The Financial Reporting Council (FRC) has found that Advent Pharma breached regulations while appointing its external auditor for fiscal 2018-19.

The company's board of directors appointed Ahmed Zaker & Co as the external auditor without a recommendation from its audit committee.

The FRC issued a warning to Advent Pharma and instructed the animal healthcare product maker to avoid repeating its mistake, which was a breach of the corporate governance code.

The FRC was formed to set the standard of financial reporting in Bangladesh.

Previously, during the company's annual general meeting on December 6, 2018, Advent Pharma had appointed KM Hasan & Co as its chartered accountants for 2018-19.

The company was listed with the country's bourses that year as well.

"But we found that Ahmed Zaker & Co signed in the financial report and so, the company has been asked to explain," the FRC said in a notice issued to Advent Pharma on October 20.

In its response, the drug maker informed that KM Hasan & Co was appointed but the firm was unwilling to carry out the audit, citing 'unavoidable circumstances', before quitting.

"So, the board of directors decided on March 24, 2019, to appoint Ahmed Zaker & Co as the external auditor," Advent Pharma said.

However, there was no recommendation from the audit committee in this regard on the minutes or agenda of the board meeting.

"But it was in the minutes of the audit committee meeting held on March 27 of 2019," the FRC said in its letter.

This is a clear breach of the Corporate Governance Code-2018 as it appointed an auditor before getting a recommendation from the audit committee, it added.

The audit committee is meant to scrutinise an auditors' expertise before making a recommendation. The board of directors will appoint an auditor based on the recommendation, according to the corporate governance code.

Since the appointment of Ahmed Zaker & Co was not approved in a general meeting, the move was illegal, the FRC said, adding it was not mentioned in the minutes of the following general meeting either.

The FRC also sent issued a warning to Ahmed Zaker & Co for its lack of transparency and unprofessional activities in getting the appointment.

Abdullah Hujaifah, a stock investor, said listed companies normally change auditors when they fail to entertain any illegal request from the company's authority.

"So, the FRC should find out the reason behind the resignation of the Advent Pharma's previous auditor," he added.

"We have already replied to the commission and the FRC on the issue," said Md. Ikramul Islam, company secretary of Advent Pharma.

Asked why KM Hasan & Co had resigned, he said it was the auditor that wanted to quit.

The stock of Advent Pharma closed at Tk 22.9 on the Dhaka Stock Exchange yesterday.