Centre to pose tough questions to auditors for quitting companies

The government will seek detailed information from auditors on the reasonsfor resignation from companies, a senior government official told Business Standard. Following Price Waterhouse & Co’s (PWC’s) resignation as auditor of Reliance Capital and Reliance Home Finance and its complaint against the company, authorities have said that hard questions will be asked of both parties before any decisions are made.

“We should go through all the steps. We cannot take a complaint at face value. We have to ask serious questions to the company, to the joint auditor as well as the auditing company,” the senior official said. 

There has been a spate of resignations by auditors who want to derisk themselves from companies whose accounting practices may be questionable. Latest action against Deloitte, KPMG, and EY has brought the role of auditors under heavy scrutiny, with the Centre expecting them to provide answers.

BSR & Associates, part of global accounting firm KPMG’s network in India, resigned as an auditor of IL&FS Financial Services, facing probe for financial irregularities last month. The resignation came a day before the hearing of a government plea seeking a ban on the audit company for five years in the National Company Law Tribunal.

“Auditors are being very careful because of the regulatory tightening and the supervision by government agencies…Resignation should be the last resort when there is no way forward. As an auditor, if I find something suspicious I can qualify it in my report,” said Ankit Singhi, partner, Corporate Professionals. PWC, in a letter to the Ministry of Corporate Affairs (MCA) in June, said, “We did not receive substantive/satisfactory response to our queries in light of our observations. Accordingly, we sent a letter dated April 24, 2019, under the provisions of Section 143 (12) of the Companies Act read with Rule 13 (2) (a).”

“It is raising a very fundamental issue about auditor leaving… It is an equitable enquiry,” the senior official added.

Section 143 (12) of the Companies Act provides the provision for an auditor to report to the government any fraud in the company. According to officials, an auditor can resign on grounds of non-cooperation, which might point a finger towards the company. 

However, filing under Section 143 (12) is clearly stating that there is a fraudulent activity. “The form filed by PWC is not typically filed by a person who runs away…it is a form which an auditor who is well entrenched has to file,” a senior official said.PWC did not respond to the queries sent by Business Standard. Price Waterhouse & Co, a network firm of PwC, also quit as the auditor of Eveready Industries, saying it had been unable to obtain sufficient audit evidence of inter-company deposits and its recovery. 

The MCA is likely to look into the issue as well though there is no formal complaint, according to people close to the matter.

CALLING IT QUITS

Some recent auditor resignations

• Price Waterhouse & Co (PWC) from Reliance Capital and Reliance Home Finance, in June 
• PWC stepped down as auditors of Eveready, in June 
• KPMG’s arm BSR & Associates LLP resigned from IL&FS Financial Services, in June  
• PWC resigned as auditors of Vakrangee, in April 2018 
• Deloitte Haskins & Sells resigned as auditors of Manpasand Beverages and Fortis Healthcare, last year