ETA: Update in the next post.

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New reporting rules for Indian companies look reasonable, but may have unintended consequences.

Reuters reports that the Securities and Exchange Board of India, better known as SEBI, recently changed the reporting requirements for Indian companies. Before, companies needed to file their unaudited quarterly results within 30 days of the quarter’s end, and audited financial statements for the full year within 90 days of the year’s end.

Now, they’ll have 45 days to file quarterly statements – but they’ll have to be audited statements. And the time for the full year report has been reduced to 60 days, presumably because if all the quarterly statements are audited, it should cut the time required for the annual audit. They would also have to publish their balance sheets each quarter, not just at year’s end as they do now.

It sounds pretty reasonable; shareholders and analysts can work with audited results that are presumably more reliable than unaudited ones. Only the devil, as usual, is in the details. In his blog “Mera Bharat Kahan” (Where’s my India?), my friend R. Balakrishnan posts about potential unintended consequences…

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“This is certainly a good move, though one would have wanted the quarterly to go — the half-yearly interval being enough for any investor. Unfortunately, the regulators have fallen prey to the broker demand, who need to create buzz as often as possible, to create trades where none are necessary.

“My bigger concern is that now the auditors will have to compulsorily throw their hands up in despair. How many companies can an auditor handle? And how competent is he to do anything at all?  Managements should rejoice, because more means less here.

“Imagine an auditor certifying the quarterly results of a company like Reliance or a SBI [State Bank of India]. There is absolutely no way he would have a clue about anything.

“The other interesting fall out is that the 45-day window, between closure and declaration of results, gives a lovely window for the promoter to rig his shares. He has more time to plan and execute the play.”

(To read his whole post, go here.)