The Securities and Exchange Board of India (SEBI) recently had proposed to tighten disclosure norms relating to the resignations of statutory auditors in listed companies.
SEBI had put in place stringent norms for auditors, which includes prompt disclosures relating to the reasons for their resignation as well as the requirement to approach chairman of audit committee directly for any concerns with the management of the company concerned. The norms were issued against the backdrop of rising cases of auditors quitting corporations as well as those of auditors coming under the scanner with regard to alleged financial irregularities at companies.
The circular on 'Resignation of statutory auditors from listed entities and their material subsidiaries' shall come into force with immediate effect.
As per SEBI, the resignation of an auditor of a listed firm before completion of the audit of financial results for the year owing to reasons such as pre-occupation might seriously hamper investor confidence and reject them access towards reliable information for making timely investment decisions.
Coming out with the circular, SEBI had asked all listed firms as well as material subsidiaries to make certain that an auditor issues the audit report, if the auditor is tendering resignation, within 45 days from the end of a quarter.
SEBI stated that if the auditor resigns within 45 days from the end of a quarter in a fiscal year, the auditor must issue the limited review or audit report for such a quarter before resigning.
However, if the auditor resigns after 45 days from the end of a quarter in a fiscal year, the auditor then must issue the limited review or audit report for that quarter along with for the next quarter before resigning.
SEBI had stated in a circular posted on its website that notwithstanding the above, if the auditor had signed the limited review or the audit report for the first three quarters of a fiscal year, then the auditor must, before such resignation, issue the limited review or the audit report for the last quarter of such fiscal year as well as the audit report for such financial year.
Though, an auditor who has rendered as disqualified according to the relevant provisions of the Companies Act shall not be required towards complying with the directions.
The regulator also held in case of any issue with the management of the listed entity or material subsidiary for instance non-availability of information or non-cooperation by means of the management which might hamper the audit procedure, the auditor is required to approach the chairman of the audit committee of the relevant listed corporation.
Sebi held the audit committee must receive such concern directly as well as immediately without waiting for the quarterly Audit Committee meetings.
If the auditor proposes to resign, all concerns relating to the proposed resignation, as well as with relevant documents, must be brought towards the notice of the audit committee. If the proposed resignation is due to non-receipt of information or explanation from the corporation, the auditor must notify the audit committee of the details of information or explanation sought and not provided by the management, as applicable.
The committee upon the resignation of the auditor shall deliberate upon the concerns raised by means of the auditor relating to the resignation as soon as possible and not after the date of the next audit committee meeting and converse its opinions to the management.
Corporations have to make certain that disclosures relating to the audit committee's opinions to the stock exchanges are made within 24-hours of the committee's meeting.
In case the listed firm doesn’t provide the information required by the auditor, SEBI stated that the auditor shall require providing an appropriate disclaimer in the audit report.
Furthermore, SEBI has issued the format for information that needs to be obtained from the auditor upon resignation and has asked the companies to cooperate with the auditor as well as provide information necessary for the audit review.
SEBI required listed companies to disclose reasons for the resignation of the firms' auditor as soon as possible but not later than 24 hours of receipt of such reasons.
The regulator had sought after public comments on these proposals in a bid towards strengthening disclosures to investors and clarifies the role of the audit committee.
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