KPMG has refused to sign the financial results for 2021 for the German real estate group Adler in a rare move that pushes the crisis-stricken group into an ever-deeper crisis.
Adler revealed late Friday that its auditor, who had given the group an unqualified audit in the previous year, would issue a disclaimer of opinion for its consolidated 2021 accounts. “The auditor has not been able to obtain sufficient audit evidence to provide a basis for an audit opinion on these financial statements,” the company said.
The affected company said it would nonetheless publish “audited” accounts – including the disqualified opinion – on Saturday. In a statement Friday night, Adler claimed that this would meet the requirements under the terms of its outstanding bonds. Some of Adler’s bond terms stipulate that it must deliver audited financial results by April 30 or risk default.
KPMG’s dramatic move comes a week after a separate team of forensic investigations into the Big Four firm revealed widespread lack of management and compliance, the risk of large write-downs and questionable payments to a real estate investor who has long denied influence over the company.
Adler had hired KPMG to investigate allegations by Fraser Perring-led short-selling group Viceroy Research about widespread fraud, improper related party transactions and accounting manipulation. Adler denied any wrongdoing.
Following the publication of KPMG’s investigation last week, Adler’s chairman Stefan Kirsten expressed confidence that the audit firm would sign Adler’s accounts and that the investigation report would not affect Adler’s ability to service its debt and would not breach its bond agreements.
In September 2021, Adler sat at € 7.4 billion. in net financial debt, but has since sold assets to reduce its debt. Its share price has fallen by close to 70 per cent over the past year, resulting in a market capitalization of just € 770m. Following the publication of KPMG’s report on April 22, the fall in the stock accelerated.
KPMG forensic investigators found extensive evidence that Cevdet Caner, a controversial real estate mogul with no formal role in the company, had significant involvement in strategic decisions, hiring managers and their salaries, as well as other operational matters.
While the forensic investigation rejected the claim that Adler’s rental portfolio was overvalued, it found that this appeared to be the case for the firm’s smaller property development portfolio. Based on a sample, KPMG’s forensic team estimated that the realistic market value was 17 percent below the value of 2.4 billion. EUR in Adler’s accounts. Kirsten acknowledges that this could lead to impairments of up to € 700 million.
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 corrected on the balance sheet. Adler objected to that view.
KPMG’s forensic team said it could neither verify nor refute many allegations as it had not received all the necessary documents. Adler refused to grant access to one in five of the 3.9 million. documents that the investigators considered relevant, with reference to “legal reasons”. The probe noted that some newsrooms were “significant” and it “could not rule out the possibility that further or other results might result”.