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What To Make Of The Auditor Resignations At Vakrangee And Manpasand Beverages

It is uncommon for auditors in India to resign halfway through an audit. Even more uncommon for them to quit just before the finalisation of annual accounts.

But it’s happened twice now in two months.

On Apr. 27, Price Waterhouse & Co resigned as auditor of Vakrangee Ltd.
On May 26, Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages Ltd.

In both cases the auditors resigned just days before signing off on annual accounts.
In both cases the reason for resignation was inadequate information.
In both cases the companies’ statements sidestep the auditors’ concerns.

“The surprising feature is that Deloitte has been auditor of this company in the preceding years as well and its reports have been unqualified, both on financial matters as well as on internal financial control reporting. So one definitely would like to know as to what provoked it to resign,” said former ICAI President Amarjit Chopra in a telephonic interview with BloombergQuint.

Chopra pointed out that since PW had been the auditor for Vakrangee for less than one year, its resignation may not be very surprising if it found certain things which were not desirable.

What PW Said, What Vakrangee Heard

In its resignation letter Price Waterhouse said:

  • it asked the management for “information on several matters pertaining to election books, bullion and jewellery businesses”.
  • the management’s responses were inadequate or contradicted earlier explanations.
  • in the absence of adequate and relevant information and explanations, the fundamental objective of an audit...cannot be achieved.

Now read what Vakrangee said in its statement to the stock exchanges...

  • the company has provided all the information with respect to business and affairs of the company to the auditor and the audit committee.
  • the company is fully compliant with the Ind-AS accounting standards
  • the audit committee has also reviewed the financial statements and has been fully satisfied with all the information and explanations provided by the company.

Vakrangee’s response makes no mention of the specific issue raised by PW, that of “several matters pertaining to election books, bullion and jewellery businesses”. Nor does it bother to explain why the auditor found the company’s responses inadequate and contradictory.

PW makes no mention of Ind-AS in its letter, yet Vakrangee asserts its compliance with the Indian accounting standards and the satisfaction of the audit committee.

What Deloitte Said, What Manpasand Heard

In its resignation letter Deloitte said:

  • “significant information” requested by it at various points in time was not provided.
  • there has been no further progress with respect to the pending information, evidences and explanations.
  • therefore, it is unable to complete the statutory audit for the year ended March 31, 2018.

Now read what Manpasand said in its statement to the stock exchanges...

  • “It is very unfortunate that we had to part ways with our long-term associate.”
  • that the decision was “taken by the management after due consultations” and is in the best interests of shareholders.
  • that “the timing of this event is purely coincidental and has no direct correlation”.
  • that “this is just a minor hiccup” and doesn't represent any long-term business impact.


Manpasand’s statement makes no mention of the “significant information” that Deloitte had requested and not received. Instead the company claims it took the decision to part with its auditor, whereas Deloitte’s letter clearly states it resigned as auditor.

Manpasand lost the auditor it had since it did an IPO in 2015, and yet it described the event as a “minor hiccup”. The resignation came just days before the announcement of the financial earnings and Manpasand says the“timing of this event is purely coincidental”.

“The companies’ reactions are general and vague...(and) clearly not adequate”, Gautam Nayak, a partner at accounting firm CNK & Associates, said to BloombergQuint.

Liar, Liar...Accounts On Fire?

So who should shareholders believe? The auditors or the companies?

One bit is easy to clear up - Manpasand’s claim that the decision to part ways with the auditor was taken by its management.

If that’s true, then it amounts to removal of the auditor - which requires special approval first from the government and then from shareholders as per the Companies Act, 2013.

The auditor appointed under Section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the central government in that behalf in the prescribed manner:

If Manpasand intends to assert its claim, it has 30 days to apply to the government and 60 days thereafter to hold a shareholder meeting in which at least three fourths of the votes cast must favour sacking the auditor.

As for the veracity of other statements - both sides have taken refuge in the vague.

Client Confidentiality Vs Shareholder Interests

According to the Companies Act, 2013 if an auditor resigns it has to file a statement with the company and the Registrar of Companies with “the reasons and other facts as may be relevant with regard to his resignation”.

Both auditors seem to have done that, albeit with limited information. Deloitte’s resignation letter gives away little - except that “significant information” was not provided. PW’s letter goes one step further to detail that the inadequate information had to do with “election books, bullion and jewellery businesses”.

Neither state how material the missing information is for financial earnings. Does that leave shareholders clutching at straws?

No auditor would resign from an assignment unless the issues are material, said Chopra. But, he added “auditors must express very specifically what the reasons for resignation are. Shareholders, regulators have a right to know the exact reasons for resignation”.

Nayak expressed a more cautious view.

In the absence of information, the resigning auditors need to take a call on how specific they want to be, keeping in mind the fact that the company may sue for defamation if certain statement damaging to the company is made without the underlying information. A balance has to be struck between the disclosure required by law, and the risk of making or hinting at an allegation which may turn out to be unfounded.
Gautam Nayak, Partner, CNK & Associates

Double Trouble For New Auditors?

As per the code of conduct laid down by the Institute of Chartered Accountants of India, the incoming auditor must seek a “No Objection” letter from the outgoing auditor.

Both Vakrangee and Manpasand have already appointed new auditors – AP Sanzgiri & Co. and Mehra Goel & Co.

To them falls the task of finalising accounts for the year, one in which they were not auditing the company. Also, they have to make peace with the same missing information that PW and Deloitte refused to.

Chopra said a new auditor may agree to take on the job in such circumstances “if he has discussed matters with the management and feels that he can take up the audit and then either disclaim liability or give a qualified or adverse report”.

“It may also happen that because of the pressure created by the resignation of the earlier auditor, the company may choose to share the information with the new auditor,” Nayak said.


Previous attempts to reach the companies and their auditors for comments failed.

Watch the full discussion with Amarjit Chopra and Gautam Nayak here...

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