Auditors struggle with Covid, but no extension likely for FY21 earnings reports
At present, listed companies are required to file their fourth quarter (January-March) results within 45 days—that period ends on May 15
The Securities and Exchange Board of India (Sebi) may not extend the deadline for listed companies to file their earnings reports for the fourth quarter and the full financial year 2021. However, the capital market regulator could relax compliance requirements for brokers and depository participants as India finds itself in the worst phase of the pandemic so far, according to sources.
“So far, a straightway extension to file earnings reports is not being considered. Unlike last year when the government had imposed complete nationwide lockdown, this time only some states have imposed severe Covid curbs. Companies should be able to finalise their results and extra time may not be needed at this stage, said one of the sources.
Relaxation can’t be given state-wise and it has to be across the board. However, if most of the units of a company are in a containment zone, we could think of giving a grace period until it’s out of that zone, the source added.
At present, listed companies are required to file their fourth quarter (January-March) results within 45 days—that period ends on May 15.
Besides, they are required to report the full-year financial earnings by May 31. According to the norms, a company can delay release of its earnings in special circumstances such as auditor resignation, or if directed by the court.
Many companies including some industry lobby groups are learnt to have approached Sebi seeking extension of the deadline owing to challenges being faced particularly by auditors due to curfews and lockdown.
In a recommendation to Sebi, apart from extension, companies have also asked for waiving off penalties for delayed submission of results. Companies are in favour of giving a series of interim qualitative disclosures relating to the health of business and continuity plans in the midst of the pandemic. Sebi and the Ministry of Corporate Affairs (MCA) would have to jointly decide on any such relief sought by businesses, say audit experts.
“We have seen cases of companies doing this assessment, and changing their reporting timelines,” said Jamil Khatri, partner in audit firm, BSR & Co. His sense is that many more companies may need to defer their reporting timelines. Senior finance executives pointed out that many team members were unavailable as either they were down with Covid or were attending to Covid patients in their family. Covid-related travel restrictions in many cities added to their woes. It’s the same in many of the audit firms.
Industry experts pointed out that in most companies finance and audit teams were dependent on specific individuals for critical areas of book closure and audit. “The surge and the rapid spread of the infection is putting a lot of the burden on the financial reporting ecosystem,” noted Chandrika Sridhar, partner at Deloitte India. An extension of reporting timelines would help companies activate their processes on remote working, initiate internal controls related to financial reporting, and close processes relating to risks arising from the surge, added Sridhar.
Under year-end reporting, several incremental procedures and confirmations need to be put in place for the financial statements to be audited. “Some of the year-end procedures do require close engagement and interaction between the auditor and the management, and it is best to delay and avoid the same at this stage,” says Sandip Khetan, national leader and partner, Financial Accounting Advisory Services, EY India.
There is also the added pressure on finance teams and auditors to ensure that the financial numbers accurately and transparently reflect the impact of the pandemic on business.
But there are some such as Harak Banthia, chief finance officer at oil and energy firm HPCL-Mittal Energy, who have decided to go ahead with their annual board meeting despite directors expressing concern and at least 20 per cent of the team members being down with Covid.
Not all companies appear that confident of meeting the compliance requirements for year-end financial reporting by May 31.
“Corporate India needs to ensure that risks as inherent in the business due to Covid disruptions are appropriately factored in its judgements and estimates,” said Khetan. Further, given the recent surge, managements need to create enough financial cushion by way of long-term debt and equity to ensure that businesses can withstand disruptions over the next 12 to 24 months as well, he said.