[Opinion] SEBI Interim Order on Revenue Misreporting | Lessons for Auditors and CFOs

CA Bhawna Grover & CA Prajwal Jha – [2026] 187 taxmann.com 215 (Article)

1. Introduction

A recent interim order issued by the Securities and Exchange Board of India (SEBI) has emerged as one of the most significant regulatory actions from an accounting, financial reporting and auditing perspective. While the order pertains to allegations against a listed company and its overseas subsidiaries, the broader significance of the case lies in the issues raised concerning consolidation of financial statements, revenue recognition, related party transactions, subsidiary disclosures, audit documentation and regulatory cooperation.

For Chartered Accountants, Chief Financial Officers, financial controllers and auditors, the order serves as a practical reminder that financial reporting is no longer assessed solely on the basis of the final numbers presented in the financial statements. Regulators increasingly expect those numbers to be supported by complete documentation, verifiable records, transparent disclosures and robust governance processes. The case highlights how deficiencies in these areas can lead to allegations of financial misstatement, regulatory intervention and scrutiny of both management and auditors.

This article examines the key accounting, auditing and legal implications emerging from the order and analyses the relevant provisions of the Companies Act, 2013, SEBI Regulations, Indian Accounting Standards (Ind AS) and Standards on Auditing (SAs).

2. Regulatory Expectations Regarding Access to Subsidiary Records

One of the central issues raised in the order was the inability of the Company to provide detailed records relating to transactions undertaken by its overseas subsidiaries. The Company contended that certain information was not readily available due to operational and legal constraints applicable in foreign jurisdictions. SEBI, however, took the view that where the financial results of subsidiaries are consolidated into the financial statements of the parent entity, the parent company must have adequate access to the underlying books, records and supporting documents.

This issue assumes considerable importance in the context of Ind AS 110, Consolidated Financial Statements, which requires a parent entity to present consolidated financial statements incorporating the financial information of all subsidiaries under its control.

Consolidation is not merely an arithmetic aggregation of financial information received from subsidiaries; it requires management to possess sufficient information to assess the accuracy and completeness of the financial data being incorporated.

The order demonstrates that a listed entity cannot simultaneously rely upon subsidiary financial information for consolidation purposes and claim inability to access the records supporting such information when called upon by regulators.

3. Consolidation Requires More Than Combining Financial Statements

A significant portion of the order focuses on the relationship between the standalone financial statements of a major subsidiary and the consolidated financial statements of the Company. SEBI observed substantial differences between revenues reported at the consolidated level and those reflected in the standalone financial statements of the subsidiary. According to the regulator, the information furnished during the investigation was insufficient to establish the basis on which such revenues were recognised and consolidated.

The observations made in the order highlight the importance of complying with the requirements of Ind AS 110, which mandates the elimination of intra-group balances, transactions, income and expenses during consolidation. The standard is intended to ensure that consolidated financial statements reflect only transactions with external parties and present the economic substance of the group as a single reporting entity.

Importantly, SEBI observed that approximately 97% to 99% of the Company’s consolidated revenues were attributed to its subsidiaries and step-down subsidiaries, making the reliability of subsidiary financial information critical to the integrity of the consolidated financial statements. Further, after comparing the revenues attributed to subsidiaries with the audited standalone revenues of the principal operating subsidiary, SEBI prima facie concluded that revenues aggregating to approximately ₹ 15,15,385 crore, representing 99.80% of the revenues attributed to subsidiaries during FY 2020-21 to FY 2024-25, appeared to be misrepresented. The order also records that the Company’s consolidated financial statements appeared to have materially overstated the operational scale and financial performance of the group.

Where supporting documentation for significant revenues, purchases, receivables and payables is unavailable, questions may arise regarding the reliability of the consolidated financial statements. The order therefore serves as a reminder that consolidation procedures should be supported by detailed reconciliations, inter-company confirmations and robust documentation.

4. Non-disclosure of Subsidiary Financial Statements and Statutory Requirements

Another important issue identified in the order relates to the non-availability of audited financial statements of certain subsidiaries and step-down subsidiaries on the Company’s website. The Company argued that the financial information of these entities could be derived from the consolidated financial statements. SEBI rejected this argument and observed that disclosure requirements relating to subsidiary financial statements are independent obligations.

The matter has direct relevance under Section 136(1) of the Companies Act, 2013, which requires companies to make available copies of financial statements and related documents to members. Further, Regulation 46(2)(s) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) requires listed entities to host separate audited financial statements of subsidiaries on their websites.

The regulatory position emerging from the order is clear: consolidated financial statements cannot substitute subsidiary-level disclosures. Listed entities must maintain and disclose separate audited financial statements of subsidiaries in accordance with statutory requirements.

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