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There have been a significant number of instances of abrupt resignation of Statutory Auditors from listed entities in recent times. In most of the cases, the statutory auditors have suddenly resigned without completing their assignments for the year, generally citing ‘pre-occupation' as the reason for resignation.

The Watchdog SEBI on 18th July 2019 proposed stricter norms, including detailed reasons, on resignation of auditors in the wake rising instances of auditors quitting companies.

These policy proposals focus primarily on the following two aspects with respect to resignation of auditors:

1. Strengthening disclosures to investors

a. Conditions Prior to Resignation -Annexure A

b. Specific Format prescribed for Resignation - Annexure B

c. The listed entity shall ensure disclosure the aforesaid resignation letter to the stock exchanges. In case of resignation by the auditor of a material unlisted subsidiary, the subsidiary shall disclose the resignation letter to the listed entity which shall, in turn, disclose the same to the stock exchanges.

d. Disclosure of views of Audit Committee and the Board of Directors- It is proposed that the views of the Audit Committee and the Board of Directors (of the listed entity/ unlisted material subsidiary, as applicable) be required to be submitted to the stock exchanges along with the disclosure of the resignation letter of the auditor in the aforesaid prescribed format.

2. Strengthening and clarifying the role of the Audit Committee

In order to strengthen the role of the Audit Committee in the matter, it is proposed to issue a circular/amend SEBI LODR Regulations, specifying the following as the procedure that may be followed in such cases

a. The auditor shall approach the Chairman of the Audit Committee directly and immediately in case of any concerns with the management such as non-availability of information / any non-co operation by the management. The auditor shall not specifically wait for the quarterly meetings to take place in order to raising such concerns.

b. The auditor shall bring to the Audit Committee's notice, all the concerns the auditor has with respect to such resignation, along with relevant documents. In cases where the resignation is due to nonreceipt of information / explanation from the company, the auditor shall enlighten the Audit Committee of the details of information / explanation sought and not provided by the management, as applicable.

c. The Audit Committee shall deliberate on the matter and communicate its views to the management and the auditor. In communicating its views, the Audit Committee shall ensure that it fulfils its role as specified under the SEBI LODR Regulations. The listed entity shall ensure the disclosure of the Audit Committee's views to the Stock Exchanges.

Annexure - A : Conditions Prior to Resignation

Current Provisions under the Companies Act 2013

Under Sec 140(2) of the Companies Act, 2013, the auditor who has resigned from the company is required to file a statement in the prescribed form with the company and the Registrar ((i.e. ADT-3) within 30 days from the date of resignation.

The reasons for resignation are also required to be disclosed in the prescribed form for resignation which is required to be filed by the auditor under the Companies (Audit and Auditors) Rules, 2014.

Current Provision under the SEBI LODR Regulation

Based on the recommendations of the Kotak Committee, amendments have been made to SEBI LODR Regulations.

Under regulation 30the listed entities are required to disclose to the stock exchanges, the detailed reasons for the resignation of auditor, as given by the auditor, within 24 hours. These amendments are effective from April 1, 2019

Under SEBI (LODR) Schedule III, Part A,


A. 'Events which shall be disclosed without any application of the guidelines for materiality as specified in sub-regulation (4) of regulation (30):

7A In case of resignation of the auditor of the listed entity, detailed reasons for resignation of auditor, as given by the said auditor, shall be disclosed by the listed entities to the stock exchanges as soon as possible but not later than twenty four hours of receipt of such reasons from the auditor”.

Proposed amended provision in SEBI LODR Regulations.

Insertion of sub-regulation 33(9) ;

Conditions prior to resignation: 33(9): If the auditor of a listed entity/ material unlisted subsidiary of the listed entity proposes to resign:

a. With respect to auditor of a listed entity

i. If the auditor has signed the audit report for all the quarters (limited review/ audit) of a financial year, except the last quarter, then the auditor shall finalize the audit report for the said financial year before such resignation.

ii. In all other cases, the auditor shall issue limited review/audit report for that quarter before such resignation (i.e. previous quarter in reference to the date of resignation).

b. With respect to the auditor of a material unlisted subsidiary of the listed entity, the auditor shall issue the limited review/audit report for that financial year/ quarter, as applicable, before such resignation (i.e. previous financial year/ quarter in reference to the date of resignation).

c. If any information is not provided to the auditor, to that extent, the auditor shall provide an appropriate disclaimer in the audit report.

Explanation: The disclaimer as specified in this clause may be in accordance with the Standards of Auditing as specified by ICAI.

Annexure -B : Format of resignation letter by a statutory auditor

1. Name of the listed entity/ material unlisted subsidiary:

2. Details of the statutory auditor:

a. Name:
b. Address:
c. Phone number:
d. Email:

3. Details of association with the listed entity/ material unlisted subsidiary:

a. Date on which the statutory auditor was appointed:
b. Date of which the term of the statutory auditor was scheduled to expire:

4. Detailed reasons for resignation:

5. In case of any concerns, efforts made by the auditor prior to resignation (including approaching the Audit Committee):

6. In case the information requested by the auditor was not provided, then following shall be disclosed.

a. Whether the inability to obtain sufficient appropriate audit evidence was due to a management-imposed limitation or circumstances beyond the control of the management.

b. Whether the lack of information would have significant impact on the financial statements/results.

c. Whether the auditor could have performed alternative procedures to obtain appropriate evidence for the purposes of audit/limited review

d. Whether the auditor communicated the matter to the Audit committee before resignation

e. Whether the lack of information was prevalent in the previous reported financial statements/results. If yes, on what basis the previous audit/limited review reports were issued.

f. Prior to resignation, the extent of audit/limited review work performed by the auditor.

7. Any other facts relevant to the resignation:


1. I/ We hereby confirm that the information given in this letter and its attachments is correct and complete.

2. I/ We hereby confirm that there is no other material reason other than those provided above for my resignation/ resignation of my firm.

Signature of the authorized signatory


Disclaimer The views presented are personal and has nothing to do with where I am employed. Views are in general form and not as legal advice.


Published by

Kavita D. Shah
(Practicing Company Secretary )
Category Audit   Report

  1 Shares   2427 Views


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