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Auditors’ abrupt exit may be part of material disclosure by SEBI
As the recent abrupt resignation by several global audit firms have led to unnecessary aspersions on the companies, it is time for the market regulator Securities and Exchange Board of India (SEBI) to make such exits as a part of its disclosure.
Several industry insiders observe that the time has come whereby auditors’ observations and their movement may be classified as price sensitive because of the material impact they have on stock price. “This will further strengthen SEBI cooperation with other government agencies for exchange of information in cases related to listed entities and protect investors’ interest,” they said.
With several changes brought in the new Companies Act and continuous focus of SEBI chief Ajay Tyagi, the need of the hour is to strengthen Indian corporate governance scene as it has turned into a season of resignations. First, it was independent directors where several industry experts voiced concern that they are not acting so, it is turn of auditors to abruptly end client relations citing non-cooperation of Indian management in sharing information.
While role of independent directors are considered as vital to enhance corporate governance and are included as material impact events in case of resignations to be notified to stock exchanges, auditors seem to be having a free run from all regulatory obligations.
With sudden quitting of audit firms, companies are facing the flak from investors whereby stock prices had free fall eroding as much as 30-50 per cent of their investor wealth.
For instance, Manpasand Beverages, Inox Wind, Vakrangee, etc are the recent companies which are likely to suffer from these unforeseen developments. Earlier the shares of Vakrangee and Atlanta plunged as its statutory auditor for financial year 2017-18, Price Waterhouse Chartered Accountants LLP, resigned on April 28 and May 29 respectively citing delay in sharing information and disagreement on accounting methods.
Deliotte Haskins & Sells resigned abruptly as auditor of Manpasand Beverages, on 26 May 2018, one week before the declaration of results after being associated for longer period eight years. Auditor had cited Nil reasons under section 140 (2) of Companies Act while filing to ROC.
According to Prime Database, a primary market tracker, 32 auditors have so far resigned in 2018 compared to 36 in 2017-18 and just 18 in 2016-17. Harsh stock market reaction is understandable on back of corporate environment of several companies approaching NCLT, one time settlement with banks on default loans, financial irregularities, etc.
But companies like Manpasand with Nil debt from banks and growing at a scorching pace in non-alcoholic beverages market, sudden resignation by auditors have come as a shocker the company and shareholders.
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