KPMG refuses audit opinion on embattled real estate group Adler

KPMG has refused to sign off the 2021 financial results of German real estate group Adler in a rare move that pushes the embattled group into an ever deeper crisis.

Adler disclosed late on Friday that its auditor, who had given the group an unqualified audit in the previous year, would issue a disclaimer of opinion for its 2021 consolidated accounts. “The auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these annual accounts,” the company said.

The embattled company said it would nonetheless publish “audited” financial statements — including the disclaimed opinion — on Saturday. In a statement on Friday night, Adler claimed this would fulfil the requirements under the terms of its outstanding bonds. Some of Adler’s bond covenants stipulate that it has to provide audited financial results by April 30 or risk a default.

KPMG’s dramatic move comes a week after a separate team of forensic investigations of the Big Four firm uncovered widespread governance and compliance shortcomings, the risk of big writedowns and questionable payments to a real estate investor who has long denied influence over the company.

Adler had hired KPMG to investigate allegations by the Fraser Perring-led short selling group Viceroy Research of widespread fraud, inappropriate related-party transactions and accounting manipulations. Adler denied any wrongdoing.

After the publication of KPMG’s investigation last week, Adler’s chair Stefan Kirsten expressed confidence that the accounting firm would sign off Adler’s accounts, and that the investigation report would not affect Adler’s ability to service its debt and would not breach its bond covenants.

Adler as of September 2021 was sitting on €7.4bn of net financial debt, but has since sold assets to lower its debt. Its share price has fallen by close to 70 per cent over the past year, resulting in a stock market value of just €770mn. After the publication of KPMG’s report on April 22, the stock’s slide accelerated.

KPMG forensic investigators found extensive evidence that Cevdet Caner, a controversial property mogul with no formal role at the company, had significant involvement in strategic decisions, the hiring of executives and their pay, as well as other operational matters.

While the forensic investigation rebuffed the allegation that Adler’s rental portfolio was overvalued, it found that this did appear to be the case for the firm’s smaller property development portfolio. Based on a sample, KPMG’s forensics team estimated that the realistic market value was 17 per cent below the €2.4bn value on Adler’s accounts. Kirsten acknowledges that this could lead to impairments of up to €700mn.

The forensic investigation also argued that another real estate deal, which involved the brother-in-law of an investor who seemed to have pulled the strings behind the scenes at Adler, needed to be corrected on the balance sheet. Adler did object to that view.

KPMG’s forensic team said that it could neither verify nor refute many allegations as it had not obtained all necessary documents. Adler refused to grant access to one in five of the 3.9mn documents deemed relevant by the investigators, citing “legal reasons”. The probe noted that some redactions were “significant” and it “could not rule out the possibility that further or different findings could result”.

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