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AUDIT UNDER SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996

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(i) Every Issuer shall submit Audit Report on a Quarterly basis to the concerned stock exchanges audited by PCS or PCA, for the purpose of reconciliation of the total issued capital, listed capital and capital held by depository in dematerialized form, the details of changes in share capital during the quarter and the in-principle approval obtained by the issuer from all stock exchanges where it is listed in respect of such further issued capital.

(ii) The audit report is required to give the updated status of the register of members of the issuer and confirm that securities have been dematerialized as per requests within 21 days from the date of receipt of request by the issuer and where the dematerialization has not been effected within the stipulated period, the report would disclose the reasons for such delay. 

(iii) The issuer is under an obligation to immediately bring to the notice of the depositories and stock exchanges, any difference observed in its issued, listed and the capital held by depositories in dematerialized form. 

INTERNAL AUDIT OF OPERATIONS OF DEPOSITORY PARTICIPANTS The two Depository service providers in India, viz., National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL) have allowed Company Secretaries in Whole – time Practice to undertake internal audit of the operations of Depository Participants (DPs). 

Every Depository Participant shall ensure that an internal audit in respect of the operations of the Depository is conducted at intervals of not more than three months by a qualified Chartered Accountant or a Company Secretary holding a certificate of Practice and a copy of the internal audit report shall be furnished to the Depository. 

Every Depository Participant shall ensure that an internal audit shall be conducted in respect of the participant‟s operations relating to CDS by a qualified Chartered Accountant in accordance with the provisions of the Chartered Accountants Act, 1949 or by a Company Secretary in practice in accordance with the provisions of the Company Secretaries Act, 1980, at such intervals as may be specified by CDS from time to time. A copy of Internal Audit report shall be furnished to CDS. 

CONCURRENT AUDIT: (June 2015, june 2008, dec 2013, ) 

The process of Demat Account opening, control and verification of Delivery Instructions slips is subject to concurrent audit. Depository Participants have been advised to appoint a firm of qualified Chartered Accountant(s) or Company Secretary(ies) holding a certificate of practice for conducting the concurrent audit. However, the participants in case they so desire, may entrust the concurrent audit to their Internal Auditors. 

Issuance of DIS: The procedure followed is as under:-

(i) Issuance of DIS booklets;

(ii) Existence of control on DIS issued to clients;

(iii) Maintenance of records for issuance of DIS booklets in the back office.

Verification of DIS: The procedure followed is as under:-

(i) Date and time stamping on instruction slips;

(ii) Blocking of used/lost/stolen instruction slips;

(iii) Two – step verification for a transaction for more than Rs.5 lakhs;

(iv) Instruction received from the dormant accounts. 

In respect of opening of account, the auditor should verify all the documents including KYC documents furnished by the Clients and verified by the officials of the Participants. The scope of concurrent audit with respect to control and verification of DIS cover the areas given below:- 

The Concurrent Auditor should conduct the audit in respect of all accounts opened, DIS issued and controls on DIS as mentioned above, during the day, by the next working day. In case the audit could not be completed within the next working day due to large volume, the auditor should ensure that the audit is completed within a week‟s time. 

Any deviation and/or non – compliance observed in the aforesaid areas should be mentioned in the audit report of the Concurrent Auditor. The Management of the Participant should comment on the observations made by the Concurrent Auditor. The Concurrent Audit Report should be submitted to NSDL, on a quarterly basis, in a hard copy form. If the Auditor for Internal and Concurrent Audit is the same, consolidated report may be submitted.

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