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Deloitte fined RM2.2m over 1MDB scandal

KUALA LUMPUR (Feb 1): In the first case of an audit firm being penalised in connection with the 1Malaysia Development Bhd (1MDB) scandal, the Securities Commission Malaysia (SC) yesterday fined Deloitte PLT RM2 million for failing to discharge its statutory obligations, including not immediately reporting irregularities.

Deloitte was slapped with another RM200,000 fine for not submitting a copy of financial statements to a trustee within the legally stipulated time.

In a statement, the SC said the fines were in relation to the RM2.4 billion sukuk murabahah programme issued by Bandar Malaysia Sdn Bhd in 2014. 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, now known as TRX City Sdn Bhd, was one of the third party security providers of the sukuk progamme and the immediate holding company of Bandar Malaysia. 1MDB is the holding company of 1MDB RE and Bandar Malaysia.

The SC said it found Deloitte 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.

“The SC finds the breaches committed by Deloitte serious in nature, as it has failed to discharge its statutory obligations,” the regulator said.

This, it added, is despite Deloitte having included an audit qualification and emphasis of matter in Bandar Malaysia’s and 1MDB RE’s audited financial statements (AFS).

The audit qualification was in the Independent Auditors’ Report for 1MDB RE for the AFS for the financial years ended 31 March 2015 (AFS 2015) and 31 March 2016 (AFS 2016).

It 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.

The emphasis of matter, meanwhile, was in the Independent Auditors’ Reports for Bandar Malaysia’s and 1MDB RE’s AFS 2015 and AFS 2016. It states that 1MDB is under investigation by several authorities.

The SC further noted that Deloitte had highlighted in its report for 1MDB RE’s AFS 2015 and AFS 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.

The SC also found Deloitte to have committed two other breaches under Section 276(1) of the CMSA, for the firm’s failure to send a copy of Bandar Malaysia’s AFS 2015 and 2016 to MTrustee Bhd — the trustee for the sukuk — within seven days after furnishing the financial statements to Bandar Malaysia. For this, Deloitte was fined RM200,000. — theedgemarkets.com

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