In the wake of a number of resignations in listed companies off late, the Securities and Exchange Board of India (Sebi) on Friday floated stricter disclosure norms for resignation of auditors.
In a circular, the regulator said that listed entities should disclose the detailed reasons to stock exchanges in case of resignation of its auditor within 24 hours of receiving the reasons from the auditor.
"Sub-clause (7A) inserted under Clause A in Part A of Schedule III under Regulation 30(2)of SEBI LODR Regulations requires detailed reasons to be disclosed by the listed entities to the stock exchanges in case of resignation of the auditor of alisted entity as soon as possible but not later than twenty-four hours of receipt of such reasons from the auditor," it said.
Further, the directive said the audit committee of a listed entity has to make recommendations for the appointment, remuneration and terms of appointment of the auditors.
"Under Sub-clause (7), the Audit Committee is also responsible for reviewing and monitoring the independence and performance of auditors and the effectiveness of the audit process," it said.
It also said, Regulation 36(5) of the Sebi's norms lays down certain disclosures to be made part of the notice to the shareholders for an annual general meeting, where the statutory auditors are proposed to be appointed or re-appointed, including their terms of appointment.
"Resignation of an auditor of a listed entity/its material subsidiary before completion of the audit of the financial results for the year due to reasons such as pre-occupation may seriously hamper investor confidence and deny them access to reliable information for taking timely investment decisions."
In the past two years, listed companies have seen a slew of auditor resignations, and in some cases, they have come just few weeks ahead of the announcement of financial results. The auditor resignations have in these cases cited reasons ranging from lack of information, to mutual exits.
The Sebi said that if the auditor resigns within 45 days from the end of a quarter of a financial year, then the auditor shall, before such resignation, issue the limited review or audit report for such quarter.
Further, if the auditor resigns after 45 days from the end of a quarter of a financial year, then the auditor shall, before such resignation, issue the limited review or audit report for such quarter as well as the next quarter.
"If the auditor has signed the limited review/audit report for the first three quarters of a financial year, then the auditor shall, before such resignation, issue the limited review/audit report for the last quarter of such financial year as well as the audit report for such financial year," Sebi said.