How to track auditor resignations (SEBI, SEC)

Learning how to track auditor resignations means knowing three separate records and checking them against each other. In India a listed company announces the change to the exchanges under SEBI's LODR Regulations while the departing auditor files its own statement with the Registrar of Companies. In the US the company files a Form 8-K under Item 4.01 and the former accountant gets to respond in writing. Each record carries something the others do not. This guide covers where to look, what each disclosure must say, and how to read it without over-reading it. It is not investment advice.

India: the exchange announcement and the SEBI circular

A change of statutory auditor is an event a listed entity discloses to the stock exchanges under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, so the first place to look is the corporate announcements feed on NSE and BSE. That is the same channel described in how to read material event disclosures, and the same Regulation 30 timelines apply.

SEBI tightened the specifics in a circular dated 18 October 2019 covering the resignation of statutory auditors from listed entities and their material subsidiaries. Its main requirements:

• The resigning auditor must give detailed reasons for the resignation.
• Depending on when in the year the auditor resigns, it must first complete the limited review or audit for the relevant period rather than leaving a gap in the reporting record.
• If information or explanations were not provided by the company, the auditor must inform the audit committee and follow the escalation the circular sets out.
• The audit committee must deliberate on the reasons and the listed entity must disclose the committee's views to the stock exchanges as soon as possible and no later than 24 hours after the date of that audit committee meeting.
• The conditions do not apply where the auditor has been disqualified under Section 141 of the Companies Act, 2013.

India: the auditor's own filing

The company's announcement is not the only account. Under Section 140(2) of the Companies Act, 2013, an auditor who resigns must file a statement in Form ADT-3 with the company and with the Registrar of Companies within 30 days of resigning, setting out the reasons and other facts relevant to the resignation. Where the company is one covered by Section 139(5), which is a government company or a company controlled by the central or a state government, the same statement must also go to the Comptroller and Auditor-General of India. It is filed on the MCA portal, next to the company's annual return on Form MGT-7 and its financial statements on Form AOC-4. Reading ADT-3 against the exchange announcement is the point: the two are written by different parties and do not always emphasise the same things.

US: Form 8-K Item 4.01 and the Exhibit 16 letter

A US issuer reports a change in its certifying accountant on an 8-K under Item 4.01, due within four business days of the event. The item requires the company to state:

• Whether the former accountant resigned, declined to stand for re-appointment, or was dismissed.
• Whether the former accountant's reports over the two most recent fiscal years contained an adverse opinion or a disclaimer, or were qualified or modified.
• Whether the change was recommended or approved by the audit committee or the board.
• Whether there were any disagreements on accounting principles, financial statement disclosure or auditing scope during those two years and the subsequent interim period, and whether any reportable events occurred.

The company must then give the former accountant a copy of those statements and request a letter to the SEC saying whether the accountant agrees. That letter is filed as Exhibit 16, and it is the part worth opening, because it is the only place in the file where the departing auditor speaks directly. A Regulation A Tier 2 issuer reports the same kind of event on a Form 1-U instead.

How to read the disclosure without over-reading it

An auditor leaving is a fact, not a verdict. Firms also rotate out on tenure rules, fee disagreements, group independence policy, or simple capacity. What raises or lowers the weight of the event is the surrounding detail, and all of it is public:

• Read the stated reason next to the auditor's own statement. Where ADT-3 or the Exhibit 16 letter diverges from the company's account, that gap is the disclosure.
• Check the timing in the reporting cycle. A resignation just before results is different from one right after a clean annual report.
• Check whether disagreements or reportable events were declared. In the US these are named categories, answered yes or no in the 8-K.
• Follow what happens next. The incoming auditor's first report, any restatement, and any clawback analysis that a restatement forces are the follow-through.
• Read it with the rest of the governance file, including the corporate governance report and material event disclosures.

Every record named here is public: NSE and BSE announcements, the MCA portal, and SEC EDGAR, which you can search for free. Flock reads disclosure filings and keeps each one dated and linked to its source. What any of it means for your money is your call to make.