Sebi lays down stricter norms for statutory auditors

Regulator Sebi on Friday put in place stricter norms for auditors, including prompt disclosures about reasons for their resignation and requirement to approach chairman of audit committee directly in case of any concerns with management of the firm concerned.

The norms have been issued against the backdrop of rising instances of auditors quitting companies as well as those of auditors coming under the scanner in connection with alleged financial irregularities at firms.

The circular on 'Resignation of statutory auditors from listed entities and their material subsidiaries' will come into force with immediate effect.

According to Sebi, resignation of an auditor of a listed entity before completion of the audit of 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.

Coming out with the circular, Sebi has asked all listed entities and material subsidiaries to ensure that an auditor issues the audit report, if he or she is tendering resignation, within 45 days from the end of a quarter.

Besides, those resigning after 45 days from the end of a quarter have to issue audit reports for the quarter concerned as well as the successive quarter.

The auditors who have signed the limited review or audit report for the first three quarters of a financial year, before resignation need to issue the audit report for the last quarter as well as for the complete financial year, Sebi said in a circular.

However, an auditor who has rendered as disqualified as per the relevant provisions of the Companies Act, would not be required to comply with the directions.

"In case the auditor proposes to resign, all concerns with respect to the proposed resignation, along with relevant documents shall be brought to the notice of the Audit Committee," the circular said.

As per the norms, an auditor has to approach the chairman of the audit committee in case of concern with the management of firm such as non-availability of information or non-cooperation by the management that may hamper the audit process.

"The audit committee shall receive such concern directly and immediately without specifically waiting for the quarterly audit committee meetings," Sebi said.

The committee upon resignation of the auditor, will deliberate upon the concerns raised by the auditor regarding the resignation as soon as possible, and not later than the date of the next audit committee meeting and communicate its views to the management.

Companies have to ensure that disclosures about the audit committee's views to the stock exchanges are made within 24-hours of the committee's meeting.

In case the listed entity does not provide information required by the auditor, Sebi said that the auditor would have to provide an appropriate disclaimer in the audit report.

Further, Sebi has issued the format for information to be obtained from the auditor upon resignation and has asked the firms to cooperate with the auditor and provide information necessary for the audit review.

Sebi requires listed firms to disclose reasons of resignation of the companies' auditor as soon as possible but not later than 24 hours of receipt of such reasons.

The regulator came out with detailed guidelines following the consultative papers issued in July with regard to resignation of auditors from listed entities. It had sought public comments on the proposals.