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Is a mere resignation enough?

Corporate India has been witnessing a spate of sudden resignation of statutory auditors. It started in 2018 and as times get more and more difficult for auditors, it has peaked this year. Among the prominent audit resignations last year were that of Deloitte, which abruptly resigned as the statutory auditor of Manpasand Beverages, just a day before its audited results were to be announced. Deloitte said that the management of the company had failed to share crucial data regarding its capital expenditure and revenue, which the management expectedly denied. Incidentally the new auditors of Manpasand too have resigned, after the GST authorities detected a huge tax evasion. Like Deloitte’s case, PWC too resigned as the auditor of Vakrangee last year just before the audited results were to be announced, because of inadequate and contradictory information regarding its election books and bullion and jewellery business. PWC also resigned as the auditor of Atlanta Ltd., saying that crucial and significant information regarding an on going tax investigation was not shared with it. PWC also resigned as the auditor of Edelweiss Financial Services, under very curious circumstances. The high profile resignation this year has been that of PWC, where it resigned as the auditor of Reliance Capital and its subsidiary Reliance Home Finance, just a few days before the results were to be declared saying that it has not received satisfactory response on some crucial issues. This sudden resignation provoked a threat from the Anil Ambani Reliance Group, that it will file a defamation suit against PWC.

While the resignation of an auditor is an extraordinary event, that too just days before the audited results are to be announced, the auditors yet give frivolous reasons for their resignation and do not reveal the exact incriminating reasons that led to their resignation. They fail to disclose the precise nature of the information not received by them, or the alleged non cooperation by the management. They give mysterious reasons like ‘preoccupation’, ‘health issues’ or very strangely by ‘mutual agreement’ as in the case of Edelweiss and PWC. These auditors were not transparent in their conduct when they were the auditors of the company and by giving such cryptic reasons, they are not so in their resignation too. The reality is that together with the management of these companies, if found guilty, the auditors too will be punished and thus their reasons for quitting as informed to the Registrar of companies are ambiguous, cryptic and not quite clear. It only deepens the mystery as to why they resigned suddenly and from their reluctance to come clean it is clear that all is not well, and the truth gets revealed only when an investigation agency gets into motion, as in the case of the GST investigation in the case of Manpasand, SFIO probe in ILFS and perhaps soon in the case of Reliance Capital, which have been revealing their scammy reality. As a result of this the outside ordinary shareholders of these entities suffer due to a  crash in their share prices and with the need to appoint new auditors in place of the resigned ones, corporate results only get further delayed, adding to the mystery behind the dubious state of affairs of these entities.

The fact very often is that a lot of times the auditors like in the case of Deloitte and Manpasand have certified the accounts of these entities for many years, and apart from that they have certified their accounts for the past three quarters and now suddenly refuse to do so for the fourth quarter. Thus the conditions under which they resign are very suspicious and only raise further doubts about their overall conduct. The questions that thus arise are as to why did the auditors resign now and refuse to sign and certify what they had done for all these years. And if the state of affairs of the company is scammy, then why did they certify the same in the earlier years and for what inducement did they do so. Moreover what precisely are the incriminating issues involved and why do they not disclose them to the public, and offer such ambiguous reasons for their resignation.

The reality is that merely by resigning, auditors cannot be absolved and wash away their sins of the past. They are not resigning now due to any repentance that they want to turn into a new leaf with clean ethics. Their present resignations are not borne out of their desire to come clean, but out of panic and fear of the law which was missing in the earlier years when they signed the false financial statements of ILFS, Jet Airways, Manpasand, RCap etc. The fact that Deloitte and KPMG face a five year audit ban, PWC has been banned by SEBI and RBI, EY faces a RBI ban and so do many other auditors face probes by the likes of ED, SFIO, CBI, MCA etc. is the reason why they are being compelled to resign, which certainly does not wash away their past sins. And now SEBI is seized with this matter and is attempting to make auditors disclose all the irregularities, misstatement, non cooperation by the management, to judge their own conduct too in these questionable cases.

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