Why Price Waterhouse Resigned As Auditor Of Atlanta

Another day, another auditor resigns: why Price Waterhouse stopped auditing Atlanta Ltd.

A broker reacts while trading at a brokerage firm in Mumbai. (Photographer: Adeel Halim/Bloomberg News)
A broker reacts while trading at a brokerage firm in Mumbai. (Photographer: Adeel Halim/Bloomberg News)

Shares of Atlanta Ltd. fell by its daily limit after its auditor resigned raising concerns around the finances of the infrastructure company.

Price Waterhouse Chartered Accountants stepped down as auditor of Atlanta yesterday, saying the infrastructure engineering firm did not share “significant information” and “significant observations by tax authorities” as requested.

Where documents were shared, PW said, they were not provided in a timely manner and therefore evaluation of the financial statements of Atlanta suffered, according to the resignation letter, a copy of which has been viewed by BloombergQuint.

“Under the circumstances, we are constrained to withdraw from the audit engagement in compliance with the Standards on Auditing issued by the Institute of Chartered Accountants of India and this communication should be considered as our letter of resignation under the Companies Act, 2013”.

This becomes the third such instance within two months where an auditor of a listed firm has resigned just days before the annual financial accounts are closed. Last week, Price Waterhouse & Co. resigned as auditor of Vakrangee Ltd. and in April Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages Ltd. No auditor would resign from an assignment unless the issues are material, Amarjit Chopra, former chairman of the Institute of Chartered Accountants of India, had told BloombergQuint with respect to the earlier two cases. Chopra also said “auditors must express very specifically what the reasons for resignation are. Shareholders, regulators have a right to know the exact reasons for resignation.”

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

PW vs Atlanta

While the PW resignation letter did not provide much detail, it is clear the resignation was due to two reasons;

  • inadequate and late disclosure of significant observations made by tax authorities
  • and the resignation of an independent director, who was on the audit committee, information on which was not communicated to the auditor in a timely manner
In the absence of adequate and relevant information and explanations, and considering the nature of the observations made by the tax authorities, the fundamental objective of an audit which is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements, in our assessment cannot be achieved, both in reference to the aforesaid observations and otherwise.
PW Resignation Letter

Atlanta, on the other, accepted PW’s resignation but disagreed with the auditor’s statement.

In a stock exchange filing, the company said that it had furnished a summary of the demands raised by the Income Tax Department on Mar. 30 and also shared copies of the tax orders on May 22. The reference is to tax orders regarding assessment for the past seven assessment years, as mentioned by the company in its statement.

Atlanta claimed that PW had not asked for the tax orders before May 22 and hence it would be wrong to state that the company failed to furnish them.

The statement claimed that PW had complained of not being able to form an opinion on the financial statements without an independent investigation or disposal of the income tax matter. It added that “immediately” the two parties discussed about an independent audit being carried out to PW’s satisfaction.

Regarding the resignation of the independent director, Atlanta said its chief financial officer had verbally informed the auditor about the resignation of Shankar Vishwanath, and the resultant postponement of the audit committee meeting.

Atlanta said that it had also convened a meeting with PW on May 29 to resolve the audit issue. It was “quite astonishing” that instead of resolving the audit issues PW decided to resign instead, the company statement said.

PW was appointed by Atlanta only last year. Shareholders had approved the appointment at an annual general meeting on Aug. 1, 2017.

Shares of Atlanta declined 20 percent to Rs 51.10 apiece in early trade today. The stock is down over 56 percent so far this year, compared to a 3.3 percent gain in the S&P BSE Sensex Index.