an negative assurance that he has not noticed anything which causes him to believe that either the required disclosures  in terms of clause 41 have not been made or that the statements contain a material misstatement. Materiality, in this context with the guidance notes or other pronouncements made by the ICAI.

In case the auditor observes that the financial results have not given certain disclosure or if he comes across any material misstatement therein the company can revise the statement and get it approved by the Board of Directors. However, if the company does not agree to do so, the auditor should suitably qualify his report.

If the sum total of any item in respect of the first and second quarterly unaudited, published results varies by 20% or more from the respective half yearly results as determined after the Limited Review by the auditors, the company shall send a statement (approved by the Board) explaining the reasons to the stock exchange along with the Review report.

From the Practitioners point of view it is suggested that he should obtain an engagement letter from the client, which should clearly specify the scope objective and limitations of the Limited Review assignment. The terms of the assignment should give unrestricted access to the auditor to all records, documentation and other information requested in connection with the review. Appropriate written representations may also be taken from the management depending on the circumstances of each case.

The auditor should plan his work beforehand and he should obtain proper understanding of the clients business as well as the financial and accounting systems. It is also very important to document the procedures applied in course of the assignment as well as the matters, which are important in providing evidence to support the Review report. In this regard reference may be made to the Guidance Note on engagements to Review Financial Statements issued by the ICAI, which includes detailed procedures.

Since the concept of Limited Review is relatively new in the Indian context it would be advisable be if the auditor informs the client in advance about the information and documents that should be made available. The usual year end closing procedures should also be applied at the time of preparation and verification of half yearly results.

3 months ended	Corresponding 3 months in the previous year	Years to date figures for the current period	Year to date figures for the previous year	Previous accounting year
1. Net Sales/Income from operations
2. Other Income
3.Total Expenditure
a. Increase/Decrease in stock in trade
b. Consumption of raw material
c. Staff cost
d. Other expenditure (any item exceeding 10% of the total expenditure to be shown separately)
4. Interest
5. Depreciation
6. Profit(+)/ Loss(-) before tax (1+2-3-4-5)
7. Provision for taxation
8. Net Profit(+)/Loss(-)  (6-7)
9. Paid up equity share capital
10. Reserves excluding revaluation reserves (as per balance Sheet) of previous accounting year to be given in column 5
11. Basic and Diluted EPS for the period, for the year to date and for the previous year (not to be annualized)

 DISCLOSURE REQUIREMENTS

The quarterly results have to be prepared in a prescribed format (given above) and will have to inter-alia include the following disclosures:

·        Events that are material to an understanding of the results of the quarter e.g. expansion and diversification programs, strikes, lock-outs change in management or in capital structure etc.. Similar material event subsequent to the end of the quarter the effect whereof is not reflected in the results for the quarter shall also be disclosed.

·        All material non-recurring/ abnormal income/ gain and expenditure/ loss and effect of all changes in accounting practices affecting the profits materially.