SEBI norms on Internal Audit and Audit committee of Market Infrastructure Institutions
With objective to strengthen governance at stock exchanges, depositories and clearing corporations, the Securities and Exchange Board of India (SEBI) has revised the norms on internal audit mechanisms and the composition of audit committees at market infrastructure institutions (MIIs).
The audit committee of an MII will no longer include any Executive Director, including the Managing Director. While MDs will not be part of the committee, they may be invited to attend meetings with the permission of the committee chairman. However, they will not have voting rights. Similarly, key management personnel of the MII will have the right to be heard in audit committee meetings when the auditor’s report is under consideration, but they will not have voting rights.
The changes come after industry's feedback and discussions with the Secondary Market Advisory Committee (SMAC) of SEBI. The audit committee has the responsibility to approve related party transactions, scrutiny of financial statements, and evaluation of financial controls and risk management systems. The SEBI is of the view that such roles require objective evaluation. The market regulator has also directed MIIs to conduct an internal audit of all functions and activities at least once in a financial year. As per SEBI, the internal auditor of the MII shall be an independent audit firm(s). The MIIs shall have a policy for appointment of internal auditors approved by the audit committee and governing board of the MII. It will report only to the audit committee of the MII. Further, the observations of the internal auditor will be sent to the respective head of departments for their comments which will be included in the final report. If any observations are dropped after clarification from the HoDs, then rationale or justification will have to be provided.
The auditor has been directed to appraise the audit committee at least once in every six months on critical issues concerning the MII, in the absence of the management.
The new norms will come into effect after three months.
