appoint or re-appoint of statutory auditor who has resigned due to regulatory provision

[Finava & Associates]

Dear group member

My question is

Can the company again appoint M/s. ABC as a statutory auditor, as tenure of five (5) years is not completed? Because M/s. ABC has resigned due to regulatory provision and not for  completing his tenure.

The whole story is as under:

A BSE SME listed company has appointed M/s ABC (a proprietorship firm) as a statutory auditor for tenure of five (5) years from FY 2019-20 to 2023-24.

M/s. ABC has issued half yearly results and annual reports for the FY 2019-20 and 2020-21.

Validity period of a peer review certificate of M/s. ABC has expired in the month of September-2021, and for some reason M/s ABC was unable to renew a peer review certificate within stipulated time, so he has resigned from the company due to regulatory provision (not having valid peer review certificate). He completed two year’s tenure as a statutory auditor.

Company has appointed M/s. XYZ (a partnership firm) as statutory auditor for a period of five (5) years form FY 2021-22 to 2025-26. M/s. XYZ has issued financial results for the half year Sept-21, Mar-22, and annual report for FY 2021-22. In the month of August -2022 M/s. XYZ has resigned from the company for personal reasons.

Company has appointed M/s. KVM (a proprietorship firm) as statutory auditor for a period of five (5) years from FY 2022-23 to 2026-27. M/s. KVM has issued financial results for the half year Sept-22.  Validity period of peer review certificate of M/s. KVM expired in the month of December-2022, and M/s. KVM is not willing to renew his peer review certificate, so he resigned from the company.

The Company has only few options to appoint a statutory auditor in his area as it is situated in a remote place.

My question is

Can the company again appoint M/s. ABC as a statutory auditor, as tenure of five (5) years is not completed? Because M/s. ABC has resigned due to regulatory provision and not for  completing his tenure.

RBI has issued guidelines (relaxation in cooling period) for appointment and re-appointment of statutory auditor in Branch Statutory Auditor and Central Statutory Auditor of Bank and NBFC.

Whether The Institute of Chartered Accountant or SEBI has issued any guidelines or  notification or circular (relaxation in cooling period) for appointment and re-appointment of statutory auditor who has resigned due to regulatory provision.

FINAVA & COMPANY,

Chartered Accountants

34 IInd Floor, Star Shopping Centre,

20 New Jagnath, Dr. Yagnik Road,

Rajkot - 360001. (Gujarat)

Phone - (0281)  2462988

Fax - (0281)  2463088

Office Mobile - +91-9909044088

 

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[Ashutosh Shukla]

HI,

Resignations are not rare occurrences and can happen anywhere anytime, as a firm cannot be compelled to audit a specific entity. There might be other reasons for the resignations as well, as seen in your case. The provisions of the CA 2013 have been framed keeping all these issues in foresight. They do not disqualify you based on your resignation nor do they make you ineligible for reappointment unless you have completed your term (see, e.g., sections 139(2)(ii), 140, and 141 of the CA 2013). Thus, reappointment is possible unless a) you are disqualified, and b) you are ineligible for the reasons such as completion of your term. If you fall in either of these categories, the company shall not be able to appoint you. Otherwise, there are no restrictions, at least, in my opinion.  Also, I have not come across any such Regulation by SEBI concerning your issues in particular. Other members may also provide their input.

Thanks and Regards,
CS Ashutosh Shukla

Not professional advice. Only for information purposes.