The Securities and Exchange Board of India (SEBI) has proposed a new online monitoring and supervision framework aimed at enhancing the quality and accountability of system audits for stock brokers. This framework seeks to address several issues identified in current audit practices and introduce a more transparent and efficient system.
Under the proposed framework, SEBI suggests introducing a web-based portal that will allow stock exchanges to oversee the entire audit lifecycle. The new online monitoring mechanism will enable exchanges to detect deficiencies in the audit process before it is completed. Additionally, it will facilitate real-time interactions between exchanges and auditors during the audit process, ensuring better compliance with regulatory standards.
The proposal stems from concerns over current audit practices, which include the lack of physical audits at stock brokers’ premises, reliance on insufficient evidence, and the use of unqualified auditors. SEBI aims to address these gaps through the introduction of a technology-driven platform that mandates physical inspections by authorised auditors, ensuring better quality and accountability.
The proposed platform will incorporate geo-location data to confirm on-site visits and provide secure interactions through one-time passwords (OTPs). This measure will ensure that audits are conducted as per the prescribed norms and help verify the authenticity of auditors’ actions during the process.
Stock exchanges will have comprehensive oversight over the entire audit process, from the appointment of auditors to the submission of the final audit reports. They will also be required to develop standardised templates for audit reports. These reports must cover critical areas such as IT infrastructure, critical systems, and audit methodologies, ensuring consistency and thoroughness in reporting.
The proposed framework introduces stricter eligibility requirements for auditors, focusing on their qualifications and independence. This aims to reduce conflicts of interest and ensure that only competent and impartial professionals are involved in conducting audits.
Qualified Stock Brokers (QSBs) will be subjected to increased scrutiny under the new framework. They will be required to submit both audit reports and action-taken reports (ATRs) approved by their governing boards. This additional step will ensure that any issues identified in the audits are addressed promptly and thoroughly.
SEBI has proposed random inspections to verify compliance with audit standards and identify any discrepancies. These inspections will be part of a broader effort to ensure that all stakeholders adhere to the new regulations and maintain the integrity of the auditing process.
The Securities and Exchange Board of India (SEBI) has opened the draft framework for public comments. Stakeholders are invited to submit their feedback by December 26, 2024. This consultation process will allow SEBI to fine-tune the framework based on input from industry participants and other interested parties.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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