With emerging industries needing access to more funds for enhanced operations, public listing on the Main Board or SME Board has become increasingly sought after by businesses to access capital, increase operations, and promote brand awareness. The two boards, Main and SME, offer an extremely influential forum for businesses to access the public capital as a result of the shifting capital markets and the corresponding regulatory frameworks for this purpose. Before a public offering, adequate financial preparation regarding applicable accounting standards and regulatory requirements, such as SEBI norms, Indian Accounting Standards (Ind AS), or Indian Generally Accepted Accounting Principles (IGAAP), is necessary.

Preparation of such accounts is a very time-consuming process where sometimes the already existing ones need to be re-stated for accuracy, transparency, and compliance. The steps taken by which a company can prepare its accounts for listing of profits on the Main or SME Board are as follows.

Firstly, Check the Eligibility Criteria for Listing on the Main Board or the SME Board

Criteria Main Board SME Board
Minimum Paid-up Capital INR 10 crores INR 3 crores
Profitability Profit-making track record of at least 3 years Profit-making track record of at least 2 years
Net Worth Minimum INR 3 crores Minimum INR 1 crore
Net Tangible assets Minimum INR 3 crores Minimum INR 1 crore
Minimum Number of Public Shareholders 1,000 shareholders holding shares worth at least
INR 2,00,000		 50 shareholders holding shares worth at least
INR 1,00,000

 

Determine the relevant Financial Reporting Standards

Companies are required to determine whether they are to prepare their financials based on IND AS or IGAAP. This difference is important since it controls how financial information is reported, disclosed, and accounted for.

  • Main Board listings – Companies must prepare their financials as per Ind AS (Indian Accounting Standards).
  • SME Board – Companies must prepare their financials under IGAAP (Indian Generally Accepted Accounting Principles), though companies have an option to opt for Ind AS for better transparency.

Ind AS 101 for First-time Adoption (Applicable for Main Board and SME Board Listing)

 If a company is adopting Ind AS for the very first time upon listing, then it is bound by Ind AS 101 – First-time Adoption of Indian Accounting Standards.

  • Specify the Date of Transition – Transition date marks the beginning of implementing Ind AS (ordinarily the earliest day of the earliest period in which the company is adopting Ind AS)
    For Example, If the transition date to IND AS is March 31st, 2025, then the transition date will be April 1st, 2024
  • Restatement of Financials for Previous Periods
    • Property, Plant, and Equipment (PPE): Revaluing to fair value or deemed cost.
    • Leases: Recognize Right-of-Use assets and lease liabilities under Ind AS 116.
    • Revenue Recognition: Adoption of the 5-step model under Ind AS 115, with the potential to influence the timing of revenue recognition.
    • Financial Instruments: Reclassification of assets and liabilities, and changes in measurement (fair value vs. amortized cost), etc.
  • Reconciliation – Companies are required to reconcile their equity and profit or loss from Indian GAAP to Ind AS.
  • Disclosure of Impact – Disclosure in the financials to provide a true perspective of the impact of the transition on the equity and profit and loss of the company, as well as any exemptions or exceptions availed.

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Prepare the Opening Balance Sheet

The opening balance sheet must reflect all necessary Ind AS adjustments. This step involves:

  • Adjustments in assets and liabilities according to Ind AS.
  • Reclassification of items such as leases and equity investments.
  • Calculation of deferred taxes on account of restatements.

For instance, if Ind AS is being adopted on March 31, 2025, the opening balance sheet would be prepared as of April 1, 2025.

Restatement of Comparative Financial Periods

  • Main Board: Provide at least 3 years of audited financials.
  • SME Board: Provide at least 2 years of audited financial data (or since incorporation, if less).

Preparation of Consolidated Financials

  • Consolidation of finances if the company has associates, joint ventures, or subsidiaries.
  • All the intra-group transactions should be eliminated properly, and any other adjustments necessary should be made.
  • Accounting techniques should be used as per investment type (full consolidation for subsidiaries, equity method for associates).

Preparation of Pro Forma Financials

  • Whenever there are significant acquisitions, mergers, or demergers, pro forma financials must be prepared, as appropriate, to reflect the impact on financial position and performance.
  • State assumptions and methodologies employed in the preparation of pro forma statements.

Compliance with Segment Reporting

  • Ensure segment reporting is in line with Ind AS 108 (Operating Segments). Segment revenue, profit, and assets are to be restated to comply with new accounting policies.
  • Properly report and disclose the performance of each of the business’ segments, particularly in the case of diversified businesses across multiple geographies or industries.

Update Key Financial Ratios

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Update the key financial ratios, including:

  • EBITDA
  • Earnings Per Share (EPS)
  • Debt-to-equity ratio – These ratios are used by investors to gauge the financial health of the company.

Audit and Verification

Once the financials are restated, they need to be audited by an independent auditor. The auditor’s role is to:

  • Ensuring compliance with Ind AS and relevant regulations.
  • Ensuring disclosures are made in the financials and IPO prospectus.
  • Give an audit opinion attesting to the validity of the restated financials.

Coordination with Key Stakeholders

Some Key personnel are involved in preparing financials. Some of the key personnel who participate in the process are:

  • Finance and Accounting Team: Prepares and re-states the financials. Ensures that all reports are prepared following accounting standards and legal requirements.
  • Auditors: External auditors ensure that the financials provide a true and fair view and are prepared following the respective standards. Their opinion adds credibility to the financials.
  • Legal and Compliance Team: The legal professionals ensure that the company complies with SEBI’s regulations, monitor the due diligence process, and draft the prospectus. They also prepare any legal documents and filings that are required to be listed.
  • Management and Board of Directors: Management and the company board are responsible for reviewing the prepared financial reports to ascertain the accuracy of the figures that reflect the company’s financial position and granting final approval before submission to the stock exchange.
  • Lead Managers to the Issue – These are the expert individuals who assist the company in getting listed. They guide in the proper preparation and filing of all the documents required, including those of financials, with the legal, financial, and regulatory authority

Adherence to Recent SEBI Amendments for Listing on Main Board or SME Board

  • More Disclosure Requirements: SEBI has made more disclosure in financial reports. Companies have to provide elaborate disclosures on such matters as related party transactions, important financial ratios, and management commentary.
  • Profitability Requirements for SME Board: Companies applying for listing on the SME Board are required to comply with profitability criteria, typically including positive net profits over the previous two or three years.
  • Use of IPO Proceeds: Companies must disclose in detail, plans for how the IPO Proceeds are to be utilized and submit timely periodic progress reports.
  • Minimum Promoter Contribution and Lock-in Period: SEBI mandates a minimum 20% contribution by promoters and a lock-in of 3 years on promoters’ shares.
  • Improved Corporate Governance Standards: Firms have to implement standards of corporate governance in operation with independent directors and audit committees as mandated by the SEBI (LODR) Regulations. The listed entity shall file, with the recognised stock exchange(s), a corporate governance compliance reports every quarter in the form and within the time as prescribed by the board.

Financial Due Diligence

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  • Undergo proper financial due diligence before applying for listing.
  • Identify and rectify any financial record abnormalities or inconsistencies.
  • Due diligence can be carried out by external agencies to promote the transparency and integrity of the financial data.

Industry-Specific Considerations

Certain sectors may pose special reporting or accounting requirements:

  • Financial Institutions: Must adhere to RBI guidelines.
  • Real Estate: Must meet RERA requirements.
  • Technology and Manufacturing: Must deal with special asset valuations and intangible assets disclosures.

Companies must consider sector-specific guidelines when preparing their financials.

ESG Reporting Considerations

  • Environmental, Social, and Governance (ESG) reporting is increasingly becoming important for investors.
  • Reflect on including sustainability reporting guidelines such as GRI or SASB.
  • Emphasize carbon footprint lowering initiatives, diversity and inclusion, and business ethics.
  • Get ready for the Business Responsibility and Sustainability Report (BRSR) requirements becoming mandatory for listed entities.

Technology and Automation in Financial Reporting

  • Use financial reporting software to enhance efficiency and accuracy.
  • Think of using XBRL (eXtensible Business Reporting Language) for electronic financial reporting.
  • Ensure there are cybersecurity measures to safeguard financial information.

Key Documents Required for Listing

  • Prospectus/RHP: Ought to have information regarding the firm, risk factors, finances, and how IPO proceeds will be used.
  • Audit Reports: Finances should be audited by an acknowledged firm.
  • Due Diligence Report: Confirms compliance with regulatory requirements.
  • Board/Shareholder Resolutions: Board and shareholder approvals are needed for listing.

Post-Listing Compliance Requirements for Main Board or SME Board

The firm, on becoming listed, also has to follow some norms which are as follows:

  • Continuing Disclosures: There is a requirement for listed companies to make continuous disclosures in terms of material events, financial information, related-party transactions, etc., under SEBI LODR regulations.
  • Quarterly and Annual Reports: The companies have to report their financial results quarterly (within 45 days of quarter-end) and annually (within 60 days).
  • Corporate Governance: The practices of corporate governance are to be adopted by the company, and that involves the appointment of independent directors, regular meetings of audit committees, and robust risk management systems.

Conclusion

Smooth preparation of finances is very important for a successful listing on the Main Board or SME Board. Satisfaction of applicable standards, open disclosure, compliance with the current SEBI Amendments, and strict auditing will guarantee investors’ confidence as well as regulatory sanction. Companies must actively consult financial advisers and auditors to optimize the listing procedures. Our technical expertise can streamline the process and ensure compliance, as well as support investor and regulator confidence. As an expert in this area, we offer start-to-end assistance in the listing process, including:

  • Preparation and Restatement of Financial Statement: Support in the preparation of restated financials as per Ind AS or IGAAP for the required periods.
  • Ind AS Transition Support:  Assistance to companies in implementing Ind AS 101 and ensuring a smooth transition.
  • Coordination of audit: Coordination with auditors for a smooth audit or a limited review process.
  • Regulatory Compliance: Ensuring all the conditions of SEBI and the exchange are met.
  • Due Diligence Support: Providing financial analysis and delineating potential gaps or problems.
  • Post-Listing Compliance Framework: Help establish efficient processes for routine compliance requirements
  • ESG Integration: Supporting in integration of comprehensive ESG disclosure based on financial disclosure.

Successful completion of these steps is critical to have a smooth listing process, whether on the SME Board or the Main Board, and to achieve long-term business success.

Authored by:
Parul Mittal | Risk Assurance

 

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