The SEBI regulations pertaining to auditor resignations was necessitated after the auditors of some companies like Manpasand Beverages, Cox & Kings, DHFL and Reliance Capital resigned abruptly. This led to suspicions that something was amiss in the accounts and the stock prices fell sharply after that. To avoid such a scenario, SEBI has prescribed detailed guidelines for auditor resignations. The key highlights are as under.

· The SEBI circular clearly states that if an auditor resigned within 45 days of completion of a quarter, such auditor must issue limited review or audit report for such quarter. Similarly, the auditor must issue the limited review or audit report for the next quarter as well if he/she resigns post 45 days of the completion of a quarter.

· The circular also stipulates that the auditor would be obliged to mandatorily issue the audit report for the full financial year if such auditor has signed limited review or audit report for first three quarters of the relevant financial year.

· The onus will be on the auditor to get relevant information and the company will be obliged to provide the same. In fact, to ensure quick resolution of any concerns, such as lack of information or non-cooperation of management, the auditor is required to approach the chairman of the audit committee immediately.

· The audit committee will be obliged to receive and also adequately address such concern without waiting for next committee meeting. In the event of a proposed resignation, all concerns should be communicated by the auditor to the audit committee. This will make the resignation of the auditor more process driven.

· In the event of the listed company or its material subsidiary not providing the requisite information required by the auditor, an appropriate disclaimer should be made in the audit report, as per the applicable audit standards prescribed by the Institute of Chartered Accountants of India (ICAI).

· The audit committee on receiving such representation from the auditor will be obliged to convene as soon as possible but not later than its next meeting. The committee must then share its views with the company’s management and these views should be shared by the listed company with the stock exchanges not later than twenty-four hours after the date of such audit committee meeting.

These changes are expected to bring in greater transparency in the entire auditor resignation issue and avoid unnecessary volatility in stocks prices due to such actions.