Making fund-raising more transparent

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SummaryWith Sebi aligning disclosure norms with the Companies Act, the challenge would be to deal with them carefully

There are many benefits to companies planning to raise funds by way of a public offering such as accessing public equity or debt. However, this also comes with increased compliances and greater scrutiny of the state of affairs of the company.

Companies that are looking to offer their securities have to prepare a prospectus. In preparing the prospectus, companies are required to follow the guidelines contained in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (Sebi ICDR Regulations) for disclosure of financial information.

On December 3, 2013, Sebi issued a circular that provides a revised format of Statements of Assets and Liabilities which needs to be included in offer documents/prospectus. The revised format, as per the 2013 circular, aligns the format in its entirety to the revised schedule VI. The recently enacted Companies Act 2013 also incorporates the same format in Schedule III.

The format of financials prescribed under Schedule VI of the Act was revised in 2012. In order to facilitate transition to the revised Schedule VI, the Ministry of Corporate Affairs had clarified that the presentation of financial statements for the limited purpose of initial public offering (IPO)/follow-on public offer (FPO) during FY12 may be made as per the pre-revised Schedule VI. The recent Sebi circular aims to address this diversity in practice and ensure comparability of financial statements.

The ICDR Regulations along with other notifications that Sebi issues as part of its suite of reforms relating to the IPO process are required to be followed by issuers. The format in the Sebi ICDR Regulations followed an approach of reconciling the net assets as per the pre-revised Schedule VI financial statements to the aggregate of share capital and reserves. The revised format is now in line with the Revised Schedule VI.

In the offer documents, companies generally present a summary of financial statements /information for a 5-year period, a statement of assets and liabilities, management’s discussion and analysis of financial condition and results of operations, commonly known as the MD&A

Although the Revised Schedule VI does not change the recognition and measurement principles, there are certain changes in presentation of financial statements. In such situations, following diverse reporting practices in one offer document makes it difficult to ensure comparability from the investor’s standpoint. It is also pertinent to note that the Revised Schedule VI introduced some significant conceptual changes such as current/non-current classification;

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