SEBI issues stricter norms for resignation of statutory auditors

The Securities and Exchange Board of India (SEBI) vide Circular dated 18th October, 2019 has tightened the norms of resignation of auditors of a listed company. By the circular, SEBI issued various conditions to be complied by the listed entities/material subsidiaries, statutory auditor and the audit committee upon resignation of statutory auditor. Apart from this, SEBI also prescribed the format of information to be obtained from the statutory auditor upon resignation. The circular shall come into force with immediate effect i.e. 18th October 2019. The main conditions put out in the circular are as follows-

  1. The Audit committee of a listed company has to make recommendations for the appointment, remuneration and terms of appointment of auditors of a listed entity under Schedule III Part C (A)(2) of the SEBI (Listing Obligations and  Disclosure  Requirements) Regulations, 2015 .
  2. The Audit committee is also responsible for reviewing and monitoring the independence and performance of auditors and effectiveness of the audit process.
  3.  The listed entities are required to disclose detailed reasons to the stock exchange in case of resignation of the auditor of a listed entity within 24 hours of receipt of such reasons from the auditor.
  4. An auditor will have to provide review (limited or complete audit report) for the quarter during which it resigns. That means if the auditor decides to resign in August 2019, it will have to issue the review for the quarter ended September 30, 2019.
  5. if the auditor signs the audit report for all the quarters of a financial year, except the last quarter, then it will have to finalise the audit report for the entire financial year. 
  6. If the listed company or its material subsidiary does not provide the required information, the auditor shall provide an appropriate disclaimer in the audit report.
  7. In case the auditor proposes to resign, all concerns with respect to the proposed resignation, along with relevant documents shall be brought to the notice of the Audit Committee.
  8. In cases where the proposed resignation is due to non-receipt of information / explanation from the company, the auditor shall inform the Audit Committee of the details of information / explanation sought and not provided by the management, as applicable.
  9. In case the auditor is rendered disqualified due to operation of any condition mentioned in Section 141 of the Companies Act, 2013, then the provisions of this Circular shall not apply.

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