Markets regulator Sebi on Thursday proposed stricter disclosures, including detailed reasons, on resignation of auditors, amid rising instances of auditors quitting companies.
Besides, an auditor would have to provide appropriate disclaimer in case of auditor's resignation is due to non-receipt of information from the company concerned.
The regulator also proposed to further strengthen and clarify the role of audit committees of the listed firms.
Sebi came out with proposals as it found that resignation of an auditor before completion of the audit of financial results for the year hampers investor confidence and leaves investors with lack of reliable information for making their financial decisions.
In order to enhance responsible behaviour of auditors and strengthen the disclosures to investors and stakeholders it is proposed that if the auditor has signed the audit report for all quarters of a financial year, except the last quarter, then the auditor shall finalise the audit report for the said financial year before such resignation, Sebi said.
In all other cases, the auditor shall issue limited review/audit report for that quarter before such resignation which means if the auditor of a listed entity makes a decision to resign in August 2019, the auditor shall issue the limited review/ audit report for the quarter ended September 30, 2019 before such resignation.
The regulator also proposed a format to be followed by the auditor that should include information like detailed reasons for resignation, a declaration by the auditor that there are no other material reasons other than those provided for resignation and in case of any concerns, efforts made by the auditor prior to resignation including approaching the audit committee.
If the auditor’s resignation is because of non-availability of information, then the proposed format should also include information like details of information requested by the auditor which was not made available to it.
Such information should also list whether the inability to obtain sufficient appropriate audit evidence was due to a management-imposed limitation or circumstances beyond the control of the management, among other details.
The listed entity shall ensure disclosure of resignation letter of auditor containing the proposed information to the stock exchanges.
In order to strengthen the role of the audit committee, the regulator proposed a procedure to be followed in the case of auditor's resignation.
Under the proposed procedure, 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-cooperation by the management.
The auditor shall not specifically wait for the quarterly meetings to take place in order to raise such concerns.
The auditor shall bring to the audit committee’s notice, all the concerns the auditor has with respect to such resignation, along with relevant documents.
In cases where the resignation is due to non-receipt of information from the company, the auditor shall enlighten the audit committee of the details of the information which was sought.
The listed entity shall ensure the disclosure of the audit committee’s views on auditor's resignation to the stock exchanges, Sebi said.
The regulator asked for public comments on the proposals latest by August 8, 2019.