New platform to help auditors, banks verify key company information online

Mumbai: Ever since Satyam exposed how a company could brazenly fabricate liabilities and cash balances, auditors have been writing to banks to cross-check the key numbers of corporates they vet. Now, after 15 years, this manual process will be replaced by an online -and, a more fool-proof -reporting mechanism to minimise the risk of number tampering.

Beginning next month, companies would be nudged to give consent to bankers and auditors for uploading the information of funds lying in multiple bank accounts as well as borrowings from different financial institutions on a new platform that is being set up by the National e-Governance Services (NeSL), the information utility (IU) registered with the Insolvency and Bankruptcy Board of India (IBBI).

"This is at the final stage. The ministry of corporate affairs and other departments have given a go-head. The plan is to launch the platform within the next few weeks so that the numbers for the quarter ending September 2024 can be captured," a person familiar with the matter told ET.

Once a company allows the banks to share the details, the data would travel in an encrypted form from the banks' servers to NeSL, and the auditor may register with the e-governance portal to access the information. With this, an auditor can compare the set of information (like balances in various currents and loan outstandings of different lenders) shared by the auditee with the information provided by banks. If the two pieces of information do not match, the process has to be repeated.

While there is no regulation that makes it mandatory for a company to give consent to banks for transferring information to NeSL, an element of moral suasion is expected to play on auditors as well as auditees. Chances are that once the platform is operationalised, companies which do not let their banks to part with the information, may find a qualification or remark in audit reports-a situation most company management would prefer to avoid.

"The current mechanism where the confirmation letter is emailed and couriered by banks is a lot better than blindly relying on companies. But, still there may be risks-like interception of the letter or a connivance between a bank official and the company. Compared to this, NeSL could be a more secure platform. Also, it would be quicker, if all banks share data of their corporate clients on one platform for auditors to examine," said a senior banker.

Access to such data, however, would not be freely available to shareholders, activists, and journalists, but would be restricted to auditors in keeping with bank-client confidentiality rules which place a legal obligation on banks and its employees not to reveal customer information to a third party.

Significantly, the banking industry and the professional body of chartered accountants have also reached an understanding for participating and using the platform which could to an extent protect the reputation of auditors when misled by dodgy clients.

"Since NeSL is owned by banks, and most of them are public sector banks, companies as well as banks may have a certain comfort in sharing data on a quarterly basis," said another person. At present, an information utility under IBBI collects financial information, gets them authenticated by other parties connected to the debt, stores them, and gives access to resolution professionals, creditors, and other stakeholders in an insolvency resolution process.