A Peer Review Audit is an independent evaluation of a company’s financial statements for IPO compliance. It ensures accuracy, regulatory adherence, and investor confidence. SEBI mandates a review of the last three years’ financials by an ICAI-certified auditor. The process can take weeks to months, with costs ranging from ₹2.5-5L. Adverse findings may delay the IPO until resolved. This audit is crucial for transparency, risk mitigation, and credibility in public listings.
A peer review audit is an independent external evaluation of the audit process and procedures carried out by PU (practising CA firm). Peer review audit is done by firms who have peer review certificates issued by the Institute of Chartered Accountants of India. It aims to ensure compliance with established professional standards and improve audit quality.
Financial statements of the previous three years and stub period of the Issuer company need to be reviewed by a Peer Auditor appointed for the same.
Requirement of Restated Financial Statements (RFS) and Peer Review Audit for Restated financial statements for IPO
SEBI ICDR Regulations, 2018 have the requirements to prepare the restated consolidated financial statements (RFS) for the last three financial years. It is mandatory for a company to prepare the restated financial statements for each of the three financial years immediately preceding the filing of the offer document and stub period (if applicable) for the purposes of listing requirements and IPO.
If the company has been in existence for a period of fewer than three years, the financial statements are to be given for the actual period of existence.
The restated financial information shall be audited and certified by the statutory auditors who hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India (ICAI).
Sometimes, it might be a possibility that a new auditor holding a valid peer review certificate is appointed for the stub period, and the predecessor auditor did not hold a valid peer review certificate at the date of signing the last annual financial statement. In such a scenario, the last annual financial statement would need to be re-audited by the new auditor in accordance with applicable standards. However, such re-audit may exclude audit reporting on CARO, internal financial control, and other regulatory matters.
In some of the cases, if an auditor earlier held a valid peer review certificate but did not hold a valid certificate at the date of signing the restated financial information. Then, the earlier certificate shall be considered valid provided there is no express refusal by the peer review board to renew the certificate.
Peer Review Audit in IPO is done for the purposes of inclusion in the DRHP (Offer Document), prepared by the Company in connection with its Initial Public Offer of Equity Shares (IPO) and prepared in terms of the requirement of:
The peer review statement and examination report for RFS is given under the section INDEPENDENT AUDITORS' REPORT ON RESTATED FINANCIAL INFORMATION of DRHP/RHP and includes the following on its Restated Financial statements.
Restated financial statements shall include the audit reports on the financial statements as modified and shall include following matter(s).
a) The Restated Financial Information or Restated Summary Financial Statement have been made after incorporating adjustments for the changes in accounting policies retrospectively in respective financial period/years to reflect the same accounting treatment as per the changed accounting policy for all reporting periods, if any;
b) The Restated Financial Information or Restated Summary Financial Statement have been made after incorporating adjustments for prior period and other material amounts in the respective financial years/period to which they relate and there are no qualifications which require adjustments;
c) Extra-ordinary items that needs to be disclosed separately in the accounts has been disclosed wherever required;
d) Profits and losses have been arrived at after charging all expenses including depreciation and after making such adjustments/restatements and regroupings as in our opinion are appropriate and are to be read in accordance with the Significant Accounting Policies and Notes to Accounts as set out in ANNEXURE IV to this report;
e) Adjustments in Restated Financial Information or Restated Summary Financial Statement have been made in accordance with the correct accounting policies,
f) There was no change in accounting policies, which needs to be adjusted in the Restated Financial Information or Restated Summary Financial Statement;
g) There are no revaluation reserves, which need to be disclosed separately in the Restated Financial Information or Restated Summary Financial Statement.
h) The Company has not paid any dividend since its incorporation.
i) The related party transaction for purchase & sales of services entered by the company are at arm’s length.
Assurance of Accuracy: Provides confidence to stakeholders about the financial accuracy and reliability of the company going public.
Compliance with Regulations: Ensures compliance with regulatory bodies such as SEBI, Exchange etc.
Improved Credibility: Boosts the company’s credibility in the eyes of investors, analysts, and financial institutions.
Risk Mitigation: Identifies any lapses in auditing standards that could lead to financial misstatements or legal consequences.
The peer review of financial statements should commence at the earliest possible stage, ideally when the preparation of the Issuer company's offer document begins and the due diligence process is initiated. Given that the restatement of financials is a critical and time-intensive process, initiating the peer review promptly ensures sufficient time for thorough examination and compliance with required standards.
As per the SEBI ICDR Regulations, the financial statements of the Issuer company should be duly certified by auditors, who have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and hold a valid certificate issued by the Peer Review Board of the ICAI. A peer review certificate shall state the following that:
(i) The accounts and the disclosures made are in accordance with the provisions of Schedule III of the Companies Act, 2013;
(ii) The accounting standards prescribed under the Companies Act, 2013 have been followed;
(iii) The financial statements present a true and fair view of the firm’s accounts.
A Peer Reviewer should
(a) Be a member with ICAI with at least 10 years of experience in practice;
(b) Is in Practice as per the Chartered Accountants Act, 1949.
(c) Should have undergone the requisite training as prescribed by the Board (ICAI)
The cost depends on various factors, including:
Typically, costs may range between Rs. 2.5 Lakhs to Rs. 5.0 Lakhs for mid to large-sized firms.
Peer Review Auditor is one who have subjected themselves to the Peer Review process of the Institute of Chartered Accountants of India (ICAI) and hold a valid certificate issued by the Peer Review Board of the ICAI. Statements of peer review auditor shall state that:
(i) the accounts and the disclosures made are in accordance with the provisions of Schedule III of the Companies Act, 2013;
(ii) the accounting standards prescribed under the Companies Act, 2013 have been followed;
(iii) the financial statements present a true and fair view of the firm’s accounts;
A small company may take 2-4 weeks, while a large company may take 2-3 months for peer review audit process. However, complex business models in case of some businesses may require more time.
Reporting: The adverse opinion is to be reported to the management and regulatory authorities.
Resolution Time: Management must address the deficiencies.
A follow-up review is performed, which may take an additional 1-3 months, depending on the severity of the issues.
Impact: Adverse opinions might delay the IPO until the concerns are resolved.
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