Sunday, October 04, 2015

Will the 6 month delay in 1MDB's Financial Statement result in another external auditor replacing Deloitte Malaysia?

It was reported yesterday that 1Malaysia Development Bhd (1MDB) had failed to lodge its financial statements with the Companies Commission on 30 September 2015, which is the deadline to submit its accounts for the year ending 31 March 2015.

This is the sixth consecutive year since 1MDB was incepted in 2009 where the company failed to submit its accounts on a timely basis.

In the past, the audited accounts were delayed often because of various financial shenanigans which needed to be covered up.

For 1MDB's March 2010 financial statements, the delay was a result of a blatant attempt to cover up billions of ringgit misappropriated in its joint venture company with Petrosaudi International Limited. Such misappropriation, including a US$700 million transferred directly from 1MDB to Good Star Limited, a company controlled by Low Taek Jho. Coincidentally, Jho Low is also the official advisor to the Chairman of the Board of Advisors of 1MDB, Dato Seri Najib Razak.

As a consequence, and to effect the cover up, the then 1MDB auditors, Ernst & Young was sacked in September 2010, nearly 6 months after the financial year end.

This allowed 1MDB to fraudulently amend documents and dates, and convert its shares in the 1MDB-Petrosaudi joint venture into a loan. The manoeuvre removes the requirements for 1MDB to consolidate the accounts of the joint venture into 1MDB.  KPMG was hastily appointed to complete the accounts which was duly signed, with the doctored documents.

It was worse for the March 2013 financial statements, when the KPMG was unceremoniously dumped in December 2013, 9 months past the deadline. It has been speculated that KPMG was removed because they were unable to obtain the necessary assurances over 1MDB's US$2.318 billion investment held in the Cayman Islands.

Despite the massive delay in the financial audit, Deloitte Malaysia was appointed and the accounts was duly signed off soon after. As it turned out KPMG was right to be skeptical because 1MDB has failed to redeem the Cayman funds into cash despite various announcements to the contrary.

Hence the question that comes to mind is whether Deloitte will become the next audit firm on the chopping block so that a new firm can be subsequently appointed to sign off the books. Will history repeat itself for the third time in 6 years and 1MDB enter the record books as the GLC which has changed the most number of auditors within the shortest possible time?

The most telling indicator if Deloitte will be replaced is whether the firm has even been allowed to commence its audit, and whether 1MDB has provided its management accounts and trial balance to the auditors. We know for a fact that as at June 2015, the then Public Accounts Chairman, Datuk Nur Jazlan has disclosed that 1MDB has not granted permission to Deloitte to commence its audit exercise.

We also know that 1MDB has refused to answer questions which I have raised with regards to the above. It lends greater credibility to Malaysians' suspicion that it is Arul Kanda’s strategy of covering up the shenanigans in 1MDB by perpetually delaying the completion of 1MDB’s books until such a time when all the company’s assets are stripped to plug the missing billions of ringgit.

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