Adani Group Auditor to Face NFRA Enquiry

The National Financial Reporting Authority (NFRA), the audit regulator, has approached numerous businesses participating in the audit of listed companies in the Adani Group, seeking data and emails relevant to the workings of these audit firms on this diverse conglomerate.

According to people familiar with the development, the regulator’s preliminary action encompasses numerous audit firms across the Adani Group’s seven listed companies and spans different financial years up to March 2022. This is considered as a precursor to NFRA conducting an audit quality review (AQR) of the several audit firms under scrutiny.

Over the years, Adani Group has hired over 35 audit firms to investigate the statutory audit work of its different listed and unlisted companies in India and abroad. These audit firms are a combination of the top six audit firms and several well-known domestic audit firms.

Adani Group, which was the subject of a Hindenburg Research short-seller probe in January, has always claimed that it has used the “best governance practises” and “highest standards” in the appointment of its auditors over the years.

Adani Group has disputed Hindenburg’s charges of corporate wrongdoing, but is subject to a court-ordered SEBI inquiry.

NFRA representatives did not respond to queries for comment on the initiative to get Adani Group audit files.

Under the Scanner

According to a report published on Wednesday, SR Batliboi, an EY Member firm and longtime auditor of Adani Group, is under NFRA scrutiny, and the audit authority has launched an investigation into the audit firm in recent weeks.

It should be noted that SR Batliboi previously audited the books of IL&FS and was disciplined by the NFRA for failing to comply with the fundamental audit criteria.

Since the Hindenburg claims arose, several Adani Group companies have experienced auditor resignations and exits, citing reasons such as concerns about the companies’ insufficient disclosures about transactions with certain organisations.

According to experts, the NFRA is not compelled by law or procedure to make public the measures it has taken against any audit firms. According to sources, the disciplinary action taken against the auditors or audit companies is not known until the final orders are issued.

NFRA, which began operations on October 1, 2018, is the country’s single independent audit regulator, with the authority to monitor, investigate, and take disciplinary action against auditors of all listed businesses.

According to a source, NFRA is completely within its rights as the regulator of audit firms of listed companies to seek audit files that could throw light on the quality of financial reporting and company conformity to certain accounting standards stipulated by law.

The formation of NFRA occurred at a time when IL&FS Financial Services had just defaulted on payment commitments of bank loans, roiling the financial markets and causing panic among stock investors, even as numerous NBFCs experienced trouble due to a default scare.

Given this backdrop, as well as several other financial frauds, such as the Nirav Modi-perpetrated PNB fraud that came to light in 2018, NFRA as a regulator immediately adopted an enforcement approach rather than a supervisory-styled framework involving incremental steps to bring errant auditors to justice.

While the NFRA has been proactive in its enforcement operations, there is still significant legal debate about whether the regulator has the authority to pursue audit companies for years prior to the Authority’s formation.