Audit firm BDO emerges as common choice for Byjus, Adani Ports after Deloitte's exit

Weeks apart, Adani Ports and edtech giant Byjus have been faced with a similar situation of finding a new statutory auditor.  As coincidence would have it, Deloitte Haskins & Sells who was the statutory auditor for both companies resigned citing red flags within the organisations. Perhaps with no other audit firm willing to work in the current situation, both Byjus and now Adani Ports have appointed BDO (MSKA & Associates) for five years.

While the reasons vary, indications are that it may be due to a lack of cooperation or lack of Information between the companies and their respective statutory auditors which leads to the unexpected resignation of an auditor. “Such resignations from any company before their term ends are a grave issue,” say lawyers practising corporate law.

Auditors play a pivotal role in the financial landscape, ensuring transparency, accuracy, and accountability in the financial reporting of businesses and organisations. Their primary responsibility is to examine financial records, statements, and transactions to provide an independent assessment of the financial health and compliance of an entity. This process helps instil trust among stakeholders, including shareholders, investors, creditors, and regulatory authorities.

The Adani Group, a conglomerate with interests in various sectors, has faced a series of controversies in recent times. Allegations ranging from environmental concerns related to projects, questions about corporate governance, and reports about the rapid accumulation of debt have cast shadows on the group's operations.

Regulatory bodies and stakeholders have been closely monitoring these issues, leading to increased scrutiny of the group's practices. These challenges emphasise the significance of maintaining ethical practices, ensuring transparency, and addressing environmental and governance concerns to safeguard the reputation and sustainability of the Adani Group's businesses.

Both companies have denied wrongdoing. According to Adani Ports audit committee chairman Gopal Krishna Pillai, the reasons provided by Deloitte for quitting as a statutory auditor were not convincing or adequate to warrant resignation.

In the case Byjus, auditors Deloitte Haskins & Sells, resigned, citing its inability to finalise audit reports for the financial years ended March 2021 and March 2022 amid escalating concerns on the financial front. The auditors raised concerns over the significant delay in releasing the financial statements for the fiscal year concluding on March 31, 2022.

As per the stipulations outlined in the Companies Act of 2013, the audited financial reports for the said period were originally slated to be presented to shareholders during the annual general meeting by September 30, 2022.

Deloitte, the auditing firm, also raised concerns about the lack of communication regarding the resolution of audit report modifications for the fiscal year ending on March 31, 2021. Additionally, there has been no update on the audit readiness of the financial statements and underlying books for the fiscal year ending on March 31, 2022.

As a result, the audit process has been unable to commence as of now, posing challenges in aligning with applicable auditing standards. In light of these issues, Deloitte announced its immediate resignation as the company's statutory auditors despite being appointed for a tenure of five years until March 2025. 

Subsequent to Deloitte's departure, Byju’s has selected BDO (MSKA & Associates) as its new statutory auditors for the fiscal year beginning in FY22, with this appointment spanning the next five years. BDO's responsibilities encompass auditing the holding company, Think and Learn Pvt Ltd, along with its significant subsidiaries, including Aakash Education Services Limited. This comprehensive audit coverage is aimed at providing a comprehensive overview of Byju’s financial performance and enhancing transparency throughout the organization, according to a statement by Byju’s.

In the case of Adani Ports, the audit firm had reported numerous Adani Group transactions, citing allegations from a study by US-based short seller Hindenburg Research. The Hindenburg report had earlier wiped off half of the port-to-power conglomerate's market value. According to the news website Morning Context, the auditor stated that the group's judgement of the Hindenburg report is insufficient evidence for the purpose of the audit.

The article, which cited a Deloitte note, said the corporation has also refused to have an impartial external examination that would help show this. This is due to the Securities and Exchange Board of India (SEBI) probing Hindenburg Research's charges against Adani Group. As a result, Deloitte stated that it cannot comment on whether the company was completely compliant with local legislation, according to Bloomberg.

However, what has left observers talking is the need to uphold auditing standards and ethics which have been questioned by Deloitte and now leaves BDO to take up. “It appears that the new auditors have a high risk-taking appetite. Maybe they know when it will be best to exit both Adani and Byjus,” a Mumbai-based chartered accountant said.  

In most situations, observers believe that auditors depart like Deloitte did because they are concerned about the management's integrity. While it may exonerate them of culpability, this resigning weapon is equivalent to capital punishment.”

It should only be used in the most exceptional of circumstances. It leaves the entire shareholder community in the dark and creates significant investor concerns. It also casts doubt on the company's future. As a result, the interests of employees and other stakeholders are jeopardised,” said a company secretary of a leading business house.