KPMG rejects audit opinion on struggling real estate group Adler

KPMG refused to sign German real estate group Adler’s 2021 financial results in a rare move that plunges the beleaguered group into deeper crisis.

Adler revealed on Friday evening that its auditor, who had performed an unqualified audit to the group the previous year, would be issuing a disclaimer for its 2021 consolidated accounts. 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 nevertheless publish “audited” financial statements – including the rejected opinion – on Saturday. In a statement late Friday, Adler claimed it would meet the requirements under the terms of its outstanding bonds. Some of Adler’s covenants state that it must provide audited financial results by April 30 or risk default.

KPMG’s dramatic move comes a week after a separate Big Four firm’s forensic investigation team uncovered widespread governance and compliance shortcomings, the risk of large write-downs and questionable payments to an investor. real estate that has long denied any influence on society.

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

After KPMG’s investigation was released last week, Adler chairman Stefan Kirsten said he was confident the accounting firm would sign Adler’s accounts and that the investigation report would not affect the ability of Adler to service its debt and would not violate its debt covenants.

Adler in September 2021 sat on 7.4 billion euros in net financial debt, but has since sold assets to reduce debt. Its share price has fallen by almost 70% in the past year, with a market value of just 770 million euros. After the publication of the KPMG report on April 22, the stock’s fall accelerated.

KPMG forensic investigators found ample evidence that Cevdet Caner, a controversial real estate magnate with no formal role in the company, had significant involvement in strategic decisions, executive hiring and compensation, as well as than other operational issues.

While the forensic investigation rejected the allegation that Adler’s rental portfolio was overvalued, it found that this appeared to be the case for the company’s smaller property development portfolio. Based on a sample, KPMG’s forensic team estimated the realistic market value to be 17% lower than the €2.4 billion value on Adler’s accounts. Kirsten acknowledges that this could lead to impairments of up to 700 million euros.

The forensic investigation also argued that another real estate transaction, involving the brother-in-law of an investor who appeared to have pulled the strings behind the scenes at Adler, should be fixed on the balance sheet. Adler opposed this view.

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

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