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Audit firm Deloitte fined RM2.2 million over 1MDB

January 31, 2019

KUALA LUMPUR: The Securities Commission today slapped a RM2.2 million fine on audit firm Deloitte following an investigation over its alleged involvement in the 1MDB scandal.

In a statement, the commission said this was for four breaches related to the RM2.4 billion Sukuk Murabahah Programme issued by Bandar Malaysia Sdn Bhd in 2014.

“Deloitte was found to have committed two breaches under Section 276(3)(b) of the Capital Markets and Services Act 2007 (CMSA) for failure to immediately report irregularities which might affect Bandar Malaysia’s ability to fulfil its obligations to repay sukuk-holders any amount under its Sukuk Murabahah Programme,” it said.

These breaches saw Deloitte fined RM2 million, the maximum amount provided for under Section 354(3)(b) of the CMSA.

The remaining two breaches were under Section 276(1) of the CMSA, for which Deloitte was fined RM200,000.

Deloitte was the statutory auditor for Bandar Malaysia and 1MDB Real Estate Sdn Bhd (1MDB RE) for their financial years ended March 31, 2015 to 2016.

1MDB RE, now known as TRX City Sdn Bhd, was one of the third party security providers of the Sukuk Murabahah Progamme and the immediate holding company of Bandar Malaysia. 1MDB is the holding company of 1MDB RE and Bandar Malaysia.

For the first two breaches, the commission said Deloitte had failed to discharge its statutory obligations despite having included the following in Bandar Malaysia and 1MDB RE’s audited financial statements (AFS):

  1. An audit qualification in its independent auditors’ report for 1MDB RE for the AFS for the financial year ended March 31, 2015 (AFS 2015) and March 31, 2016 (AFS 2016);
  2. An emphasis of matter in its independent auditors’ report for Bandar Malaysia’s AFS 2015 and AFS 2016; and
  3. An emphasis of matter in its independent auditors’ report for 1MDB RE’s AFS 2015 and AFS 2016.

It said the audit qualification in Deloitte’s independent auditors’ report for 1MDB RE for AFS 2015 and AFS 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 sukuk programme, could be recovered.

For the second two breaches, the commission said Deloitte was fined for its failure to send a copy of Bandar Malaysia’s AFS 2015 and 2016 to MTrustee Bhd within seven days of furnishing the AFS 2015 and 2016 to Bandar Malaysia.

It was reported on Saturday that the commission was reviewing the conduct of auditors that had handled the accounts of 1MDB, which is currently under investigation in at least six countries including the US and Switzerland.

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