Why auditors must mark their entry & exit with bourses

KS Badri Narayanan Chennai | Updated on June 08, 2018 Published on June 08, 2018

SEBI should classify communications from auditors as price-sensitive information

It is the season of exodus of auditors at India Inc. The exits, however, are causing huge financial harm to investors in those companies.

A few days ago, shares of Manpasand Beverages crashed following the resignation of its auditor Deloitte Haskins & Sells.

Similarly, shares of Atlanta plunged as its statutory auditor for financial year 2017-18, Price Waterhouse Chartered Accountants LLP, resigned on May 29. Price Waterhouse had also resigned from Vakrangee in April due to lack of information about its election books, bullion and jewellery business, according to reports.

Reports quoting Prime Database, a primary market tracker, say that 32 auditors have so far resigned in 2018; the number of exits stood at 36 in 2017-18 and just 18 in 2016-17. The reasons behind the auditors’ exits have ranged from lack of adequate information on the company’s businesses, revenues and tax observations to mutually agreed upon exits.

When Price Waterhouse stepped down from Atlanta, it said the infrastructure engineering firm did not share “significant information” and “significant observations by tax authorities” as requested.

Price-sensitive information

Some exits were also because of “health concerns” and other “preoccupations”. In some other cases, the firm simply ceased to exist, says Prime Database.

The exit of auditors cause fluctuation in share prices, as the past few weeks bear out. So, should SEBI’s classification of price-sensitive information include auditors’ communications too?

According to SEBI, price-sensitive information means any information that relates directly or indirectly to a company, which if published is likely to materially affect the price of the securities of the company.

Disclosure to exchanges

Information such as financial results of the company; intended declaration of dividends (both interim and final); issue of securities or buyback; expansion plans or execution of new projects; amalgamations, mergers or takeovers; disposal of the whole or a substantial part of the undertaking; and significant changes in policies, plans or operations of the company are classified as price-sensitive, according to SEBI.

Since auditors’ actions also have a material impact on stock prices, all communications between the auditor and a company, be they routine in nature or serious observations, should be disclosed to the exchanges. Besides, exchanges should also have a separate window/format such as the one they have for pledged shares, SAST, insider trading, and so on, so that companies can share material information immediately with the public.

SEBI can strengthen cooperation with government agencies for exchange of information in cases related to listed entities.

Exit window

Also, auditors should be allowed to exit from the company only in the first month or few days of a financial year, so that whoever steps in can have a reasonable length of time to handle the accounts in the ensuing fiscal.

Published on June 08, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.