The Securities and Exchange Board of India (Sebi) is pushing for a significant reduction in the time gap between the announcement of financial results and the publication of full annual reports by urging Chief Financial Officers (CFOs) to take proactive measures. This initiative aims to bolster investor confidence through enhanced transparency and more timely access to comprehensive financial information.
Currently, a considerable lag exists between the release of preliminary financial results and the availability of complete annual reports, ranging from 70 to 140 days. Sebi recognizes that the full annual report, with its detailed notes to accounts, internal controls report, audit key matters, and CARO (Companies Auditor's Report Order) disclosures, provides a much more informative and comprehensive picture of a company's financial health. Shortening this gap would provide investors with a more timely and thorough understanding of the company's performance and financial position.
Sebi Whole Time Member Ananth Narayan highlighted the critical role of CFOs in maintaining public trust and adapting to rapid market changes at the ETCFO NextGen 2025 event. He emphasized that CFOs have evolved from mere record-keepers to forward-looking value architects. He stressed that a CFO's sign-off on financial statements is a solemn promise that the presented information accurately reflects the enterprise's financial health, forming the bedrock of capital markets. Breaching this trust can lead to immense damage.
To enhance the reliability and transparency of financial disclosures, Sebi is encouraging CFOs to deepen their engagement with audit committees and auditors. This includes ensuring that audit committees and auditors are actively involved in shaping the audit plan for the year ahead. Furthermore, Sebi suggests that auditors should participate in audit committee meetings beyond discussing their specific agenda items. These measures aim to foster greater collaboration and accountability among stakeholders, ultimately strengthening investor confidence.
Sebi's push for reduced time lag and enhanced collaboration comes at a time of rapid capital market growth and an increasing number of unique investors. While acknowledging the importance of fostering innovation, Sebi also cautions against governance failures and over-regulation. Striking the right balance between these two is crucial for sustained capital growth.
In addition to addressing the time lag issue, Sebi is also focusing on challenges related to valuations. These challenges include perceived conflicts of interest, "valuation shopping" (seeking out favorable valuations), and wide divergences in valuations due to differing assumptions. To address these concerns, Sebi has suggested that valuers may need to make disclosures similar to those made by credit rating agencies, including disclosing assumptions, sensitivity ranges, and track records. This would increase accountability and transparency in the valuation process.
Sebi recognizes the importance of incorporating the expertise of CFOs in shaping effective regulations. The organization's processes, including advisory committees, public consultations, and regulatory working groups, are designed to incorporate CFO input. Sebi encourages CFOs to organize their voices to allow for formal representation in these forums. This collaborative approach will help ensure that regulations are well-informed and effective in fostering sustained capital growth while maintaining investor protection.
