SEBI moots tougher disclosures for resignation of auditors

Auditors quitting abruptly have to give a detailed reason

Auditors who resign in an abrupt manner in the middle of a financial year may soon have to give a detailed reason for such a move while ensuring that the audit is either completed for the fiscal or at least a limited review or audit report is issued prior to the exit.

Companies, on their part, will have to disclose their audit committee’s views on the resignation along with the details of the deliberations of the committee on the reasons of such a move by the auditor.

These are part of the proposals in the discussion paper released by the Securities and Exchange Board of India (SEBI) as part of its attempts to strengthen the disclosures for investors while also strengthening and clarifying the role of the audit committee.

“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 shall finalise the audit report for the said financial year before such resignation,” stated the discussion paper. If the reason for the auditor’s resignation is the entity not providing information, the auditor shall provide an appropriate disclaimer in the audit report to that extent, it added.

The recent past saw Price Waterhouse resigning abruptly as the auditors of some of the group companies of Anil Dhirubhai Ambani Group (ADAG). Similar resignations have been witnessed in many other listed entities as well.

Meanwhile, the regulator has said that the auditor would have to disclose the detailed reasons for resignation and also that there are no material reasons other than those mentioned in the resignation letter.

Auditors will also have to disclose whether “the inability to obtain sufficient appropriate audit evidence was due to a management-imposed limitation or circumstances beyond the control of the management,” as per the SEBI.

The regulator has also enhanced the responsibilities of the audit committee, which will have to discuss the matter and communicate its views to the management and the auditor.

The listed entity shall ensure the disclosure of the audit committee’s views to the stock exchanges, stated the SEBI paper.