With every passing day, the rubble caused by the 1MDB disaster seems to get thicker and thicker, with the casualty count still rising.
The latest news on this front is that Deloitte PLT, one of the “big four” accounting firms in the world, has just been slapped with an RM2 million fine by the Securities Commission Malaysia (SC) for failing to discharge its statutory obligations and not immediately reporting irregularities.
SC said the fine is in relation to the the RM2.4 billion sukuk murabahah programme issued by Bandar Malaysia Sdn Bhd in 2014.
An additional fine of RM200,000 was also issued fine for not submitting a copy of financial statements to a trustee within the legally stipulated time.
Deloitte was the statutory auditor for Bandar Malaysia and 1MDB Real Estate Sdn Bhd (1MDB RE) for the financial years ended March 31, 2015 to 2016.
1MDB RE was the former name what is now of TRX City Sdn Bhd, which was a third-party security provider of the sukuk progamme and the immediate holding company of Bandar Malaysia. 1MDB, in turn, is the holding company 1MDB RE (or TRX City) and Bandar Malaysia.
According to SC, 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 to the commission irregularities which may have a material effect on the ability of Bandar Malaysia to fulfil its obligations in repaying sukuk holders any amount under the sukuk programme.
It said that the breaches committed by Deloitte were “serious in nature” because it failed to discharge its statutory obligations. This is despite Deloitte having included an audit qualification and emphasis of matter in Bandar Malaysia’s and 1MDB RE’s audited financial statements.
This audit qualification was included in the Independent Auditors’ Report for 1MDB RE for the audited financial statements for the financial years ended 31 March 2015 and 31 March 2016.
The report states 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 progamme could be recovered.
SC also pointed out that Deloitte had highlighted in its report for 1MDB RE’s audited financial statements for 2015 and 2016 that “the ongoing investigations of 1MDB indicate 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”.
The commission imposed a total fine of RM2 million for the above two breaches, the maximum fine provided under Section 354(3)(b) of the CMSA.
Meanwhile, Deloitte told Bloomberg that it is consulting with its legal counsel to apply to SC for a review of the RM2.2 million worth of fines.
“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,” the company said in a statement to Bloomberg.