Has Deloitte filed reports against 1MDB to the authorities on the potential fraud which led them to disown 1MDB’s audited accounts for FY2013 and FY2014?

In May 2015, I have filed a complaint against 1MDB auditors, Deloitte Malaysia for failing to carry out its auditing duties professionally.

One of the key accusations I had made was that Deloitte Malaysia has “intentionally and/or negligently failed to report the highly dubious and potentially fraudulent transactions in 1MDB to alert the relevant authorities.”

Under the International Standards on Auditing (ISA) 240 adopted by the Malaysian Institute of Accountants (MIA) in 2010, it is the responsibility of the Auditors “to maintain professional skepticism throughout the audit” and to identify and assess “the risks of material misstatement due to fraud”.

The ISA clearly states, “for significant transactions that are outside the normal course of business for the entity… the auditor shall evaluate whether the business rationale (or the lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets.”

When Deloitte testified with the Public Accounts Committee in June last year, they had insisted that they had carried out their duties professionally and fervently stood by the signed off accounts as true and correct.  This was despite the various doubts and controversies which has arisen, including the fact that 1MDB could not repay a mere RM2 billon loan less than a month after Deloitte declared 1MDB was fully able to meet its debt and obligations in November 2014.

However, on 27 July this year, a week after the US Department of Justice laid out the charges against Jho Low and Riza Aziz which showed more than US$3.5 billion misappropriated from 1MDB, Deloitte has finally officially disowned the accounts it signed for 2013 and 2014.

Deloitte however, should not be able to wash its hands off 1MDB’s accounts just by announcing that they “could not be relied upon”.  Under the Company’s Act, if an auditor, in the course of the performance of his duties as auditor of a company, discovers that there has been a breach or non-observance of any of the provisions of the Companies Act which are not “adequately dealt” with by the company’s directors and management, he must “report the matter in writing to the Registrar (of Companies)”.  Such a “breach or non-observance” would include fraud and dishonesty.

The penalty for failing to do so is “imprisonment for two years or thirty thousand ringgit or both.”

Hence the simple question to Deloitte Malaysia is, now that you have finally decided that you may have been defrauded by 1MDB, will you do the necessary, are required by the law to submit the report and complaint to the Registrar of Companies for further action? The failure to do so will certainly damage the trust shareholders of companies would have for Deloitte to carry out audits diligently and professionally to protect their interest, especially in the light of fraud and embezzlement by company officials.