How Auditor Resignations Are Playing Havoc With Stock Prices?

Updated: Friday, June 8, 2018, 12:32 [IST]

Auditors of many companies have now begun putting their foot down, simply resigning if information is concealed or not provided. This is creating havoc in the once popular shares, which have had several renowned institutional investors.

The latest is the shares of Manpasand Beverages. Remember, this share has slipped from Rs 500 to Rs 156 and it has very renowned shareholders including the likes of Saif Partners and a scheme of SBI Mutual Fund, ICICI Mutual Fund etc.

How Auditor Resignations Are Playing Havoc With Stock Prices?

In the case of Manpasand the auditor-Deloitte Haskins & Sells-said in a letter filed with the Registrar of Companies that the management didn't provide "significant information" despite repeated requests. A company statement had called its resignation "coincidental and a minor hiccup".

Now, the company has made clarification, on what kind of information was sought and what was not provided. In fact, the words used by the auditor was "significant information".

It seems the auditors also repeatedly sought the information and when it was not provided, promptly resigned. The shares have lost almost 50 per cent in the last few trading sessions.

The resignation of auditors (Price Waterhouse) at Vakrangee had seen the stock hit the lower circuit filter for 27 trading sessions in a row. This is disastrous by any stretch of imagination. It is now out of circuit filter after the company said that it would announce its quarterly numbers on June 14, 2018.

The chartered accountancy firm said it got no reasonable assurance whether the financial statements were free from material misstatements, whether due to "fraud or error."

After repeated follow-ups, Vakrangee furnished some information, which the auditor said either did not "answer some of the queries raised by us or is inadequate or contradicting earlier explanations and thus do not provide us with appropriate audit evidence required as per professional standards to enable us to carry out the statutory audit engagement".

The stock of Vakrangee has now fallen to Rs 36, from 52-week high levels of Rs 515, hit in the month of Jan, 2018. This is severe erosion of capital in just 5 months, and can cause heart burns to even the richest of shareholders.

Raising serious questions

The tone and content of the auditors letters, suggest serious concerns. While it is difficult to pass any judgement without facts, the pertinent thing to be noted is that in some companies there has been no adequate response from these companies, leaving doubt in the mind of investors.

The BSE has sought a clarification from Manpasand, following a report titled "Deloitte resigns as auditor after Manpasand fails to share key data".

Wonder why there was no immediate clarification from some of these companies, if their books are indeed clean - which actually raises eyebrows.

A stock gets hammered, if there is even the slightest of whiff over corporate governance issues and that is exactly what is happening at the moment.

There were some transparency issues with PC Jeweller, where the promoter had transferred some shares to a relative. When there was a sharp decline in the shares, the management clarified and issued a number of statements. It also went ahead and announced a buyback of shares. This reaffirmed investor faith in the company.

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