SEBI to Take Firm Steps Against Abrupt Resignation of Auditors

Shubham Chauhan

25 Nov, 2019

To curb abrupt resignation of auditors, new SEBI norms made it mandatory for auditors of listed companies to issue an audit report even if they resign

SEBI has brought strict rules and regulations into effect against the auditors resigning from listed companies. From now on Auditors will have to give a detailed explanation of their resignation to stock exchange at the earliest. Resignation of an Auditor before completion of the audit of financial results for the year seriously affects the confidence of investors.

As per SEBI^[1], an auditor will have to provide a limited or complete audit report for the quarter during which it resigns. Furthermore, if the auditor signs audit report for all the quarters of the financial year, except for the last quarter, then the auditor will have to finalize the audit report for the entire financial year.

In a situation where the listed company refuses to provide the required information, the auditor should give a proper disclaimer in the audit report. In another case, if the management of the company obstructs the audit process, the auditor needs to speak to the chairman of the audit committee of the Company.

Abrupt resignations of auditors hamper the confidence of investors. Investors are left with no accurate details about their monetary decisions. In the past years, the sudden resignation of statutory auditors in the listed companies has gone up.

SEBI had a close look at this matter and, therefore decided to take strict actions against the defaulters. According to data provided by NSE Infobase the year 2018, saw mid-term resignation of 48 auditors and another 16 so far this year.

Takeaway

Auditors play an essential role in gaining funds for the company. In recent years there have been numerous cases of auditors resigning mid-way of the financial year. Now after SEBI’s circular it will be interesting to see how the circular gets implemented.