31 January 2019

Audit firm Deloitte has been fined S$535,000 and was issued a reprimand by the Malaysian Securities Commission for breaches linked to the 1Malaysia Development Berhad(1MDB) financial scandal.

Deloitte, was the auditor for the units, Bandar Malaysia and 1MDB Real Estate, for fiscal 2015 and 2016.

The Securities Commission said in a statement on Wednesday that Deloitte failed to report irregularities which “may have had a material effect” on the ability of 1MDB subsidiary Bandar Malaysia Sdn Bhd (BMSB) to repay bondholders under a 2.4-billion-ringgit Islamic bond programme issued in 2014. In its 2015 and 2016 reports for 1MDB Real Estate, Deloitte stated that the ongoing investigations of 1MDB indicated the existence of material uncertainty which may cast significant doubt about the group’s and the company’s ability to continue as a going concern”.

This shows that Deloitte was aware that BMSB was on the road to bankruptcy. Yet they did not clearly state this in their report. Auditors are on the mercy of the client and therefore they would not want to state something that would jeopardise their role as auditors.

It was rumoured that KPMG is attempting to negotiate a deal with the authorities. Many auditors were associated with 1MDB. Ernst & Young which was the first auditor resigned. KPMG was fired for asking for information on the fund’s assets. Deloitte which quit after the US Department of Justice filed lawsuits to recover assets acquired with misappropriated 1MDB funds. Parker Randall became the auditor after Deloitte left. The high turnover of the auditors shows that there was something wrong with the financial accounting of 1MDB. Last year the Pakatan Harapan government which came to power brought in PwC to conduct a status audit on 1MDB. 1MDB did not file accounts since 2015.