The government is set to tighten norms for auditors and independent directors. The move is part of a fresh overhaul of the Companies Act, which is in the works. Auditors may not be able to get away by simply resigning from assignments when the going gets tough. The government is looking to mandate a report by the auditors to the shareholders, which will list the reasons for their resignation.

Besides, rules are proposed to be tightened for independent directors, who will have to step down from board on completion of a specified number of years. It will come with the stipulation that an individual’s term as an additional director will be added to the tenure as an independent director so that board members do not get entrenched in the company.


The government has been aiming to further improve corporate governance and has been looking into the role of auditors and board members, which has come under the scanner during scandals that rocked companies in recent years, such as IL&FS and DHFL.


Officials said that the ministry of corporate affairs is in the process of floating a consultation paper, following discussions with experts. High on the priority list is making auditors more accountable for which certain restrictions on non-audit business are being planned. Besides, drawing from global experience, the ministry is working on a proposal to standardise qualifications that an auditor makes in the accounts of a company.


The idea is to ensure that both the company and the auditor are held responsible instead of the adverse noting getting lost. Often the company management and the auditor have blamed each other for the observation and the language used.
Sources said in case of resignations, the ministry of corporate affairs is drawing upon the UK law for companies to provide a detailed report to shareholders clearly stipulating the reasons. In the past, firms have simply exited without mentioning the reason although in private they have blamed the company management for not sharing information or complying with the norms.

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