Adani Ports and Special Economic Zone reported on Saturday (12 August 2023) that its statutory auditor, Deloitte Haskins & Sells LLP (Deloitte), had tendered their resignation, which was accepted on the same day by the board. The company has appointed MSKA & Associates (an independent member firm of BDO International) as its auditors till the next annual general meeting (AGM) to be held in 2024. The resignation also affects its six material subsidiaries.
This resignation marks the second change in auditors for the Adani group of companies over the past few months. Shah Dhandharia & Co LLP stepped down from their role as the auditor of Adani Total Gas in May 2023. It was then replaced by Walker Chandiok & Co LLP.
Deloitte's major concerns for resigning as auditors of Adani Ports are as follows:
- Deloitte identified Rs3,871 crore recoverable from EPC (engineering, procurement and construction) service contractor, which the Adani group company did not believe to be a related party. "However, the contractor was identified as a related party in a short seller (Hindenburg Research) report published in January 2023. The net balance with the contractor increased by Rs122 crore on a sequential basis in the June 2023 quarter," Deloitte says.
- Adani Ports re-negotiated the terms of sale of its container terminal under construction in Myanmar with Solar Energy Ltd, which resulted in an impairment loss of Rs1,273.38 crore.
- But as per Deloitte, "The (Adani) group did not consider it necessary to have an independent external examination of these allegations (made by Hindenburg) because of their evaluation and the ongoing investigation by the Sebi." Further, the sales consideration was revised from Rs2,015 crore to just Rs246.51 crore.
- Regarding the Hindenburg report's impact on financials, the Adani group shielded itself based on its own evaluation and considering a memorandum prepared by an external law firm. Deloitte responded with, "The evaluation performed by the Company (as stated in Note 46 to the standalone financial statements) does not constitute sufficient and appropriate audit evidence for the purposes of our audit. In the absence of an independent external examination by the Company and pending completion of investigation… we are unable to comment on whether these transactions or any other transactions may result in possible adjustments and/or disclosures in the standalone financial statements in respect of related parties, and whether the Company should have complied with the applicable laws and regulations."
- Further, "we are unable to conclude whether or not the other information is materially misstated with respect to this matter" (Hindenberg Report).
Deloitte has been the auditor of Adani Ports and Special Economic Zone since May 2017. It was re-appointed as an auditor in July 2022 for the next five years.
Deloitte has indicated the lack of a wider audit role of other listed Adani portfolio companies as a reason for its resignation. As per the audit committee of Adani Ports and SEZ. Deloitte's resignation grounds were not convincing or sufficient to warrant such a move. As the Adani group could not appoint a single auditor for the whole group as all the entities are 'completely independent' with separate boards and executive teams.
In a way, Adani Ports and SEZ have indicated that Deloitte wanted to be an auditor of other Adani group companies.
Established in 1978, MSKA & Associates is an Indian partnership firm registered with the Institute of Chartered Accountants of India (ICAI) and the US Public Company Accountancy Oversight Board (PCAOB), having offices across 11 cities in India at Mumbai, Gurugram, Chandigarh, Kolkata, Ahmedabad, Chennai, Goa, Pune, Bengaluru, Kochi and Hyderabad. The audit firm has a valid peer review certificate.
Due to such corporate episodes, the trust of investors in auditors gets shaken. It's the auditor's responsibility to audit and report the matters first rather than wait for activist short sellers to research and publish. If such large auditors with the best minds cannot properly audit, then who will?
Deloitte is one of the big four audit firms. Its resignation is another blot on the Adani group's reputation. Following the Hindenburg report, the Adani group of companies lost around US$150bn (billion) in market-capitalisation but have regained around $50bn or so. The immediate impact of this resignation on the valuation of the Adani group of companies will be seen on Monday, but it will certainly put off institutional investors.