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The CA Institute has come out with a technical guide on disclosure and reporting of key performance indicators (KPIs) in offer documents.
The technical guide has been developed by the Auditing and Assurance Standards Board (AASB) of ICAI on the request of SEBI. The guide has been developed by AASB in consultation with SEBI, sources said.
KPIs are numerical measures of the issuer company’s historical financial or operational performance and financial or operational positions. KPIs can be broadly classified into following four categories: GAAP financial measures; non-GAAP financial measures; non-financial measures (part of financial reporting); and operational measures (not part of financial reporting).
Key role
The management of issuer company is responsible for designing, implementing, and maintaining adequate internal controls over KPIs and testing of such controls.
The technical guide provides guidance to practitioners in reporting requirements relating to KPIs disclosed under offer documents in case of IPO in India in accordance with the ICDR Regulations. It is also applicable to issuer companies for disclosing KPIs in offer documents as per the requirements of ICDR (Issue of Capital and Disclosure Requirements) Regulations.
Commenting on the ICAI move, Sanjeev Kumar Singhal, Chairman, AASB, said that India has taken a path breaking step of mandating presentation of KPIs in offer documents and requiring assurance opinion on the same.
It’s essential to monitor the KPIs used during private equity investments or other means in past versus KPIs used during IPOs and in future for bringing clarity/transparency for the basis of issue price used during IPO.
“The requirement will go a long way in protecting the interest of investors. The technical guide on KPIs issued by ICAI provides guidance to both issuer companies and members of ICAI”, he added.
Technical guidance
Singhal said the technical guide provides guidance on segregation of KPIs among GAAP financials measures, non-GAAP financial measures and non-financial measures. “It will help in strengthening the control environment around identification and reporting of KPIs by the issuer companies and will provide requisite technical guidance to the auditors and practitioners,” he added.
The issuer company and the lead merchant bankers (LMs) are primarily responsible to ensure disclosure of KPIs in offer documents in accordance with ICDR regulations and to ensure compliance with other requirements of ICDR regulations. Further, KPIs disclosed in the offer document need to be approved by the audit committee of the issuer company.
KPIs disclosed in the offer document are required to be certified by the statutory auditor(s) or chartered accountants or firm of chartered accountants.
The technical guide has been issued on April 6. The guide is applicable only to IPO as outlined in the ICDR Regulations. It has been developed considering the offer or sale of securities in India to prospective Indian investors only. It does not apply to offering or sale of securities outside India, sources added.
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