MUMBAI: Fearing a backlash from regulatory agencies around corporate governance standards many firms are dropping their auditing assignment like hot potatoes.
Since January this year more than 30 firms have resigned as auditors of companies midterm, compared to about 7 auditor resignations in 2017, as per data collated by Prime Database.
In the past few days, Deloitte resigned as auditor of Manpasand Beverages after the company failed to share key data, and Price Waterhouse (PW) quit as auditor for construction and infrastructure company Atlanta Limited.
And shares of Dilip Buildcon dipped after rumours around the resignation of the company’s statutory auditors.
But experts say more such resignations could be in the offing. The exodus of auditors seem to be motivated by a fear of being pulled up by the regulator or worse the company getting caught with their hands in the cookie jar.
Industry trackers say that in many cases, independent directors and company secretaries too have resigned around the time when auditors also quit.
“When auditors, independent directors and CS resign in quick succession, it usually means warning bells should go off,” said Pranav Haldea, managing director of Prime Database.
After the companies law mandated audit rotation ended, the audit firms are parsing through their client portfolio and weeding out risky clients. “Given the environment of scrutiny, the audit firms are being extra cautious.
With the new companies law, a stricter ICAI, increased regulatory institutional oversight, no audit company is willing to take risk,” says CEO of an Indian audit firm on conditions of anonymity.
Audit firms are being especially careful with companies in jewellery, infrastructure and real estate.
The larger companies which have much bigger non-audit businesses are being extra careful on the audit side lest any Price Waterhouse like situation exposes them to penalties or a reputational risk.
Auditors are caught in a bind as the audit risks increase but the revenue pie has actually shrunk after competitive pricing in audit rotation. Costs continue to rise and margins are under severe pressure.
In some audit rotation cases, the company has requested the outgoing auditor to stay for one more quarter during audit switch period.
Even in Sri Adhikari Brothers NSE -4.74 % the auditors said they didn’t want to continue due to preoccupation.