In the context of the Hindenburg Research report raising the issue of the size and caqpability of the firms auditing the Adani group, audit profession regulator CA Institute has said that it is not the size but the quality that matters.
In an interview to businessline, the new ICAI President Aniket Sunil Talati said, “The CA Institute is of the view that there is no direct correlation between size and quality.”
The Hindenburg report had raised the ‘tiny firm’ and ‘capability’ arguments against Shah Dhandharia, an audit firm that audits the Adani Group.
While not wanting to be drawn into the matter since CA Institute is not examining it, the new ICAI President Aniket Sunil Talati said that the entire Adani-Hindenburg report row matter is now ‘sub judice’ and a Supreme Court appointed committee has been tasked to take a 360-degree view of it.
“There is already SC monitored Committee looking at it from 360 degree perspective. The Institute so far …occasion has not arisen for us to examine it. We don’t believe there is a direct correlation between size and quality. Finally qualification of CAs irrespective of the size of the firm is the same”, Talati said, in his first interview to businessline after assuming charge at the helm of ICAI last month.
‘SQC only matters’
CA Institute does not necessarily believe that one needs to have an international affiliation or be of large size only to be competent to audit. “It is not about size, but about quality. As long as you are able to do audit in terms of Standards of Quality Control (SQC)….We are not examining this matter”, Talati said when asked if ICAI was examining the allegations against its member firm by Hindenburg Research, whose January 24 report had led to a massive stock rout ($ 153 billion erosion in combined market value) in Adani stocks.
Following the huge loss to investors in the securities market post the Hindenburg Research report, the Supreme Court had on March 2 formed an expert committee to investigate the issue. Both this Panel and SEBI, which is also conducting an examination of the issue, are required to submit a report to the Supreme Court in the next two months.
Adani Group stocks have been on a winning run for the last one week on the back of a spate of positive news flow on stake sale and prepayment of borrowings backed by Adani Group company shares.
The 38-year old Talati, who is one of the youngest Presidents of ICAI, said that one of the main thrust areas of his Presidency would be to enhance the public perception of Chartered Accountants and profession. “Professions of doctors, lawyers are all so well known in Indian society and to the common man on the streets. But one can’t say the same for Chartered accountants. I want to improve the perception and also reinforce our global competence this year”.
It maybe recalled that Hindenburg Research had in its report noted that the independent auditor for Adani Enterprises and Adani Total Gas is a “tiny firm” called Shah Dhandharia.
Shah Dhandharia seems to have no current website and historical archives of its website show that it had only 4 partners and 11 employees, the report noted. The only other listed entity that Hindenburg Research found that Shah Dhandharia audits had market capitalisation of ₹64 crore (about $ 7.8 million), it was highlighted.
“Shah Dhandharia hardly seems capable of complex audit work. Adani Enterprises alone has 156 subsidiaries and many more joint ventures and affiliates, for example. ….The audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas annual audits were as young as 24 years and 23 years old when they began approving the audits”, said the report.
“They were essentially fresh out of school, hardly in a position to scrutinise and hold to account the financials of some of the largest companies in the country, run by one of its most powerful individuals”.
Meanwhile, sources said that the Hindenburg report was only questioning the size of the audit firm and the capacity to audit, but not the role of the signing partner. A 11 people audit firm does not mean they are not competent to audit one Adani Enterprises, they added.
Under ICAI’s disciplinary mechanism, the CA Institute can proceed for investigations either suo motu or based on a complaint.
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