Updated: July 19, 2019 3:05:10 am
Markets regulator Securities and Exchange Board of India (Sebi) on Thursday proposed stricter norms, including detailed reasons, on resignation of auditors in the wake rising instances of auditors quitting companies.
Sebi has decided to tighten the auditor exit norms as it has found that “the statutory auditors have suddenly resigned without completing their assignments for the year, generally citing ‘pre-occupation’ as the reason for resignation”.
According to Sebi, if the auditor has signed the audit report for all the quarters (limited review/ audit) of a financial year, except the last quarter, then the auditor should finalise the audit report for the said financial year before such resignation. In all other cases, the auditor should issue limited review/audit report for that quarter before such resignation (i.e. previous quarter in reference to the date of resignation), it added.
“If the auditor of a listed entity makes a decision to resign in August 2019, the auditor shall issue the limited review/audit report for the quarter ended September 30, 2019 before such resignation. With respect to the auditor of a material unlisted subsidiary of the listed entity, the auditor shall issue the limited review/audit report for that financial year/quarter, as applicable, before such resignation (i.e. previous financial year/quarter in reference to the date of resignation),” the capital markets watchdog said in a consultative paper.
According to Sebi, resignation of an auditor is understandable in exceptional circumstances where, as per the auditing standards, “the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate the gravity of the situation.”
However, resignation of an auditor due to reasons such as pre-occupation before completion of the audit of the financial results for the year seriously hampers the investor confidence and leaves the investors with lack of reliable information for taking their financial decisions, it said.
“If resignation from the audit before issuing the auditor’s report is not practicable or possible, disclaim an opinion on the financial statements,” Sebi said. It added that the auditor should approach the Chairman of the Audit Committee directly and immediately in case of any concerns with the management like non-availability of information, any non-co-operation by the management.
The auditor should not specifically wait for the quarterly meetings to take place in order to raising such concerns, Sebi said.
The auditor should bring to the Audit Committee’s notice all the concerns the auditor has with respect to such resignation, along with relevant documents.
In cases where the resignation is due to non-receipt of information or explanation from the company, the auditor should enlighten the Audit Committee of the details of information or explanation sought and not provided by the management, as applicable.
‘32 auditors resigned mid-term for various reasons in Jan-May’
Mumbai: Prime Database has said that between January and May, 32 auditors have resigned mid-term citing various reasons. For 2017-18, the number of exits stood at 36, while it was 18 in 2016-17.
The reasons behind the auditor exits have ranged from lack of adequate information on the company’s businesses, revenues, tax observations to ‘mutual exits’ and non-payment of fees.
Unitech Ltd said Tuesday that its internal auditors SKP & Co Chartered Accountants has resigned citing time constraints. IL&FS Engineering and Construction’s joint statutory auditors BSR Associates quit citing non-payment of fees for year ended March 31, 2018 and non-receipt of some pending information and responses to audit matters.—ENS
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