Corporate governance and advisory services firms are advising investors to vote against a resolution seeking the reappointment of the statutory auditors of two real estate firms—Unitech and Jaiprakash Associates-- as they have been unchanged for several years.
These two firms, among other things, are seeking shareholders' approval for the reappointment of auditors at their annual general meetings (AGMs) to be held tomorrow.
MP Singh and Associates have been the statutory auditors of Jaiprakash Associates for more than a decade, while Goel Garg & Co’s tenure as statutory auditors of Unitech is over 16 years.
“MP Singh and Associates have been the statutory auditors of the company at least since FY05 (eight years), based on the data on the website. MP Singh has been the audit partner. However, we believe MP Singh and Associates have been the company’s auditors for more than 25 years, with MP Singh as the signing partner during the entire period,” said a advisory report by Stakeholders Empowerment Services (SES) on Jaiprakash Associates.
Another note by Institutional Investor Advisory Services (IiAS) on the Noida-based infrastructure and real estate firm added, “Taking into account auditors’ tenure of over 16 years and audit partners’ tenure of over 16 years, we recommend that shareholders vote against the proposal.”
Unitech also hasn't changed its auditors for the last 16 years.
SES, founded by former Sebi executive director JN Gupta, believes the long tenure of the auditor at Unitech is a 'high concern' and is advising its client to vote against it tomorrow.
“Serving for longer tenor compromises independence and raises questions over the objectivity of the auditors and therefore is considered a poor corporate governance practice,” says a note by SES.
The Corporate Governance Voluntary Guidelines published by the Ministry of Corporate Affairs (MCA) in 2009 states that in order to maintain independence of auditors with a view to look at an issue (financial or non-financial) from a different perspective and to carry out the audit exercise with a fresh outlook, the company may rotate the audit firm once every five years and the audit partner once every three years.
The Companies Bill, which is likely to be tabled in Parliament later this year, proposes that the same audit firm cannot continue beyond 10 years.
Currently, it is commonplace among most large listed firms in India to have auditors unchanged even for several decades.
