Auditor of Adani Total Gas, mentioned in Hindenburg report, resigns

The auditor named in the Hindenburg report on the Adani Group, Shah Dhandharia & Co, has resigned as the statutory auditor of Adani Total Gas citing "professional pre-occupation" as the reason. The resignation came under a year since it was appointed by the company on July 26, 2022 for a term of 5 years. Shah Dhandharia & Co is also the auditor of the flagship company of the group, Adani Enterprises.

A small Ahmedabad-based chartered accountancy firm, whose appointment was questioned by a US short seller in its scathing report against the conglomerate run by billionaire Gautam Adani, has resigned due to ''pre-occupation'', Adani Total Gas Ltd said on Tuesday.

“Our resignation does not result from an inability to obtain sufficient appropriate audit evidence” Shah Dhandharia’s resignation letter said. “There are no other circumstance connected with our resignation which we consider should be brought to the notice of the board.”

In a stock exchange filing, Adani Total Gas Ltd said, ''We wish to inform that M/s. Shah Dhandharia & Co. LLP, Chartered Accountants, have resigned as the statutory auditors of the company i.e., Adani Total Gas Limited (ATGL) with effect from May 2, 2023.'' It attached the May 2, 2023 resignation letter from the auditor.

In the letter, the auditor said it was given a second term of 5 years on July 26, 2022, and has completed the audit of the company for the financial year ended March 31, 2023.

''We have carefully evaluated and due to increased professional pre-occupation in other assignment, we regrettably propose our resignation,'' it said.

''Our resignation does not result from an inability to obtain sufficient appropriate audit evidence,'' it added.

It went on to state, ''There are no other circumstances connected with our resignation which we consider should be brought to the notice of the Board.'' ''In view of the above and as discussed and agreed with the management, we express our inability to continue as the statutory auditors for the company. Please accept our resignation with immediate effect,'' it said.

US based short-seller Hindenburg Research published a report on January 24, accusing Adani Group of accounting frauds alongside market manipulation and high levels of insecure debt. It pointed out a “key accounting red flag” used by the company and named the use of auditor Shah Dhandharia & Co as being one such malpractice followed by the company. It alleged that the accounting firm just had 4 partners and 11 employees. Some employees were as young as 23-24 years of age, while the partner who signed off on the company’s financials were 28. The 4 partners in Shah Dhandharia & Co are - CA Pravin Dhandharia (46), CA Harshil Shah (27), CA Shubham Rohatgi (28) and CA Ankit Ajmera (28).

Hindenburg stated that the independent auditor for the group's flagship firm, Adani Enterprises, and its city gas retailer Adani Total Gas Ltd is a ''tiny firm'' called Shah Dhandharia.

''Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only 4 partners and 11 employees. Records show it pays Rs 32,000 ($435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalization of about Rs 640 million ($7.8 million),'' it had stated.

The auditor that will replace Shah Dhandharia & Co is Walter Chandiok & Co.

It is still not clear whether Shah Dhandharia will continue as an auditor of the Adani Enterprises. The board of directors of the group’s main company will meet on May 4 for the finalisation of its financial results.

Hindenburg had questioned the Adani group's decision to give such a big audit mandate to a virtually unknown firm and claimed that the audit partner who signed off on ATGL audits was only 23 years old when he was first appointed.

It also claimed that the audit partner at Shah Dhandharia who signed off on the audits of Adani Enterprises was only 24 years old when he started. Both are now just 28 years old.

Shubham Rohatgi, who signed off the ATGL's audit for the 2022-23 fiscal on May 2, 2023, on behalf of Shah Dhandharia & Co LLP was also red-flagged by proxy advisory firm Institutional Investor Advisory Services (IiAS) in July 2022.

Advising shareholders of four Adani group firms to vote against a number of resolutions including the reappointment of Gautam Adani as managing director of Adani Ports & Special Economic Zone (APSEZ), IiAS had stated that Rohatgi did not have ''the requisite experience to audit'' a top company.

''We raise concerns over the quality of the audit conducted since the signing partner of FY22 - Shubham Rohatgi - became an associate member of ICAI (Institute of Chartered Accountants of India) in 2018. We believe he does not have the requisite experience to audit the financial statements of a NIFTY 100 company,'' it had said.

While rebutting the Hindenburg charges, the Adani group had on January 29 stated that it followed a ''stated policy of having the global Big Six or regional leaders as statutory auditors''.

The reference was to Arthur Andersen, Coopers & Lybrand, Deloitte and Touche, Ernst & Young, KPMG and Price Waterhouse. They have since telescoped into the Big 4 with the creation of PricewaterhouseCoopers in 1998 following a merger and the collapse of Arthur Andersen in 2002 after the Enron scandal.

With inputs from PTI