Does spurt in abrupt resignations by statutory auditors point to governance issues?

In most cases, the reasons cited for such exits have been merely mentioned as “pre-occupation” or “commercial” though in some cases auditors mentioned that they were resigning due to “alignment” issues with “group/subsidiary auditors”.

Companies in which auditors have resigned in the middle of their term include Easy Trip Planners, Gulshan Polyols, Platinum Industries, SVP Global Textiles, Uflex Ltd, Wanbury Ltd, Polo Queen Industrial & Fintech, Ind-Swift Laboratories and SJ Logistics (India) among others.

Data from primeinfobase.com shows that instances of such exits in the first five months of the current financial year (35) is already inching close to the full year number for FY23 when it was 41.

Meanwhile, there have been 22 separate instances this fiscal wherein auditors resigned before the completion of their agreed tenure. Well-known companies like Abans Holdings, Adani Wilmar, Cantabil Retail India, and Nandan Denim among others saw their auditors resign in the middle of their term.

“This is obviously a governance issue as many a time auditors ask for detailed information from the management and if the responses are not satisfactory or in accordance with the law, then it becomes difficult to continue,” says Shriram Subramanian, Founder and Managing Director, InGovern Research Services, a proxy advisory firm.

“The more important issue is to know the exact reasons for such abrupt resignations. Because if they just mention reasons as personal or preoccupation, then the impact is lost,” he added.

This assumes significance as auditors have a ringside view of the company’s financial health and balance sheet strength and hence would be aware of any financial violations or malpractices done by the company.

Interestingly, on September 11, Religare Enterprises, which is in the midst of probes by various agencies including the Ministry of Corporate Affairs, reported that Nangia & Co LLP, which was supposed to be appointed as the auditor, had withdrawn its consent for being considered as statutory auditors.

“This shows that even statutory auditors, a key stakeholder who had initially consented to audit the company… are suspicious of the happenings at the company,” stated a recent report by InGovern.

“At a time when stock market valuations are on the rise and stocks of most small- and mid-cap companies are going through the roof and racing ahead of fundamentals, auditors have a difficult job of asking tough questions. Many-a-time, there is no convincing reply especially while dealing with the management of lesser-known companies. The only recourse left for the auditor is to move out,” said a lawyer specialising in securities market regulations.

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