The Securities and Exchange Board of India (SEBI) has issues a Consultative Paper on Policy Proposals with respect to Resignation of Statutory Auditors from Listed Entities. Noting that ‘There have been a significant number of instances of abrupt resignation of Statutory Auditors from listed entities in recent times’, SEBI has put forward a number of proposals to make such resignations and the reasons behind them more transparent. The consultation period runs to 8 August 2019.

SEBI’s policy proposals focus primarily on strengthening disclosures to investors and strengthening and clarifying the role of the Audit Committee. Among the suggested changes, the regulator is saying that if an auditor has signed the audit report for all the quarters (limited review/ audit) of a financial year, except the last quarter, then the auditor should be required to finalize the audit report for the financial year before resignation.

Regarding the format of resignation, SEBI wants auditors to provide detailed reasons for resignation, which may include:

  • Details of the information requested by the auditor which was not provided;
  • Whether the inability to obtain sufficient appropriate audit evidence was due to a management-imposed limitation or circumstances beyond the control of the management;
  • The auditor’s assessment of the materiality – whether the lack of information would have significant impact on the financial statements/results.
  • Whether the auditor could have performed alternative procedures to obtain appropriate evidence for the purposes of audit/limited review;
  • Whether the auditor communicated the matter to the Audit committee / board (where Audit Committees are not mandated), as applicable before resignation;
  • Whether the lack of information was prevalent in the previous reported financial statements/results. If yes, the basis of issuing previous audit/limited review ;
  • The extent of audit/limited review work performed by the auditor prior to resignation.

While the broad role of the Audit Committee of a listed entity is already specified under SEBI regulations, there is no specific procedure laid down when there are significant concerns leading to the auditor resignation.

SEBI plans, therefore, to issue a circular/amend SEBI LODR Regulations, specifying that the auditor shall approach the chairman of the Audit Committee directly and immediately in case of any concerns with the management such as non-availability of information / any non-co operation by the management. In addition companies would be required to disclose Audit Committee views to the stock exchange.