Raising questions over the standard of corporate governance in India Inc and setting off alarm bells in policy circles, auditors in as many as 204 listed companies have submitted their resignations between January 1 and July 17 this year. This works out to an average of one auditor resigning every day.
This startling data is now the subject of an investigation by the Ministry of Corporate Affairs.
The reasons behind the exodus include the lack of adequate information on businesses, inconsistencies in revenues and other financial numbers, and health concerns.
According to Registrar of Companies (ROC) records, firms registered in Mumbai, Delhi, Kolkata and Ahmedabad accounted for three out of every four establishments where auditors put in their papers in this period (see box).
The Corporate Affairs Ministry is learnt to have sent queries under Section 143 (12) of the Companies Act, 2013, on some of these resignations, based on complaints received from investors and other stakeholders, officials said.
Under this section, an auditor who finds during an audit that fraud has been committed by the company or its employees should report the matter immediately to the central government.
On resigning, the auditor is required to file a return in e-form ‘ADT-3’ with the concerned RoC and is required to furnish the reasons for the resignation. The form is then checked, before being taken on record — the matter is taken up with the company and the auditor if the reasons mentioned warrant further inquiry.
Over the last two months, Price Waterhouse & Co resigned as auditor of Vakrangee Ltd and Atlanta Ltd, while Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages Ltd.
In all three instances, the auditors stepped down just days before finalising the annual accounts, citing inadequate information shared by the companies during the course of the audit of their financial statements.
Coimbatore-based Pricol Ltd and LGB Forge are among the companies where the statutory auditor — Haribhakti & Co LLP in both cases — resigned, apparently citing the proposed internal restructuring in the audit firm “as the reason for opting out on early rotation”.
“Auditor resignations are not unprecedented. But the large numbers this year are worrying. One reason is that there is greater scrutiny of auditors now. Auditors are increasingly becoming cautious in their association with companies that can result in reputational impact, alongside the possibility of getting banned as in the case of PWC,” a corporate professional said.
Over the last six months, share prices of a number of these companies came under severe stress after their auditors submitted their resignations.
Manpasand Beverages has seen over 73 per cent decline in its share price since Deloitte Haskins & Sells quit in May 2018. While PWC quit as auditor of Vakrangee Limited in April 2018, shares of the company went on a free fall since January 30 and have lost 90 per cent since its closing on January 30, 2018.
Though Haribhakti resigned as auditor of Pricol Ltd in June, the shares of the company have been under pressure and has fallen by over 30 per cent since beginning of May 2018. Also, since the resignation of auditors of Sri Adhikari Brothers Television Network the shares of the company have fallen by over 70 per cent.
204 auditors resigned from listed companies from January 1 to July 17, 2018. They include: Mumbai 53, Delhi 35, Kolkata 35, Ahmedabad 30, Jaipur 10, Hyderabad 9, Chandigarh 8, Chennai 6, Coimbatore 4, Gwalior 3, Pune 3, Bengaluru 2, Chhattisgarh 2, Goa 2, Shillong 2.
(Source: Ministry of Corporate Affairs)