1MDB hunt spells trouble for Big Four auditors
1mdb

By ALIFAH ZAINUDDIN / Pic By BLOOMBERG

The Securities Commission Malaysia’s (SC) recent move to reprimand and fine audit firm Deloitte PLT has sent jitters to former 1Malaysia Development Bhd’s (1MDB) auditors — three of which make up the Big Four accounting firms.

The regulator’s RM2.2 million fine on Deloitte for its failure to report irregularities in the Islamic bond programme by 1MDB subsidiary Bandar Malaysia Sdn Bhd is the first legal action taken against the Big Four companies.

The SC has declined to divulge any details on the investigation or whether it will take further actions against other 1MDB auditors.

However, a spokesperson for the SC said in an email reply to The Malaysian Reserve (TMR) it will continue to take measures to “uphold the quality of audit and financial reporting” of public interest entities.

Asian Strategy and Leadership Institute’s Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam said Malaysia should go “all out” to make those who had conspired in 1MDB accountable.

“At one time, we in Malaysia thought that international accounting firms had a much higher standard. But it is proven wrong with 1MDB scandal. They are Deloitte and Goldman Sachs Group Inc — who would’ve thought that these global agencies and financial houses would stoop to that level of being dishonest?

“There must be a movement against dishonesty,” Ramon told TMR.

Deloitte is the state investment fund’s third external auditor, after Ernst & Young Malaysia (EY) and KPMG Malaysia were sacked in 2010 and 2013 respectively.

EY was dismissed after it refused to sign off on 1MDB’s financial statements for 2010. KPMG took over in September 2010 and handled the sovereign wealth fund’s statements for 2010, 2011 and 2012.

KPMG was subsequently dumped on New Year’s eve in 2013 over its inquiries on 1MDB’s assets in the Cayman Islands, making way for Deloitte to assume the role as auditor of 1MDB. Both the 2013 and 2014 financial statements were verified by Deloitte before the firm resigned in February 2016.

Deloitte’s exit came after the US Department of Justice filed civil lawsuits against 1MDB, alleging that US$4.5 billion (RM18.3 billion) was looted from the state investment fund. Deloitte subsequently said its 2013 and 2014 audited financial statements should no longer be relied on. No accounts have been filed since 2015.

Global investigations into 1MDB have so far resulted in dozens of charges against politicians, bankers and financial institutions. The federal government has also filed criminal charges against US bank Goldman Sachs Group Inc for their bond sales arrangement for 1MDB.

Meanwhile, lawyer Lim Wei Jiet said actions taken by regulatory bodies reflect the authorities’ resolve to ensure that investors are protected in Malaysia.

“It also sends a signal that auditors must honour their public duty to promptly report any irregularities, failing which they will be held accountable to the full force of the law,” Lim said.

In the UK, the British arms of the Big Four accountancy companies are undergoing a radical shake-up by splitting their audit operations from the rest of their business to “restore confidence” in the firms.

The British chairmen of EY, KPMG and PricewaterhouseCoopers have pledged their commitment to the initiative after a string of accounting scandals and corporate collapses in the UK.

Watchdog groups and the general public have since called for a break-up of the Big Four firms and have demanded greater competition in the industry.