/ SEBI Compliances

CA Certificate: Criteria tracing for DRHP-SME IPO

SME IPO

SME IPOs Overview

Small and medium enterprises can raise capital by offering shares to the public through SME IPOs. These IPOs enable SMEs to list their shares on specific SME platforms of stock exchanges, namely NSE Emerge and BSE SME, designed exclusively for smaller enterprises. SME IPOs serve as a gateway for small businesses to access public funding while offering investors an opportunity to participate in small and medium enterprise growth stories. Stringent eligibility criteria and mandatory underwriting enhance investor confidence. Small and medium enterprises stocks remain a vital investment avenue for those seeking exposure to emerging enterprises. Chartered accountants Certificate required verifying financial figures disclosed in documents like the Draft Red Herring Prospectus, Red Herring Prospectus, or the Prospectus. 

Eligibility for SME IPO:

NSE Emerge

  • Registered under the Companies Act (1956/2013).
  • Minimum track record of 3 years.
  • Positive net worth for at least 2 out of 3 financial years.
  • No pending legal or regulatory proceedings.

BSE SME

  • Net worth of at least ₹1 crore for 2 preceding financial years.
  • Net tangible assets of ₹3 crores.
  • Should support dematerialized securities.

CA Certificate for SME IPO: Criteria/Steps tracing for DRHP/RHP/Prospectus

The “Auditor Circle Up Criteria” outlines a systematic approach for tracing and verifying financial figures disclosed in documents like the Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), or the Prospectus. The procedure ensures that the disclosed numbers correspond to the company’s financial records without providing assurance on their appropriateness for particular purposes. This framework is vital in due diligence processes for IPOs and capital market transactions, enabling auditors to provide an objective basis for verifying disclosed financial data while delineating the scope of their review. Objective of the CA certificate is to ensure traceability and numerical accuracy without providing assurances about the appropriateness, definitions, or interpretations of the disclosed figures. CA used the methodology for this certificate to Relies on direct matching, arithmetic verification, and validation of prepared schedules. Chartered accountants doing their jobs with Disclaimers related to repeatedly emphasizing no representation on:

    • Usefulness or reliability of numbers.
    • Reasons for changes across periods.
    • Adequacy of classifications.

Criteria Explanation & Steps tracing DRHP, RHP, or Prospectus for SME IPO

Criteria Explanation & Steps Tracing & Verifying Financial Figure Disclosure in Documents Like Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), or the Prospectus. Below is a breakdown of the criteria and their application while CA issues the certificate towards Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), or the Prospectus:

  • Comparison to Restated Financial Information:

Chartered Accountants Needed to Check if the identified amount matches the corresponding amount in the restated financial statements (consolidated or standalone) included in the Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), or the Prospectus.

  • Mathematics Accuracy of Amounts, Totals, Percentages, and Ratios:

Chartered Accountants Needed to Recompute and confirm the arithmetic accuracy of totals, percentages, and ratios disclosed in the Draft Red Herring Prospectus (DRHP), Red Herring Prospectus (RHP), or the Prospectus.

  • Comparison to Schedules Derived from Accounting Records:

Chartered accountants are needed to verify amounts in a schedule prepared by the company derived from its accounting records. Confirm the mathematical accuracy of the schedule. And Chartered Accountants Needed to reconcile the numbers are not traced back to accounting records. No tests on definitions, reasonableness, or usefulness.

  • Specific Components of Non-GAAP Measures:

Chartered accountants are needed to verify non-GAAP measures to:

    • Restated financial information.
    • Schedules are derived from accounting records.
    • Arithmetic accuracy of the calculation of these measures.
    • But Chartered Accountants are doing their job via the use of limited to arithmetic verification; the appropriateness of non-GAAP definitions is not assessed.

  • Comparison to Accounting Records:

Chartered accountants needed to trace the identified amount directly to the company’s accounting records.

  • Currency conversion accuracy:

Chartered accountants are needed to confirm the accuracy of currency conversions (e.g., rupees to USD) using the specified exchange rate. But Chartered Accountants are doing their job, but there is no validation of the exchange rate’s appropriateness.

  • Comparison to Audited Financial Statements:

Chartered accountants Needed to match the identified amount to the company’s audited standalone or consolidated financial statements for the indicated period.

**********************************************************

If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Thank you for visiting my blog.

Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.