Abrupt mid-term auditor exits rise in FY25; raise governance concerns

Data from primeinfobase shows that listed entities including Easy Trip Planners, Grasim Industries, State Bank Of India, Ind-Swift Laboratories, BASF India, 3i Infotech, Kalyani Forge, Inventure Growth & Securities, Arihant Capital Markets, Sanghi Industries and Kernex Microsystems (India) featured among the list the companies whose auditors made an abrupt exit in FY25.

More than three dozen companies -- 39 to be precise -- saw an abrupt mid-term exit of their auditors in FY25 with well-known names from the top 500 NSE-listed companies making it to the list.

Data from primeinfobase shows that listed entities including Easy Trip Planners, Grasim Industries, State Bank Of India, Ind-Swift Laboratories, BASF India, 3i Infotech, Kalyani Forge, Inventure Growth & Securities, Arihant Capital Markets, Sanghi Industries and Kernex Microsystems (India) featured among the list the companies whose auditors made an abrupt exit in FY25.

The number of such instances saw an increase in FY25 when compared to the previous fiscal when 34 such exits were announced. However, the trend has been on a rise if one compares it to the earlier years when such exits were in single digits or low double digits – it was in the range of 11-15 between FY14 and FY17.

Experts tracking this metric say that the number of such instances is growing every year and reflects poorly on the overall corporate governance levels. They attribute the trend to a combination of factors, including pressure from the promoters to inflate the numbers or ignore certain red flags.

“Abrupt resignation of an auditor is definitely a matter of concern and a red flag from a governance point of view,” says Shriram Subramanian, Founder, InGovern Research Services, a proxy advisory firm.

“One of the reasons especially in the smaller and lesser-known companies could be the pressure on promoters to show performance and results to support stock price in the market. They, in turn, could be putting pressure on the auditors leading to exits in some cases,” added Subramanian.

In a similar context, Pranav Haldea of Prime Database says that this assumes a lot of significance as auditors and independent directors are the two key pillars of corporate governance.

“There is a reason why the regulator has stressed so much on disclosures by auditors and independent directors, especially in the context of their exits or resignations. However, it is only in very rare instances that the actual reasons are disclosed. It is not a comforting trend if bigger or well-known audit firms exit abruptly with proper reasons not being disclosed," said Haldea.

Incidentally, in most instances the exits are attributed to ambiguous reasons. Not surprisingly, experts believe that the current regulatory framework allows companies to "manage" such exits as exact reasons for the resignation is often not disclosed.

The most common reasons listed for resignation were “pre-occupation” or “commercial reason”. In some instances, the auditor stated that the resignation was “due to alignment with group/subsidiary auditors”. Only in one instance, the auditor resigned stating the reason as “non-cooperation of the management”.

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