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Adani Ports auditor Deloitte to resign following differences over recording of transactions

August 11, 2023

Deloitte Haskins & Sells LLP has communicated to Adani Ports & Special Economic Zone Ltd. its resignation plans and a formal announcement is expected in coming days, one of the people said, asking not to be identified discussing a sensitive matter.

Deloitte Haskins & Sells LLP will resign as the auditor for Adani Ports & SEZ in the next few days after a mere year since their reappointment amid differences with the company management over the auditor's position on certain transactions, said multiple people aware of the development.

According to one of the sources, the auditor is likely to resign and a formal announcement is expected with the next 3-4 days.

The audit firm was reappointed as the statutory auditor just last year for a five-year period, according to the company’s annual report of FY22.

When asked by ET whether the differences would lead the auditor to rethink its decision to continue in its role, a spokesperson of Deloitte Haskins said the firm does not comment on client matters.

An email sent to the Adani group spokesperson remained unanswered till press time.

This would be the third change in auditors for Adani Group companies over the past few months. In May 2023, Shah Dhandharia & Co. LLP stepped down from their role as the auditor of Adani Total Gas. It was replaced by Walker Chandiok & Co. LLP.

Earlier, the same audit firm had come in at Adani Energy Solutions too.

The Adani group works with a mix of audit firms.

Shah Dhandaria & Co., based in Ahmedabad, audits the group's flagship company, Adani Enterprises. Adani Wilmar is audited by Ahmedabad-based Dharmesh Parikh & Co which also audits Adani Green Energy along with SRBC& Co. Ahmedabad. While Adani Power is audited by SRBC & Co., Adani Energy Solutions and Adani Total is audited by Walker Chandiok beginning this fiscal year.

In a statement uploaded on stock exchanges on August 8, 2023, Deloitte brought attention to specific matters within the auditor review report that were included in the June 2023 quarterly earnings statement of Adani Ports.

First, there was a net balance of Rs 3,871 crore recoverable from a contractor that provided EPC services, which the company believed was not a related party. However, the contractor was identified as a related party in a short seller report published in January 2023. The net balance with the contractor increased by Rs 122 crore on a sequential basis in the June 2023 quarter.

Another point raised by Deloitte was related to the sale of an under construction container terminal in Myanmar, a company that was audited by another auditor, to Solar Energy in May 2023. The transaction led to an impairment loss of Rs 1,272 crore as sales consideration was revised down to Rs 246 crore from a carrying amount of Rs 1,518 crore.

Solar Energy is incorporated in Anguilla. The auditor mentioned that the company did not present this as a related party transaction.

In a press release, the company said that it had sold the Myanmar terminal due to the continuous delay in the approval process and challenges in meeting certain conditions, and it had obtained an independent valuation on an "as is, where is" basis.

Based on these observations, the auditor has said that it is unable to comment whether these transactions may result in possible adjustments in the statement in respect of related parties and whether the company should have complied with applicable law and regulations.

In a post-earnings note, Bernstein, a brokerage firm based in the US, highlighted that significant developments for Adani Ports include the awaited SEBI report on the conglomerate, with a timeline set by the Supreme Court for its release on August 14.

"Apart from this, the auditor continued to highlight the earlier two qualifications with updates, including increased exposure to a contractor from Rs 3,750 crore in March 2023 to Rs 3,870 crore as of June 2023", the note added.

In the FY23 annual report, issued in June for Adani Ports, Deloitte flagged off some transactions of the company and issued a qualified opinion on the company’s accounts over a lack of disclosure. The auditor mentioned that it was not sure if the parties involved in the transactions were really not connected, because there hadn't been an external check to confirm this.

Deloitte Haskins was earlier the auditor of Adani Energy Solutions, and it raised auditor qualifications when the company released its FY23 earnings.

In the last few months, the list of conflicts arising between auditors and companies has been expanding.

Recently, EKI’s board decided to dismiss statutory auditor Walker Chandiok, invoking Section 140 of the Companies Act, 2013. Deloitte resigned from edtech firm Byju’s, citing a delay in the submission of financial statements. SR Batliboi & Co., an Ernst & Young affiliate, stepped down as the auditor of NYSE-listed Azure Power Global just days before the mandatory July 15 deadline for the company to disclose its financial results for fiscal FY22. The auditors of Atlas Jewellery resigned last month, citing concerns related to corporate governance and regulatory compliance.

However, resigning from audit engagements is a complex process. According to the third proviso of Section 139(2) of the Companies Act 2013, auditors are permitted to resign from their positions. Upon resignation, the auditor is required to submit a statement (Form ADT-3) within 30 days to both the company and the Registrar of Companies (RoC), outlining the reasons and pertinent details pertaining to their decision to resign.

In terms of operations, Adani Ports reported a 12% increase in volume during June 2023, resulting in a 200 basis point rise in market share to reach 26% within India.

The company has provided projections of 9–15% growth in volume and 13–17% growth in EBITDA for the fiscal year 2024.

[The Economic Times]

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