ICAI Wants SEBI to Review Proposed Norms For Resignation of Auditor

ICAI Wants SEBI to Review Proposed Norms For Resignation of Auditor

ICAI Wants SEBI to Review Proposed Norms For Resignation of Auditor

The new framework recommended by market regulator Security and Exchange Board of India (SEBI) to deal with the concern of the auditor resignations from listed companies by looking for more compulsory disclosures is seen as corralling chartered accountants at the expense of firms.

There were a significant number of cases of the abrupt resignation of Statutory Auditors from listed companies recently. In most of the matter, the statutory auditors have abruptly resigned without completing their assignments for the year, usually citing ‘pre-occupation’ as the cause for resignation.

Institute of Chartered Accountants of India (ICAI) is preparing a submission for SEBI asking the proposed standards regarding auditor resignations be reconsidered.

SEBI wants to control this abrupt resignation in listed entities and has suggested that auditors must give precise reasons for resigning, which includes if the auditor discovered any deception and explain what action was taken. It also needs an auditor to continue for another quarter after the resignation, amongst other things.

Auditors’ Abrupt Resignations

Auditors play an important part in ensuring unbiased, precise, complete and timely disclosure of information’s to investors as well as other stakeholders in the securities market. The investors in listed companies depend on the audited financial results for taking their investment decisions.

Resignation of an auditor owing to reasons like pre-occupation before the conclusion of the audit of the financial results for the year hampers the investor confidence as well as leaves the investors with lack of dependable information for taking their monetary decisions.

SEBI’s proposal amends SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations look for to set down in the rule book of listed companies that when auditors want to resign in the midst of an auditing assignment, they cannot be permitted to leave citing reasons like “pre-occupation”.

They should be encouraged and asked to speak out about the real reason or confirm that there was no as such no reason except the one that they had mentioned while resigning. Furthermore, the auditor should not leave the auditing abruptly and must complete the on-going audit commitment to the point of finishing the audit of the year or limited review of the quarter. The resignation should be discussed with the audit committee chairman, and thenceforth, with the audit committee, emphasizing the concerns, if any. The opinions of the audit committee would be filed before the stock exchanges.

However, the proposal of SEBI in order to implement what seems to be the clear intention that the veil of secrecy behind auditor resignation, where everybody could sense that everything is not alright but doesn’t get to know what exactly it is, must be lifted.

The reason for the Proposed Amendment

The reason for the SEBI proposal comes from the current chaos in the corporate sector, where, mostly in the middle of worsening financial position, auditors resign. There are rumors of auditor discomfort with the fiscal statements; generally, individuals smell transactions that might involve the transfer of assets towards connected entities, inflation of profits or hiding of losses.

Many wonders as to why the majority of these resignations are given only when the fiscal position of the company is suddenly worsening.

What has made the auditor group even more concern is the action of the regulators against auditors of a failed fiscal company, looking for to use the heavy provisions of section 140 (5) of the Companies Act.


It is only a matter of time when the nation might witness class-action suits against auditors, which are already prevailing in the Western world.

The automatic action of the auditor in such matter is, try to control the damage by resigning the scene, and instead of qualify the statements which, in the past, have been confirmed by the same auditor. However, the reasons mentioned could be as unclear as “pre-occupation” or lack of bandwidth.

The point referred to is how the auditor should resign. The auditor must give several details which include, whether the auditor may have executed alternative actions to get appropriate evidence (from the corporation), or whether the auditor had communicated the case to the audit committee, or whether the lack of information was prevailing in preceding financial statements. The auditor is expected to state out in the resignation letter, which is consistent with the recommendation made in ICAI’s implementation guide.


eStartIndia Team

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