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Before resigning as auditor of Adani Ports & SEZ, Deloitte had sought an independent external examination of allegations made by American short-seller Hindenburg Research but the company claimed the accusations had no impact on financial statements. The Adani group firm also said its audit committee believed that “the grounds advanced by Deloitte for resignation as statutory auditor were not convincing or sufficient to warrant such a move”.
In a 163-page filing with the BSE about its resignation, Deloitte said it had in May this year raised concern about certain transactions flagged in the report of the short-seller. These included recoveries from a contractor identified in that report.
“We requested the company to initiate an independent external examination of these allegations to determine whether these allegations may have any possible effect on the standalone financial statements of the company,” Deloitte said, adding that “the company represented to us that these allegations have no effect on the standalone financial statements of the company”.
The Adani group did not consider it necessary to have an independent external examination of these allegations because of the ongoing investigation by the Securities and Exchange Board of India (SEBI).
“The assessment by the company did not constitute sufficient appropriate audit evidence for the purposes of our audit,” Deloitte said in the filing.
When contacted, Deloitte declined to comment. The Adani group firm said Deloitte quit after not getting the auditing mandate of other group companies, even as “the ‘other matters’ highlighted in the auditor’s resignation are adequately disclosed and addressed in our FY23 financial statements”.
In the absence of an independent external examination and the pending completion of investigation by Sebi, the auditor in the exchange filing said it could not comment if the company was fully compliant with the law and if the transactions flagged might result in possible adjustments and/or disclosures in the financial statement in respect of related parties.
The transactions flagged by Deloitte included engineering, procurement and construction (PEC) purchase contracts with a subsidiary of a party identified in the Hindenburg report.
“As on March 31, 2023, a net balance of Rs 2,457.05 crore is recoverable from this contractor, of which Rs 713.63 crore relate to security deposits paid to the contractor and Rs 1,501.50 crore in respect of capital advances,” it said.
Also, the group “re-negotiated the terms of sale of its container terminal under construction in Myanmar” to Anguilla-incorporated Solar Energy. 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.
On the other hand, Adani Ports stressed: “We are fully confident that these matters will be appropriately resolved in our September’23 filing.”
Earlier, the board of Adani Ports and SEZ appointed MSKA & Associates, an independent member firm of BDO International, as auditor after Deloitte resigned.
Adani Ports, India’s largest private port operator, in a statement said since May 2017, Deloitte was APSEZ’s statutory auditor and was reappointed as its statutory auditor for another term of five years in 2022.
“In Deloitte’s recent meeting with the APSEZ management and its audit committee, which, by policy, is comprised of and chaired by independent directors, including G K Pillai, 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,” it said.
“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,” the statement said.
“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.
A source referred to the “other matters” in the annual report, which said Deloitte is not the auditor of a majority of Adani group companies and hence its scope of audit does not include other transactions or balances between Adani group companies or suppliers which may have had a business relationship with APSEZ.
The abrupt departure of the auditor comes just a few days before the Supreme Court deadline of August 14 to Sebi to complete its investigation.
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