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January 31, 2019

Deloitte Malaysia fined over audit of 1MDB subsidiary

Deloitte Malaysia has been fined RM2.2m ($537,275) for failing to report irregularities of companies related to the scandal-ridden development fund 1MDB to the Securities Commission Malaysia (SC).

The fine has been imposed for four breaches related to the Sukuk Mruabahah Programme (SMP), an Islamic financial certificate similar to a bond in Western finance, issued by 1MDB subsidiary, real estate developer Bandar Malaysia Sdn Bhd (BMSB).

Deloitte was the statutory auditor for 1MDB subsidiaries, BMSB and 1MDB Real Estate (1MDB RE), a third party security provider of the SMP, for the financial years ended 31 March 2015 to 2016.

The fine was issued due to Deloitte committing two breaches under the Capital Markets and Services Act 2007 for failure to immediately report irregularities which may have a material effect on the ability of BMSB to fulfil its obligation to repay sukuk holders any amount under the SMP.

The audit qualification in Deloitte’s independent auditors’ report for 1MDB RE for its Audited Financial Statements (AFS) 2015 and 2016 stated that Deloitte was unable to obtain sufficient appropriate audit evidence to determine whether the advances to 1MDB from, among others, the proceeds of the SMP could be recovered.

Deloitte was fined the maximum amount for these breaches. A spokesperson for Deloitte Malaysia said: "Deloitte PLT respects the role of the SC to regulate and safeguard the Malaysian capital market and takes its responsibilities as an audit firm seriously. We are, however, disappointed with the decision and are in consultation with legal counsel as to the making of an application to the SC for a review.”

Deloitte is also currently under investigation by the Malaysian Securities Commission for their involvement with 1MDB. The Securities Commission said that it was investigating the firms to determine whether they were ‘aiding and abetting in this scandal’.

 

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