Institutional EYE

Commentary on Corporate Governance Issues

Auditors: Signing out

June 22, 2018

 

Although some investors view auditor resignations as a sign of auditors providing push back to pushy company managements, the immediate focus is always on understanding the reason for the resignation. Unfortunately, regulations do not provide for an open dialogue between the auditors, investors and other stakeholders.  

 

Most investors characterize auditors as back-slappers of firms they audit, and not desk thumpers. So, the sudden rush of resignations by audit firms is bewildering to market players. Although some investors see auditors stepping down as a sign of assertive behavior, the immediate focus is on knowing how to deal with auditor resignations.  The larger issue, and of far greater substance, is regarding the structure of the audit industry and its future.

 

An article in this paper reveals that on average, over the past five years,  two auditors have resigned each month. (https://www.business-standard.com/article/markets/auditor-resignations-not-all-that-rare-here-s-all-you-need-to-know-118060500048_1.html).Further, that while 38 auditors stepped down last financial year, 26 have already done so since April of this year. This relatively small number -  given a total universe of 4000+ listed companies, cannot be a consolation: resigning an audit of a listed company should happen in the rarest of rare cases, and these numbers don’t suggest this being the case.

 

Insisting that auditors cannot resign and asking for the audit to be completed with warts and all, is obviously the best option. But given that the auditor has resigned rather than sign qualified accounts, suggest that this stage has passed.

 

Are all instances equally worrying? There is a broad framework in which these should be viewed.

 

The full report can be read by clicking this link

 

 

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