In the recent times, the number of instances related to abrupt resignation of Statutory Auditors has increased from listed companies. As per the market regulator Securities and Exchange Board of India (Sebi), currently, many of the statutory auditors are resigning leaving behind their assignments for the year incomplete.

One main reason for resigning is cited as ‘Pre-Occupation’ by these auditors. “Resignation of an auditor due to reasons such as pre-occupation before completion of the audit of the financial results for the year seriously hampers investor confidence and leaves the investors with lack of reliable information for taking their financial decisions,” said Sebi in its proposed consultative paper.

The statutory auditors are mandatory for any company and are appointed within 30 days of incorporation. As per the Companies Act, 2013, the accounts of a Limited Liability Partnership (LLP) should undergo audit if its annual turnover is over Rs 40 lakh or have Rs 25 lakh or more capital contribution. Auditors play a pivotal role when they give timely unbiased, and complete and timely disclosures of various information to investors and other stakeholders in the securities market.

In order to encourage responsible behaviour of auditors, Sebi proposed few measures that would strengthen the disclosures towards investors and stakeholders. One of which is that auditors are required to sign and finalise the audit report for all the quarters of a financial year, barring the last quarter before such resignation.

That said, if the auditors resigned due to lack of information provided by the company, the auditors are required to make an appropriate disclaimer in the audit report to that extent. Sebi has also asked to give a specified format of resignation which includes a detailed reason for resignation along with declaration that there are no other material reasons for resigning.