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India regulator proposes tighter disclosure for auditors
[MUMBAI] India's capital markets regulator proposed on Thursday ramping up disclosure for auditors of listed companies, after a number of firms abruptly resigned from audit assignments without citing sufficient reasons, leaving investors in the dark.
The Securities and Exchange Board of India (SEBI) also proposed a format for disclosing reasons when the auditor of a listed entity or one of its material units resigns, including details of information the auditor failed to get from the company.
The resignation of an auditor before completion of the audit of the financial results seriously hampers investor confidence and it leaves investors with "a lack of reliable information for taking their financial decisions," SEBI said.
Over the past year, several auditors, including some of the biggest global names, have resigned from companies, citing either non-cooperation from the management or a lack of manpower to complete the assignments.
A number of the auditor resignations have been at companies that were already under a cloud because of allegations of fraud or certain corporate governance concerns.
The resignation of auditors from small companies isn't rare, but a spate of resignations from mid-sized and large companies began last year when PwC resigned from Vakrangee and Deloitte stepped down from Manpasand Beverages.
Last month, PwC also resigned from beleaguered business tycoon Anil Ambani's Reliance Capital Ltd, citing a lack of information from the company around irregularities in certain accounts.
SEBI proposed in the consultation paper that the views of the audit committee as well as those of the board of directors should be disclosed to stock exchanges with an auditor's resignation letter.
The regulator also said an auditor that has audited three quarters of a financial year should not resign before completing the final quarter's audit report. In other cases, the auditor should issue a limited review or the audit report for the quarter preceding its resignation.
"The proposed guidelines indicate that such cases would be scrutinised more closely by regulators and will require significantly enhanced disclosures to the investors," Vaibhav Kakkar, a partner at law firm L&L Partners said.
An auditor should approach the audit committee chairman directly and immediately in case of any concerns with the management, without waiting for quarterly meetings, and provide details of any lack of information and reasons for resignation, SEBI proposed.
The audit committee should deliberate on the issue and communicate its views to the management and the auditor and the company should disclose the views to stock exchange, SEBI said.
The regulator asked for comments on the proposals from the public by Aug 8.