SEBI Proposes Mandatory Digital Assurance of Financial Statements for Top Listed Firms

resr 5paisa Research Team

Last Updated: 4th February 2025 - 12:36 pm

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The Securities and Exchange Board of India (SEBI) has proposed a significant regulatory shift by mandating digital assurance of financial statements for the top 100 listed companies. This move aims to enhance transparency, improve disclosure standards, and reinforce investor confidence in corporate financial reporting.

What is SEBI’s Proposal?

SEBI’s consultation paper suggests that the top 100 listed entities, based on market capitalization, must provide a separate digital assurance report on their financial statements starting from the financial year 2024-25. This digital assurance framework will allow auditors to rely on external sources of information, thereby strengthening the audit process.

The proposed digital assurance report must be prepared by an auditor who:

  • Has undergone the peer review process by the Institute of Chartered Accountants of India (ICAI).
  • Holds a valid ICAI-issued certificate.


Objective and Benefits of Digital Assurance

The introduction of digital assurance aims to:

  • Enhance Financial Transparency: Digital assurance will ensure greater reliability of financial data, reducing the risk of misreporting or manipulation.
  • Improve Audit Standards: The use of external data sources will help auditors cross-verify information more effectively.
  • Boost Investor Confidence: With stricter financial oversight, investors can place greater trust in the audited reports of listed firms.
  • Strengthen Regulatory Compliance: This initiative aligns with global best practices in financial reporting and corporate governance.

 

ICAI’s Technical Guide on Digital Assurance

The Institute of Chartered Accountants of India (ICAI) has previously introduced a technical guide to help auditors incorporate technology into their audit processes. The guide highlights:

  • External Audit Evidence: Methods for utilizing digitally available financial data.
  • Enhanced Audit Procedures: Recommendations for improving the accuracy and reliability of financial audits through digital verification.

However, the ICAI guide does not impose any specific reporting obligations on auditors or listed entities. SEBI’s proposal seeks to bridge this gap by making digital assurance reporting a mandatory requirement.

Compliance Timeline and Penalties

As per SEBI’s proposal:

  • The management statement and auditor’s report on digital assurance must be submitted to stock exchanges by July 31, 2025, for the financial year 2024-25.
  • For subsequent years, the deadline remains July 31.
  • Non-compliance with the prescribed timeline will attract monetary penalties.


Industry Reactions and Next Steps

Market experts have acknowledged SEBI’s initiative as a progressive step towards modernizing financial reporting. However, companies may need to invest in digital infrastructure and audit firms might require additional training to adapt to these new requirements.

SEBI has invited public comments on this proposal, with the feedback window open until February 24, 2025. Based on industry responses, SEBI may refine and finalize the framework before implementation.

Conclusion

The introduction of digital assurance reporting represents a landmark shift in India’s financial regulatory landscape. By leveraging technology, SEBI aims to improve financial accuracy, strengthen investor protection, and enhance corporate governance. Listed entities and auditors must proactively prepare for these changes to ensure seamless compliance and uphold financial integrity in the Indian capital markets.

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