SECTION OR RULE STATING THAT THE AUDITOR WHO HAS RESIGNED CAN SIGN OR

ISSUE LIMITED REVIEW REPORT AFTER RESIGNATION

As per sub-section (2) of section140 of the Act read with rule 8, the auditor who has resigned from the
company shall file within a period of 30 days from the date of resignation, a statement in the e-form
ADT - 3 with the company and the Registrar. Further, in case of Government Companies and other
companies referred to in subsection (5) of section 139, the auditor shall also file such statement with
the C&AG. Such statement shall indicate the reasons and other facts as may be relevant with regard to
his resignation.
 SEBI (LODR) Regulation, 2015: -
SEBI has, in a Consultative Paper dated 18 July 2019, proposed amendments to the SEBI (Listing
Obligations and Disclosure Requirement) Regulations 2015 (LODR Regulations) with respect to
resignation of auditors. Specifically, it has proposed disclosures to be made to investors and clarified
the role of the Audit Committee in this regard. The proposals have been made in view of several
instances of statutory auditors of listed entities resigning abruptly without completing the audit of
financial results for the year, citing “pre-occupation” as the reason for doing so. As a result, investor
confidence is hampered on account of lack of reliable information to base financial decisions on. The
extant regulatory provisions on the subject under the Companies Act 2013, Companies (Audit and
Auditors) Rules, 2014, LODR Regulations 2015 and the ICAI’s auditing standards (SA-705) do not
address the aforesaid concern adequately. Hence, the paper makes the following proposals:

 A new sub-regulation 33(9) providing for ‘Conditions prior to resignation’, to encourage

responsible behaviour on the part of auditors, that:
 If the auditor of a listed entity proposes to resign and it 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. 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).
 If the auditor of a material unlisted subsidiary of the listed entity proposes to resign, 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).
 Format of resignation:

In a prescribed format, the auditor is required to give detailed reasons for his resignation, a
declaration that there are no other material reasons and the efforts made by it (to approach the Audit
Committee) on any concerns. In case the resignation is for the reason that information sought was
not made available, then details such as, whether this was due to a management-imposed limitation,
whether lack of information would have a significant impact on financial results, whether lack of
information was existed in the previous reported financial statements etc, shall be disclosed

 Disclosure of resignation letter, views of the Audit Committee and the Board to stock
exchanges:
The listed entity shall disclose this letter to the stock exchanges. In case of a material unlisted subsidiary,
the subsidiary shall disclose the resignation letter to the listed entity which in turn shall disclose it to the
stock exchanges. Along with disclosure of resignation letter of the auditor, the views of the Audit
Committee and Board of Directors of the listed entity/unlisted material subsidiary should also be
submitted to the stock exchanges.
 Regulation 33(1)(d) of SEBI (LODR) Regulation, 2015: -

The listed entity shall ensure that the limited review or audit reports submitted to the stock
exchange(s) on a quarterly or annual basis are to be given only by an auditor who has subjected
himself 241[/herself] to the peer review process of Institute of Chartered Accountants of India and
holds a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants
of India.