Adani Ports has named MSKA & Associates, an independent member firm of BDO International, as its new auditor, after Deloitte resigned from the role amid concerns saying the auditor wanted a wider remit over other firms in the conglomerate following the report of a US short seller. The resignation comes weeks after Deloitte raised concern over certain transactions flagged in the report of Hindenburg Research.
In a statement, Adani Ports & Special Economic Zone (APSEZ) confirmed the resignation and appointment of M S K A & Associates as the new auditor. “The Audit Committee/ Board is pleased to appoint M/s. M S K A & Associates (FRN: 105047W) Chartered Accountants, (an independent member firm of BDO International), a Top 6 global audit firm, as APSEZ’s auditor," the company said in a statement.
Deloitte has been the auditor of APSEZ since 2017
Deloitte has been the auditor of APSEZ since 2017. In July 2022, it was given another five-year term. "In Deloitte’s recent meeting with APSEZ management and its Audit Committee, which, by policy, is comprised of and chaired by independent directors only (Mr G. K. Pillai, Prof G. Raghuram, P. S. Jayakumar and Nirupama Rao), Deloitte indicated a lack of a wider audit role as auditors of other listed Adani portfolio companies. The Audit Committee was of the view that the grounds advanced by Deloitte for resignation as statutory auditor were not convincing or sufficient to warrant such a move," it said.
APSEZ conveyed that it was not within the remit of the firm and its Board to recommend group-wide appointments as other listed Adani portfolio companies are completely independent, with separate boards, executive teams and minority shareholders.
"It was also conveyed that it is not within the remit of APSEZ and its Board to recommend group-wide appointments as other listed Adani portfolio companies are completely independent, with separate boards, executive teams and minority shareholders. Following this, Deloitte was not willing to continue as APSEZ’s statutory auditor and, therefore, it was agreed to amicably end the client-auditor contractual relationship between APSEZ and Deloitte," it said.
Deloitte Haskins & Sells LLP in May flagged three transactions
Deloitte Haskins & Sells LLP in May flagged three transactions, including recoveries from a contractor identified in the Hindenburg report, in issuing a qualified opinion on the accounts of APSEZ. In the auditors' report on the audit of the fourth quarter and 2022-23 financials, Deloitte highlighted transactions with three entities, which the company said were unrelated parties.
Deloitte however said it could not attest to the company's statement as no independent external examination has been done to prove the claims. Following this, it wanted a wider conglomerate-wide audit which the Adani group firm refused.
Hindenburg Research in its January 24 report that levelled allegations of fraud, stock manipulation, and money laundering against the Adani group, had also flagged inadequate disclosures of related party transactions. Adani group has denied all allegations.
'Evaluation performed by the Group does not constitute sufficient appropriate audit evidence'
Deloitte had stated that the Adani group did not consider it necessary to have an independent external examination of these allegations because of their evaluation and the ongoing investigation by the Securities and Exchange Board of India (SEBI). "The evaluation performed by the Group does not constitute sufficient appropriate audit evidence for the purposes of our audit," Deloitte had said in notes to APSEZ's financial statement.
In the absence of the independent external examination and the pending completion of investigation by SEBI, the auditor had said it cannot comment if the company was fully compliant with the law and if the transactions flagged may result in possible adjustments and/or disclosures in the financial statement in respect of related parties. The six-member expert panel appointed by the Supreme Court in May found no regulatory failure or signs of price manipulation in the Adani Group stocks in its interim report.
The transactions flagged by Deloitte included engineering, procurement and construction (PEC) purchase contracts with a subsidiary of a party identified in the Hindenburg report.
Also, the group "re-negotiated the terms of sale of its container terminal under construction in Myanmar" to Anguilla-incorporated Solar Energy Ltd. The sale consideration was revised from Rs 2,015 crore to Rs 246.51 crore and an impairment charge was taken. The group told the auditor these are not related parties.
APSEZ in a statement on Saturday said, "In response to a query by the Audit Committee, Deloitte confirmed that they have received all the APSEZ information from the management of the company. "The same has been confirmed by Deloitte in their resignation letter dated August 12, 2023, to the company," it added.
Without disclosing the contents of the resignation letter, APSEZ said, "The 'other matters' highlighted in the auditor's resignation are adequately disclosed and addressed in our FY23 financial statements. We are fully confident that these matters will be appropriately resolved in our September'23 filing."
(With PTI inputs)
