Agencies

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.Sebi ban on Price Waterhouse entities barring its network entities from issuing audit certificates to any listed company in India for two years has sent shudders through the bigger firms.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.A lot of auditors signed on new clients without proper due diligence during companies law mandated audit rotation to replace the old audit clients which rotated out. Now in some cases, the skeletons in the cupboard are tumbling out as they delve deeper into the affairs of the company and older accounts signed by various audit firms which had a cosy relation with the promoters or management.Scared of repercussions, the firms quitting audits are not even willing to sign the accounts with qualifications or take the matter to board of directors for discussion but want out completely.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.Experts feel that audit failures and midterm cessations will increase as fresh pair of eyes uncover irregularities. Problems with audit aren’t the only reason for resigning.In some audit rotation cases, the company has requested the outgoing auditor to stay for one more quarter during audit switch period.Sai Kanwar and Associates resigned from Fourth Dimension Solutions because of some health reasons; Sansand and Associates was dissolved so resultantly Touchwood Entertainment audit ceased; V Shivkunar and Associates was disqualified by ICAI; and MR Ravindra Sharma & Associates quit Hanung Toys audit due to “pre occupation in other assignments”.Even in Sri Adhikari Brothers the auditors said they didn’t want to continue due to preoccupation.