The Securities and Exchange Board of India (SEBI) has tightened the norms for disclosures with respect to resignation of auditors.
While the regulator has directed auditors to complete the limited review or audit before resigning in an abrupt manner, it has also put higher onus on the audit committees of listed companies especially in instances wherein auditors face issues like non-availability of information from companies or non-cooperation of the company management.
This assumes significance as the recent past has seen many instances of auditors resigning in an abrupt manner citing reasons like companies not sharing material information despite repeated attempts to get the information.
The regulator has stated that if the auditor has any concerns related to non-availability of information or non-cooperation by the management, it can directly approach the chairman of the audit committee who will have to receive the concerns without waiting for the quarterly audit committee meetings.
“On receipt of such information from the auditor relating to the proposal to resign… the Audit Committee/board of directors, as the case may be, shall deliberate on the matter and communicate its views to the management and the auditor,” stated the SEBI circular. Further, the audit committee has been mandated to deliberate on the resignation as soon as possible and communicate its views to the management. The company, thereafter, will have to disclose the audit committee’s views to the stock exchanges within 24 hours of the committee meeting.
On the part of the auditor, the regulator has said that if the audit firm resigns within 45 days from the end of a quarter, then a limited review/audit report for such quarter has to be issued before resignation.