TUNKU ABDUL RAHMAN UNIVERSITY OF MANAGEMENT AND TECHNOLOGY
FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
ACADEMIC YEAR 2023/2024
COURSEWORK TEST
BBFD3014 Advanced Audit and Assurance
DATE: April 2023 TIME:
(2 Hours 30 Minutes)
Answer ALL questions
Business Overview
Adani Group (Adani). is an Indian multinational conglomerate, headquartered in Ahmedabad.
Adani was founded by Gautam Adani in 1988 as a commodity trading business, with the
flagship company Adani Enterprises. The Group's diverse businesses include port
management, electric power generation and transmission, renewable energy, mining, airport
operations, natural gas, food processing and infrastructure.
In April 2021, Adani crossed US$100 billion in market capitalisation, and in April 2022 it
crossed the $200 billion mark, in both cases becoming the third Indian conglomerate to do so,
after Tata Group and Reliance Industries. In November 2022, it reached $280 billion (₹24
trillion) surpassing Tata Group.
Adani is also the largest private port operator in India.
In 2006, the company became the largest coal importer in India with 11 Mega tonnes (Mt) of
coal handling. The company expanded its business in 2008, purchasing Bunyu Mine in
Indonesia which has 180 Mt of coal reserves.
In 2009 the firm began generating 330 Megawatt (MW) of thermal power.
It also built an edible oil refining capacity of 2.2 Mt per annum in India.
The group became India's largest private coal mining company after Adani Enterprises won
the Orissa mine rights in 2010. Operations at the Port of Dahej commenced in 2011 and its
capacity subsequently grew to 20 Mt. The company also bought Galilee Basin mine in
Australia with 10.4 Giga tonnes (Gt) of coal reserves. It also commissioned 60 Mt of handling
capacity for the coal import terminal in Mundra, making it the world's largest.
More than 60 percent of the Adani's revenue is derived from coal-related businesses.
In 2011, Adani also bought Abbot Point port in Australia with 50 Mt of handling capacity.
Adani commissioned India's largest solar power plant with a capacity 40 MW. As the Group
achieved 3,960 MW capacity, it became the largest private sector thermal power producer in
India.
In 2012 The company shifted its focus to three business clusters – resources, logistics and
energy.
In 2015, the Group's Adani Renewable Energy Park signed a pact with the Rajasthan
Government for a 50:50 joint venture to set up India's largest solar park with a capacity of
10,000 MW.
Question 1 (Continued)
Covid response
In 2020, the Adani Foundation donated ₹100 crore (US$13 million) to the PM CARES Fund
to fight the COVID-19 pandemic. The Foundation made contributions of ₹5 crore
(US$630,000) to the Gujarat CM Relief Fund and ₹1 crore (US$130,000) to the Maharashtra
CM Relief Fund. The employees of Adani Group made a contribution of ₹4 crore
(US$500,000) to Adani Foundation for COVID-19 relief measures.
In March 2021, Adani announced that it will reimburse the charges incurred by the employees
and their families for the COVID-19 vaccination.
In May 2021, Adani procured 48 cryogenic tanks from manufacturers in Thailand, Singapore,
Saudi Arabia, UAE and Taiwan for transporting medical grade liquid oxygen to combat the
second wave of COVID-19 in India.
Sports
In addition to its industrial interests, Adani owns several sports teams, such as the Gujarat
Giants team in the Pro Kabaddi League. In 2022, Adani acquired the Gulf Giants team in
UAE's International League T20. The group also purchased a franchise in Legends League
Cricket. In 2023, Adani purchased a team in the Women's Premier League based in
Ahmedabad.
Cronyism
Chairman and MD Gautam Adani has been described as being close to former Chief Minister
of Gujarat and Indian Prime Minister Narendra Modi and his ruling Bharatiya Janata Party
(BJP). This has led to allegations of cronyism as his firms have won many Indian energy and
infrastructure government contracts. In 2012, an Indian government auditor accused Modi of
giving low-cost fuel from a Gujarat state-run gas company to Adani and other companies. In
Jharkhand, the BJP-led state government made an exception to its energy policy for Adani's
Godda power plant. Both Adani and Modi's government have denied allegations of cronyism.
The Modi government extended an extraordinary favour to Gautam Adani in order to promote
his coal business. Although the Modi government had ascertained that a particular regulation
handing over coal blocks to the private sector was ‘inappropriate’ and lacked transparency,
the government made an exception. It allowed Adani Enterprises Limited to mine from a
block holding more than 450 million tonnes of coal in one of India’s densest forest patches.
Leverage
In August 2022, CreditSights, a unit of Fitch Ratings, warned that Adani was "deeply
overleveraged” and that its recent aggressive expansion had hurt the group's cash flows and
credit metrics. CreditSights also stated that a potential "worst-case scenario" could lead the
group to end up in a debt trap and a potential default. However, in September 2022,
CreditSights made some corrections in the report and removed the mention of Adani being
"deeply overleveraged”. The company's corporate debt totalled $30 billion in 2022.
Tax evasion
On 27 February 2010, Central Bureau of Investigation arrested Rajesh Adani, managing
director of Adani Enterprises Ltd., on charges of custom duty evasion amounting to ₹80 crore.
In August 2017, Indian customs alleged that the Group was diverting millions of funds from
the company's books to Adani family tax havens overseas. Adani was accused of using a
Dubai shell company to divert the funds. The details of a $235 million diversion were
obtained and published by The Guardian. In 2014, the Directorate of Revenue Intelligence
mapped out a complex money trail from India through South Korea and Dubai, and
eventually to an offshore company in Mauritius allegedly owned by Vinod Shantilal Adani,
the older brother of Gautam Adani.
Stock manipulation and accounting fraud
In January 2023, Hindenburg Research published the findings of a two-year investigation
alleging that Adani had engaged in market manipulation and accounting malpractices. The
report accused Adani of pulling "the largest con in corporate history"[ and "brazen stock
manipulation and accounting fraud scheme over the course of decades". Hindenburg also
disclosed that it was holding short positions on Adani Group companies. Bonds and shares of
companies associated with Adani experienced a decline of more than $104 billion in market
value after the accusations representing approximately half of the market value. Hedge fund
manager Bill Ackman said Hindenburg's Adani Report was "highly credible and extremely
well researched." Adani denied the fraud allegations as without merit.
On 1 February 2023, Adani cancelled its planned $2.5 billion (Rs 20,000 crore) Follow-on
Public Offer (FPO) citing market volatility, and announced that it would return the FPO
money to investors. Reserve Bank of India sought details from banks on their exposure to
Adani. Citigroup's wealth unit stopped extending margin loans to its clients against securities
of Adani. Credit Suisse Group Attorney General stopped accepting bonds of Adani Group
companies as collateral for margin loans to its private banking clients. S&P Dow Jones
Indices removed Adani Enterprises from its sustainability index.
Norway's Oil Fund, which had already shed a bulk of its Adani shares pre-Hindenburg report,
divested its entire stake following the report.
On 23 February 2023, the Group said it was exploring legal options to take "punitive action"
against Hindenburg Research for its findings. However, a Hindenburg statement asserted that
it stands by its report that alleged "brazen" market manipulation and accounting fraud by the
Group.
A group of truckers transporting cement from Adani’s factories in Himachal Pradesh has
celebrated the Hindenburg report. The truckers asserted that the critical research report on
Adani Group was a godsend that helped them save their livelihoods. Around 7,000 truck
owners and drivers in Himachal Pradesh were protesting against Adani’s decision to shut
down two cement plants over a dispute on freight rates. The report "played a crucial role in
our battle against India’s biggest business group, helped mobilise truckers and gain political
support," said Ram Krishan Sharma, one of the lead negotiators for protesting truckers.
A report of 2 March 2023 reveals that an entity related to the Adani Group financially
supported a company that violated sanctions imposed by the United Nations Security Council
(UNSC) on trade with North Korea. The sanctioned company was owned by the sons of
Chang Chung-Ling, an Adani Group associate who appeared in the Hindenburg report
because of his directorship in Adani entities.
Adani subsequently lost more than $104 billion of market capitalisation after the fraud and
market manipulation allegations by short-seller firm Hindenburg Research.
Investigation
On 13 February 2023, India's market regulator - the Securities and Exchange Board of India
(SEBI) - confirmed that it is investigating allegations made by Hindenburg Research against
companies owned by Gautam Adani.
On 2 March 2023, the Supreme Court of India formed a six-member committee which is
supposed to examine issues related to the Adani Group's stock crash after the Hindenburg
report.
Question1 (Continued)
Manipulating Wikipedia entries
A February 2023 article in The Signpost said that the Adani team has been manipulating
Wikipedia entries using sock puppet accounts to insert promotional material and remove or
edit criticism.
(Adapted and modified from The Adani Group, Wikipedia, March 2023)
Required:
(a) Evaluate the business risks faced by The Adani Group. (15 marks)
(b) Evaluate the risks of material misstatements to be considered in planning the audit of
The Adani Group. (15 marks)
(c) In relation to the fraud being carried at The Adani Group, discuss whether an audit of
the financial statements could have uncovered the fraud (10 marks)
(d) In relation to the auditor’s responsibility relating to fraud in an audit of financial
statements, describe the factors to determine whether or not an auditor is negligent
and discuss the auditor’s potential liability in The Adani Group’s situation. (10 marks)
[Total: 50 marks]
