Concurrent Audit For Large Corporates
CONCURRENT AUDIT FOR LARGE CORPORATES
1. Meaning of Concurrent Audit
Concurrent audit is an audit mechanism under which transactions are examined in real time or near-real time, rather than after the end of the accounting period.
For large corporates, concurrent audit is primarily used to:
Monitor high-value, high-volume transactions
Detect fraud and control lapses early
Strengthen internal controls and governance
Ensure continuous compliance with law and policy
Though originally prevalent in banks, concurrent audit is increasingly adopted by large listed corporates, NBFCs, group entities and systemically important companies.
2. Legal and Regulatory Framework for Concurrent Audit
(a) Companies Act, 2013
Relevant Provisions
Section 128 – Proper books of account
Section 134(3)(c) – Directors’ Responsibility Statement (adequacy of internal financial controls)
Section 138 – Internal Audit
Section 177 – Audit Committee oversight
Section 143(12) – Reporting of fraud by auditors
Concurrent audit functions as a specialised form of internal audit, supporting statutory compliance.
(b) SEBI (LODR) Regulations, 2015
Regulation 17(9) – Board responsibility for risk management
Regulation 18 – Audit Committee oversight of internal controls
Regulation 21 – Risk Management Committee
Regulation 34 & Schedule V – MD&A and internal control disclosures
Regulation 30 – Disclosure of material frauds or control failures
(c) Sectoral Regulations (Illustrative)
RBI directions (for NBFCs and group finance entities)
SEBI norms for market intermediaries
Insurance regulatory norms
Large corporates often adopt concurrent audit voluntarily or due to regulatory expectation.
3. Objectives of Concurrent Audit in Large Corporates
Real-time detection of irregularities
Strengthening internal financial controls
Monitoring high-risk areas (treasury, derivatives, procurement)
Preventing revenue leakage and fraud
Enhancing board and investor confidence
Supporting statutory and forensic audits
4. Scope of Concurrent Audit
Concurrent audit typically covers:
Cash and bank transactions
Treasury and derivatives operations
Related-party transactions
Large procurement and contracts
Compliance with internal policies
Regulatory compliance checks
System and IT-enabled controls
5. Governance and Oversight of Concurrent Audit
Appointment by Board / Audit Committee
Independent reporting line to Audit Committee
Clearly defined scope and authority
Periodic reporting of findings
Follow-up on corrective actions
Failure in oversight may expose directors and auditors to liability.
6. Judicial and Regulatory Principles Applicable
Authorities assess:
Whether concurrent audit was adequately designed
Whether red flags were ignored or suppressed
Whether Audit Committee acted on findings
Whether fraud could have been detected earlier
Whether disclosures to investors were truthful
Concurrent audit is treated as a preventive governance tool, not a cosmetic exercise.
7. Key Case Laws Relevant to Concurrent Audit
1. Satyam Computer Services Ltd. Case
(SEBI Orders and Criminal Proceedings)
Principle Established:
Absence of real-time audit mechanisms allows prolonged fraud
Internal control failures attract severe regulatory and criminal consequences
Relevance:
Highlights the need for concurrent or continuous audit in large corporates
2. Price Waterhouse & Co. v. SEBI
(Supreme Court)
Principle Established:
Auditors must exercise professional scepticism
Reliance on management representations without adequate checks is unacceptable
Relevance:
Concurrent audit strengthens early detection and auditor diligence
3. SEBI v. Shri Ram Mutual Fund
(Supreme Court)
Principle Established:
SEBI violations are based on strict liability
Governance lapses need not be intentional
Relevance:
Failure to implement effective concurrent audit can attract regulatory action
4. N. Narayanan v. SEBI
(Supreme Court)
Principle Established:
Market integrity and transparency are paramount
Internal control failures impacting disclosures are punishable
Relevance:
Concurrent audit supports accurate market disclosures
5. IL&FS Financial Services Case
(NCLT / Regulatory Proceedings)
Principle Established:
Board failure in monitoring internal controls leads to systemic collapse
Continuous oversight mechanisms are essential
Relevance:
Demonstrates consequences of absence of real-time risk monitoring
6. Re: Infrastructure Leasing & Financial Services Ltd.
(NCLAT Context)
Principle Established:
Persistent governance failures justify regulatory and judicial intervention
Relevance:
Reinforces need for continuous audit and oversight in large groups
7. NSE Co-Location Case
(SEBI Proceedings)
Principle Established:
Failure of real-time systems oversight distorts market fairness
Board accountability for technology-enabled operations
Relevance:
Supports concurrent audit for technology-driven operations
8. Disclosure Requirements Related to Concurrent Audit
Large corporates should disclose:
Existence of concurrent audit mechanism
Scope and coverage
Reporting structure
Significant findings impacting financials
Corrective measures taken
Non-disclosure may amount to misleading governance reporting.
9. Consequences of Inadequate Concurrent Audit
SEBI penalties
Regulatory inspections and forensic audits
Director and Audit Committee liability
Adverse audit remarks
Investor litigation under Section 245
Reputational and valuation damage
10. Best Practices for Concurrent Audit in Large Corporates
Risk-based concurrent audit plan
Independence from operations and management
Direct reporting to Audit Committee
Use of data analytics and continuous monitoring tools
Periodic rotation of concurrent auditors
Clear escalation and remediation framework
Integration with internal, statutory and forensic audits
11. Conclusion
Concurrent audit has evolved from a sector-specific tool to a core governance mechanism for large corporates.
Indian regulatory and judicial trends establish that:
Continuous oversight is essential in complex, high-risk businesses
Boards cannot rely solely on annual audits
Failure to detect red flags early invites severe liability
In modern corporate governance, concurrent audit is not just good practice—it is prudent risk management.
RELATED Blog
comments