Sebi tightens norms for statutory auditors

New Delhi, Oct. 18: 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 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 with 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 entity does not provide information, Sebi said the auditor would have to provide an appropriate disclaimer in the audit report.