March 2019

AUDITOR RESIGNATION - PRESCRIPTIONS AND RESPONSIBILITIES

T.N. Manoharan
Chartered Accountant

INTRODUCTION


Auditing is the core area of competence of a Chartered Accountant. Audit of financial statements of public interest entities such as listed companies, government companies, banks and insurance companies is an exclusive domain area entrusted to our profession. The underlying trust in assigning this responsibility to the members and firms (referred to as “auditor” henceforth in this article) registered with the Institute of Chartered Accountants of India (ICAI) needs to be preserved by diligent discharge of our duties associated with such a responsibility. Audit of a public interest entity should be accepted not merely as a professional opportunity but with a sense of pride in safeguarding the stakeholder’s interest by authenticating the financial statements audited. Viewed from this perspective, it is a matter of concern that during the year 2018 numerous mid-term resignations by statutory auditors of listed companies (hereinafter referred to as “auditor”) were reported. No doubt, an auditor is legally entitled to resign as per law under certain circumstances. However, the large number of resignations occurring in recent times has become a cause of concern among the stakeholders. In this article, all aspects relating to an auditor’s resignation are dealt with for assimilation of the readers of the journal of the BCAS.

 

CHALLENGING ENVIRONMENT


With the passage of time, business practices are getting complicated and the environment is quite challenging. New laws envisaging stringent compliance mechanisms are demanding more time, attention and cost for enforcing compliance. The business methodologies and practices are becoming vulnerable to manipulation and the individual value system is degenerating due to greed, on account of which many frauds and scams are occurring. Cases of mismanagement and flouting of governance norms are getting reported in the corporate world, where it is least expected. This also leads to widening the gap between expectations of the stakeholders as against performance by an auditor. Beginning with the Satyam case and followed by many other scams including Nirav Modi’s case associated with Punjab National Bank and till the current on-going investigation in the IL&FS group cases, the accountability of the auditor who has attested the financial statements in those cases has been the subject matter

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