Mid-year auditor exits rise sixfold in six years
Growing friction between the accountants and the companies on sharing information has led to the number of auditors resigning abruptly in the middle of a financial year rising six-fold in the last six financial years.
While the recent past saw high profile exits from companies like Vakrangee and Manpasand Beverages, among others, data showed that such abrupt resignations of auditors were not rare and had in fact registered a steady rise over the years.
“Auditors, like all other professionals in India, are accountable for incorrect reporting,” said Sushila Ram Varma, chief legal consultant and advocate, The Indian Lawyer, a corporate legal firm.
“In the recent past, there has been a series of resignations by CA (chartered accountant) firms as clients have failed to make disclosures of the true facts,” said Ms. Varma. “Independent auditors have the responsibility to maintain integrity of financial reports as there are several repercussions to incorrect reporting.
“An auditor is duty bound to provide assurance about a sound internal control system which enhances the reliability of the external financial information of the company,” she added.
According to Prime Database, there were 37 instances of auditors resigning in the middle of the financial year 2017-18. This was more than double compared with the previous financial year that saw 18 such exits.
Incidentally, there were only six such mid-year exits in 2012-13, followed by 11 each in the next two financial years. In 2015-16, a total of 15 companies reported such mid-year resignations by their respective auditors.
While an abrupt resignation by an auditor could be due to a variety of reasons, the recent instances have brought to the fore the issue of sharing of information between the company and the statutory auditors.
In the case of Manpasand Beverages, a stock exchange statement on May 27 by the Gujarat-based company said that Deloitte resigned as its statutory auditor though a media statement issued the next day by the listed entity stated that the decision was taken by the management.
In 2017-18, companies like Bhushan Steel, Edelweiss Financial Services, Hanung Toys and Textiles, Infibeam Corporation, Pratibha Industries, Gemini Communication, Raj Rayon Industries, Winsome Yarns, Sri Adhikari Brothers Television Network, Surana Industries, Vakrangee, Atlanta and Manpasand Beverages all saw the exit of their auditors in the middle of the financial year. In the case of Vakrangee, the resignation letter by Price Waterhouse explicitly stated that while it repeatedly sought information on matters related to ‘election books, bullion and jewellery businesses’ of the company, it failed to get any relevant information.
‘Absence’ of information
“In the absence of adequate and relevant information and explanations, the fundamental objective of an audit which is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements, in our assessment, cannot be achieved,” stated the resignation letter by Price Waterhouse.
According to Shriram Subramanian, founder and managing director, InGovern, a corporate governance research and advisory firm, while it was not proper for the auditor to resign abruptly, it became difficult for investors to trust the company or the management in such instances.
“Firstly, the company cannot just ask the auditor to go since shareholders appoint the auditors,” he said. “Secondly, the onus is on the auditor to present the complete picture. Hence, they should still sign the account but qualify the statement by mentioning in the notes items on which there were issues. That way, investors will know the truth since the recent past has seen contradictory statements from auditors and companies,” said Mr. Subramanian.