Imposed changes - an exception to agreement in general:
Generally an agreement contains several terms and conditions which govern dealings between parties to the agreement. By mutual consent of all the partied or in some cases by majority of parties changes can be made in agreement, but there must be some consensus amongst the parties to the agreement. Some agreements are in standard formats, and generally one party dictate the terms and other party mostly agree to the same, subject to some agreed variations.
Listing agreement is entered into as an agreement between stock exchange and company or organization whose securities are listed on the stock exchange. Therefore, this is an agreement between two parties. However, as per SEBI Act, the SEBI has power to direct the stock exchanges to make modifications in the listing agreement. When such a direction is made, the Stock Exchange has to modify the agreement with listed entities. Thus, it is not really an agreement but there are dictates of a statutory authority, that need to be complied with, whether any party to such agreement agrees or not.
Conditions of listing:
Author view that amendment to listing agreement at dictates of SEBI is a misnomer. It can best be described as 'CONDITIONS OF LISTING". Those conditions can then be modified by statutory authority like SEBI. In that case there can be a short agreement between stock exchange and listed entities, and a reference to 'conditions of listing', can be made which will govern the stock exchange and the listing entities and any changes made in the same shall also be binding. In that case the requirement of modification of listing agreement shall be avoided.
Recent changes in listing agreement:
SEBI vide its circular no. CIR/CFD/DIL/1/2010 dated 5th April, 2010 has instructed Stock Exchanges to amend its listing agreement. A summary of the amendments, with applicable effective dates are indicated below:
a) Cases of amalgamation, arrangement etc- auditors certificate required:
While submitting the Schemes of arrangement/merger/amalgamation by Companies to Stock Exchanges under Clause 24(f) of the Listing Agreement , the Companies would also submit an auditors certificate to the effect that accounting treatment contained in such schemes is in compliance with the applicable accounting standards. This amendment will apply to applications for arrangement/merger filed with Courts after issue of the circular.
b) Quick Submission and publication of financial results by listed entities - Listed entities shall disclose on standalone or consolidated basis, their quarterly (audited or unaudited with limited review) financial results within 45 days of end of every quarter. Also, audited annual results on standalone or consolidated basis shall be disclosed within 60 days from the end of the financial year for those entities which opt to submit their annual audited results in lieu of the last quarter unaudited financial results with limited review.
- applicable immediately
c) Voluntary adoption of IFRS by listed entities having subsidiaries -to provide option to the listed entities having subsidiaries to submit their consolidated financial results either in accordance with Accounting Standards specified in Companies Act or in accordance with IFRS. Where figures of current period are as per IFRS and figures for corresponding previous period are as per notified accounting standards a reconciliation shall be provided in respect of significant differences between the figures discloses as per IFRS and as per the figures of notified accounting standards. - applicable immediately, however, it is optional.
d) Auditors must have peer review certificate - In respect of all listed entities, limited review statutory audit reports submitted to the concerned stock exchanges shall be given only by those auditors who have subjected themselves to peer review process of ICAI and who hold a valid certificate issued by Peer Review Board of the said Institute.
-applicable for results pertaining to quarters commencing 1st April 2010 onwards.
e) Interim disclosure of Balance Sheet items by listed entities
Listed entities shall disclose within 45 days from the end of half year as a note to their half yearly financial results, a statement of assets and liabilities in a specified format.
- applicable immediately
f) Format of limited review and statutory auditors report - These formats are being modified to make it clear that the disclosures pertaining to details of public shareholding and promoters shareholding, including details of ledged/encumbered shares of promoter/promoter group, contained in the format have been traced from disclosures made by the management.
- Effective date has not been specified the letter of Stock Exchange amending its
Listing agreement would hopefully specify the same.
g) Approval of appointment of CFO by Audit Committee -It has been decided that the appointment of CFO is approved by the Audit Committee before finalization of the same by the Management. The Audit committee while approving the appointment shall assess the qualifications, experience and background of the candidate.
- applicable immediately
The amendments are now tabulated with highlights for analysis and remarks are given below:
| Amendments to Listing Agreement with highlights for easy analysis and understanding |
Remarks of author. |
| 1. In clause 24 of the Equity Listing Agreement, after sub-clause (h), the following sub clause shall be inserted,-
"(i) The company agrees that, while filing for approval any draft Scheme of amalgamation / merger / reconstruction, etc. with the stock exchange under subclause (f), it shall also file an auditors' certificate to the effect that the accounting treatment contained in the scheme is in compliance with all the Accounting Standards specified by the Central Government in Section 211(3C) of the Companies Act, 1956.
Provided that in case of companies where the respective sectoral regulatory authorities have prescribed norms for accounting treatment of items in the financial statements contained in the scheme, the requirements of the regulatory authorities shall prevail.
Explanation - For this purpose, mere disclosure of deviations in accounting treatments as provided in para 42 of AS-14 shall not be deemed as compliance with the above". |
In schemes of amalgamations,merger, reconstruction etc. the accounting standard (AS) to be complied with.
In case of guidelines issued by any sector specific regulatory authority, those guidelines, will prevail instead of AS. There can be some times combination of such guidelines and AS.
The compliance must be effective, merely disclosure of deviations will not be acceptable. |
| 2. In clause 41, (i) in sub-clause(I): |
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| (a) in item (c); for the words "one month" and for the words "two months", wherever they appear the words "forty-five days" shall be substituted; |
For first to third quarter period increased from 30 day to 45 days for submitting unaudited results.
Shortening of period available for furnishing limited review report from two months to forty five days. |
| (b) in item (d), for the words "one month", " two months", wherever they appear, the words "forty-five days" and for the words "three months", wherever they appear, the words "sixty days" shall be substituted; |
In case of last quarter period available to submit unaudited results increased to forty five days from one month.
In case of last quarter if company opt to submit audited results for entire year, period shortened from three months to two months from end of the FY.
Limited review report to be submitted within 45 days instead of 60 days. |
| (c) in item (e)(i), for the words "one month" and for words "two months", wherever they appear, the words "forty-five days" shall be substituted; |
Stand alone results can be submitted within 45 days instead of one month.
Consolidated results for quarter and to date consolidated results may be submitted within forty five days instead of two month. |
| (d) in item (e)(ii), after the words "to the stock exchange" the words "within sixty days from the end of the financial year" shall be inserted; |
while submitting annual audited financial results prepared on stand-alone basis
under item (c), it shall also submit annual audited consolidated financial results to
the stock exchange.
The period of sixty days from end of FY has been prescribed. |
| (e) after item (e), the following item shall be inserted:- |
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| "(ea) As a part of its audited or unaudited financial results for the halfyear, the company shall also submit by way of a note, a statement of assets and liabilities as at the end of the half-year. |
Summary of balance sheet to be furnished with half yearly results. |
| (eaa) However, when a company opts to submit un-audited financial results for the last quarter of the financial year, it shall, submit a statement of assets and liabilities as at the end of the financial year only along with the audited financial results for the entire financial year, as soon as they are approved by the Board. |
In case for last quarter unaudited results are reported, then details of balance sheet will be furnished with audited financial results for the entire FY. |
| (f) after item (f), the following items shall be inserted, namely:- |
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| "(g) In case the company has subsidiaries and it opts to submit consolidated financial results as mentioned at (e) above, it may submit the consolidated financials as per the International Financial Reporting Standards (IFRS) notified by the International Accounting Standards Board. |
In case of company having subsidiary companies, opt to furnish consolidated financial results can be furnished on IFRS basis. |
| (h)The company shall ensure that the limited review/audit reports submitted to the stock exchanges on a quarterly/annual basis shall be given only by an auditor who has subjected himself to the peer review process of Institute of Chartered Accountants of India (ICAI) and holds a valid certificate issued by the Peer Review Board of the ICAI." |
The auditor must hold valid peer review process certificate.
Therefore, in case present auditor is not holding such certificate, then there should be appointment of new auditor who hold such certificate. This is applicable from quarter beginning 01.04.2010. |
| (ii) in sub-clause (V), after item (g), the following item shall be inserted, namely:- |
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| "(h) Disclosure of Balance Sheet items as per items (ea) shall be in the format specified in Annexure IX drawn from Schedule VI of the Companies Act, or its equivalent formats in other statutes, as applicable." |
Balance sheet items shall be disclosed as epr new Annexure IX, and such details shall be drawn from Balance sheet in format as per Schedule VI to the Companies Act or as per equivalent formats in other applicable statute, if any. |
| (iii) in sub- clause (VI), in item (b), for the words "only consolidated financial results", the words "consolidated financial results alongwith the following items on a stand-alone basis, as a foot note:- (a)Turnover (b)Profit before tax (c)Profit after tax", shall be substituted; |
The coverage of reporting increased to including operating results. |
| (iv) in sub-clause (VI) item (b), after para (iii), the following sub-para (iv) shall be inserted, namely:- |
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| "(iv) Companies that are required to prepare consolidated financial results for the first time at the end of a financial year shall exercise the option mentioned at (b) above in respect of the quarter during the financial year in which they first acquire the subsidiary." |
When for first time any company becomes a subsidiary company the option is to be exercised in the quarter in which a company became subsidiary for the first time and requirement of consolidated statements arises. |
| (v) in Annexure V, after the words "for the period ended……" the words "except for the disclosures regarding 'Public Shareholding' and 'Promoter and Promoter Group Shareholding' which have been traced from disclosures made by the management and have not been audited by us" shall be inserted; |
This is a consequential change in the audit/ review report form due to reliance of disclosure made by the management in respect of share holding pattern. |
| (vi) in Annexure VI, after the words "for the period ended……" the words "except for the disclosures regarding 'Public Shareholding' and 'Promoter and Promoter Group Shareholding' which have been traced from disclosures made by the management and have not been audited by us" shall be inserted; |
This is a consequential change in the audit/ review report form due to reliance of disclosure made by the management in respect of share holding pattern. |
| (vii) in Annexure VII(both parts), after the words "pursuant to the requirement of clause 41 of the Listing Agreement" the words "except for the disclosures regarding 'Public Shareholding' and 'Promoter and Promoter Group Shareholding' which have been traced from disclosures made by the management and have not been audited by us" shall be inserted; |
This is a consequential change in the audit/ review report form due to reliance of disclosure made by the management in respect of share holding pattern. |
| (viii) in Annexure VIII(both parts), after the words "pursuant to the requirement of clause 41 of the Listing Agreement"the words "except for the disclosures regarding 'Public Shareholding' and 'Promoter and Promoter Group Shareholding' which have been traced from disclosures made by the management and have not been audited by us" shall be inserted; |
This is a consequential change in the audit/ review report form due to reliance of disclosure made by the management in respect of share holding pattern. |
| (ix) after Annexure VIII, the following Annexure shall be inserted:- |
See the next table marked Annexure IX. This is to provide information about balance sheet items that is assets, and liabilities of company. |
| 3. In clause 49, sub-clause II, para D, after item 12, the following shall be inserted:-
"12A. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience & background, etc. of the candidate." |
Role of audit committee made more exacting in relation to appointment of CFO. |
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| "Annexure IX |
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(Rs. In lakhs) |
| Particulars |
6 months ended (dd/mm/yyyy) |
Corresponding 6 months ended in the previous year (dd/mm/yyyy) |
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Audited/Unaudited |
Audited/Unaudited |
| SHAREHOLDERS' FUNDS: |
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| (a) Capital |
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| (b) Reserves and Surplus |
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| LOAN FUNDS |
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| FIXED ASSETS |
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| INVESTMENTS |
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| CURRENT ASSETS, LOANS AND ADVANCES |
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| (a) Inventories |
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| (b) Sundry Debtors |
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| © Cash and Bank balances |
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| (d) Other current assets |
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| (e) Loans and Advances |
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| Less: Current Liabilities and Provisions |
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| (a) Liabilities |
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| (b) Provisions |
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| MISCELLANEOUS EXPENDITURE (NOT WRITTEN OFF OR ADJUSTED) |
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| PROFIT AND LOSS ACCOUNT |
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| TOTAL |
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Authors suggestions:
In the results to be furnished as well as to be published, information about trading in securities should be provided. In the following table requirement of reporting and illustration is given:
| Requirement of reporting |
Illustration of reporting |
| Number of shares (other securities) traded on different stock exchanges during the period under review, number of trading days and average turnover. |
Total quantity traded during the quarter at BSE 68,00,000.
Number of trading days at BSE 78
Number of days on which stock of company was trades 68
Average traded quantity per day of actual trade days 1,00,000 |
| Highest / lowest and average price of security. |
Highest 950
Lowest 450
Simple average 700
Weighted average 630 |
| Surveillance and regulatory measures taken by stock exchange like: |
There was suspension for ten days during … for reasons of ….
The circuit filter was changed from 20% to 10% w.e.f….. and again revised to 20% w.e.f. ….. |
| Major impact of government's policies which will effect company financials in next three years. |
The exemption from excise duty shall come to an end w.e.f…….
The income of company's … unit, which is exempt now shall become taxable from ….. |
