The Securities and Exchange Board of India is all set to begin the proposed peer audit review of the companies that form the Sensex and Nifty benchmark indices. The peer audit had been proposed by the market regulator's advisory committee on disclosures and accounting in the wake of the Satyam [Get Quote] Computers' scam where the IT firm's promoters had admitted to siphoning of funds, and even submission of fake fixed deposits receipts to its auditor.

After missing the February-end deadline that was proposed earlier for the peer audit review, the market regular is planning to quickly start the process now. Sources close to the development said that Sebi has already decided on six to seven auditors for the job.

The proposed peer review of the 30 and 50 companies that make up the Sensex and Nifty indices, respectively, pertains to examining of their books by Sebi-appointed auditors after they have already been certified by the companies' mandated auditors.

The intention is to find out what was actually found by the mandated auditors, what was disclosed by the companies and whether proper due diligence was carried out while auditing the books.

Initially, Sebi had planned to complete the audit by February-end, but the process was delayed because most of the audit firms were busy completing limited audit reviews of quarterly results in January. Sebi now proposes to carry out peer review of the audited papers for 2007-08 and third quarter of 2008-09, and "...the process will be completed as soon as possible", sources said.

The market regulator has already sent out the list of its auditors to companies so as to check if there is any 'conflict of interest'. This might arise if the Sebi-appointed auditor for a specific company is also an auditor for a competing company. According to sources, the companies have already responded and the process is on for finalising the names of auditors for examining each company's audit papers.

If no major deficiencies are found in the peer review process, the review could be extended to other companies as well. This would be in line with another proposal of the market regulator which called for extending the peer review to randomly selected companies in addition to the Sensex and Nifty firms.

Post-Satyam, foreign institutional investors have started favouring forensic audit of companies before making investment decisions. Recently, DLF - which is one of the companies in the benchmark indices - had faced a special audit of its accounts by the Income Tax department.