Extension Of Deadline By SEBI For Submitting Financials Proactive, Experts Say
SEBI has relaxed timelines for listed companies to submit quarterly and annual financials by 45 days and 1 month, respectively.
The Securities and Exchange Board of India has granted relaxation to listed companies for submission of their fourth quarter and annual financial results for fiscal year 2019-20 in the wake of the novel coronavirus outbreak.
The timeline has been extended by 45 days for fourth quarter earnings and 30 days for annual results. This means listed entities can now submit financials till the end of June compared with the earlier deadline of May 30. SEBI has also relaxed timelines for several other event-based, quarterly and annual filings.
The Ministry of Corporate Affairs, too, recently allowed board meetings to be conducted via video conferencing for approval of financials.
Here are the key implications of the extension for stakeholders:
Delayed But Detailed Financials For Investors
SEBI has relaxed the timelines for approval of financials as convening board meetings has become difficult for Corporate India. While this may help companies, investors will likely receive financials on delayed basis, thus impacting their investment decisions.
Experts pointed out that the extension was necessary against the current backdrop and the delay may also be a blessing in disguise for investors.
The extension by the market regulator is a welcome step to accommodate the current threat, Sushrut Chitale, partner at Mukund Chitale & Co., told BloombergQuint.
In an ordinary scenario, delaying results is considered to be an ominous sign for a company’s health. But these are exceptional circumstances where finalisation of accounts may get delayed. The proactive extension is thus a good step and won’t necessarily mean that companies will wait till the last juncture for declaring results, as coronavirus may even subside.Sushrut Chitale, Partner, Mukund Chitale & Co.
The fourth quarter of 2019-20 is likely to factor in the impact of coronavirus on operations of listed entities. Covid-19 may have high economic costs for the Indian economy and poses risks to the earnings of IT companies, according to experts.
Such factors necessitate additional disclosures in financial statements and companies may not have fully factored in such disclosures as yet. Globally, regulators are encouraging companies to disclose the impact Covid-19 is likely to have on their businesses, earnings and revenue pipeline, explained Shruti Ranjan, partner at Cyril Amarchand Mangaldas. The extension is a step in that direction, she said.
Auditors And Board Of Directors
The extended timelines provide a much-needed breather for auditors who could have otherwise struggled to meet the deadlines in the backdrop of the outbreak.
CARO 2020 has anyway introduced additional responsibility of reporting on auditors, Milan Mody, partner at NA Shah Associates, pointed out. The hardship caused as a result of this pandemic would’ve further aggravated the situation for them in the absence of this extension, Mody added.
Typically, listed entities approve their last quarter and annual financials at the same board meeting. An extended timeline would provide additional time to auditors, Chitale said.
Restriction on travelling and number of people working impacts an auditor’s ability to complete the audit on time. As March to May is the peak period for auditors due to annual audit and quarterly review, the extension provides a breathing space to statutory auditors.Sushrut Chitale, Partner, Mukund Chitale & Co.
The extended timeline for FY20 will have a spillover effect for auditors working on financial reporting for first quarter of FY21. The market regulator hasn’t provided any specific relief for the first quarter of the next fiscal.
“This is a one-time hazard and auditors will have to make up for the lost time,” Amarjit Chopra, senor partner at GSA Associates, said.
There’s relief for boards as well. The board of directors, according to listing regulations, must meet at least four times a year, with a maximum time gap of 128 days between any two meetings. The SEBI has now relaxed this requirement.
Banks And Tax Authorities
Timely disclosure of trigger events through financials allow banks to take preemptive actions. Would the extension impact India’s banking sector which is already grappling with a bad economic condition? Chopra and Chitale said this would not have a major impact.
Companies submit monthly stock and data statements which are the primary determinants of its drawing powers and cash credit limit from the bank. The extension could cause some delay for March, but will not have a major impact on the assessment by the bank of the borrower’s creditworthiness.Sushrut Chitale, Partner, Mukund Chitale & Co.
Another key stakeholder that would be impacted by the market regulator’s move is the income tax department, which relies on audited financials of companies for tax assessments. Companies grappling with a difficult economic cycle have made a plea for tax reliefs.
Chopra pointed out that the extension will not specifically impact tax collections, as companies generally pay advance tax by March 15 and the law provides enough time to companies, till September, to file tax returns.
Experts also told BlombergQuint that other regulators too must complement relaxations granted by SEBI.
These steps must be matched with a synchronised action from other regulators to minimise the impact on companies, Chopra explained.
The current situation calls for a relaxation in certain aspects of accounting or auditing standards. Timelines for crucial audit activities like inventory verification and valuation would be impacted. Impairments may go higher and a question would arise whether they can be treated as an extraordinary event or not.Amarjit Chopra, Senior Partner, GSA Associates
All such aspects need a consideration by the accounting regulators, he said.