10 listed cos flouted rules on auditor appointment: SES
MUMBAI: The auditor appointment rules specified by the Companies Act has led to different interpretations. At least 10 publicly traded companies have violated these norms by hiring auditors for terms of less than five years, proxy advisory firm Stakeholder Empowerment Services (SES) said in a report.
According to the Companies Act 2013, an auditor has to be hired for a fixed term of five years and can be re-appointed for another term of five years. The appointment has to be ratified at the annual general meeting of shareholders. Afterthesenorms were notified, companies were given a transition period of three years to adapt to the new rules, which ended in 2016.
The companies mentioned in the SES report have proposed to appoint auditors for tenures of less than five years. For instance, L& T Technology, one of the firms named in the SE S report, has proposed appointing an auditor for just a year. In an emailed response, the company said, “In view of change in auditors at a group level, it was decided by the board to appoint statutory auditors for a period of one year. The said appointment of auditors would be ratified every year.”
Another company mentioned in the report is Akzo Nobel which is appointing statutory auditor for one year .“The law prescribes that the auditor be appointed for a period of five years – with a caveat that the same should be ratified each year at the AGM. The present auditors… have been appointed in the 2016 annual gen- eral meeting. AkzoNobel India intends to continue their appointment for such tenure as required under the Companies Act ,” said a spokesperson for the firm in an emailed response.
“Since our auditors have already served for eight years, we cannot appoint them for more than two years ,” saidKapil Bag la, director and chief executive officer at Ad labs Entertainment Ltd, another firm named in the report.
Similarly, Quess Corp said since its auditors have completed nine years, “appointment of the auditors for a term of five years would result in violation of Section 139 (2) of the Companies Act, 2013. This implies that the incumbent could have been appointed only for an additional period of one year and not five years.”
Punjab Housing Finance, another of the firms named in the SE S report, declined to comment. Bombay Dyeing, Uttam Galva, Wimplast (which has now withdrawn the auditor proposal) and N RB bearings did not respond to repeated email reminders.