Mumbai: Auditors of listed companies will have to issue a limited review or audit report if they resign within 45 days from the end of a quarter, market regulator Securities and Exchange Board of India, or Sebi, said on Friday.
Sebi’s revised regulations follow a slew of resignations by auditors—in some cases as late as a week before the announcement of the quarterly results—and are aimed at fixing greater accountability. In several cases, auditors who had resigned cited reasons ranging from lack of information from the company under audit to mutual agreement.
Resignations hit an all-time high of 35 in the first six months of this financial year. Some of the prominent cases of exits are those of Infibeam Avenues (SRBC and Co.), Reliance Capital and Reliance Home Finance (Pricewaterhouse and Co.), and Eveready Industries India Ltd (Pricewaterhouse and Co). In most cases the reasons for resignation were certain unexplained transactions. The new Sebi norms, notified through a circular, make it mandatory for auditors to issue a limited review report, despite their resignations.
In some instances, such as those of Manpasand Beverages Ltd and Vakrangee Ltd, the auditors stepped down due to lack of cooperation and information from the company, or significant observations by the tax department. As a result, investors in many cases have been left without adequate and timely information.
To address this issue, Sebi also mandated that going forward, auditors will have to first flag these issues with the audit committee of the company under audit. The audit committee will then need to obtain this information and discuss it before presenting its view to the auditor and the management. The listed company will then have to disclose the audit committee’s view to the bourses the day after the audit committee meets.
The new rules also stipulate that the limited review should also come with adequate disclaimers, clearly specifying the reasons for the resignation.
Significantly, Sebi has opted to push forward with the revised rules even though there is ambiguity over its jurisdiction over audit firms. The Securities Appellate Tribunal on 10 September had quashed Sebi’s two-year ban on Pricewaterhouse in the Satyam scam citing lack of jurisdiction.
“It will be interesting to see how Sebi will enforce the circular. Even in the circular issued today Sebi hasn’t specified the consequences against auditors in case of lapses," said Sumit Agrawal, founder of Regstreet Law Advisors and a former Sebi official.