Banking & Finance

SC reprimands, fines Deloitte RM2.2 Million on Sukuk Issuance linked to 1MDB

Date: 30 January 2019; Type: Legal News; Source: Bernama

KUALA LUMPUR, Jan 30 (Bernama) - The Securities Commission Malaysia (SC) has reprimanded and imposed penalties on Deloitte PLT (Deloitte) for four breaches related to the RM2.4 billion sukuk murabahah programme issued by Bandar Malaysia Sdn Bhd (BMSB) in 2014.

The commission said Deloitte was the statutory auditor for BMSB 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 programme and the immediate holding company of BMSB.

1Malaysia Development Bhd (1MDB) was the holding company of 1MDB RE and BMSB.

In a statement today, the SC said Deloitte had committed two breaches under Section 276(3)(b) of the Capital Markets and Services Act 2007 (CMSA) for its failure to immediately report to the commission irregularities which may had a material effect on BMSB’s ability to fulfil its obligations in repaying sukuk holders any amount under the sukuk programme.

It said the breaches committed by Deloitte were serious in nature as the audit firm failed to discharge its statutory obligations despite having included the following in BMSB’s and 1MDB RE’s Audited Financial Statements (AFS):

- An audit qualification in its independent auditors’ report for 1MDB RE for the AFS for the financial years ended March 31, 2015 (AFS 2015) and March 31, 2016 (AFS 2016), an emphasis of matter in its independent auditors’ report for BMSB’s AFS 2015 and AFS 2016 and 1MDB RE’s AFS 2015 and AFS 2016.

- The audit qualification in Deloitte’s independent auditors’ report for 1MDB RE for AFS 2015 and AFS 2016 stated 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 murabahah programme could be recovered.

- The emphasis of matter in Deloitte’s independent auditors’ report for 1MDB RE for AFS 2015 and AFS 2016, as well as BMSB’s AFS 2015 and AFS 2016 which stated that 1MDB was under investigation by several authorities.

“Deloitte further 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’,” it said.

The SC had imposed a total fine of RM2 million on Deloitte for the above breaches, which was the maximum provided for under Section 354(3)(b) of the CMSA.

For the remaining two breaches under Section 276(1) of the CMSA, Deloitte was fined a total of RM200,000 for its failure to send a copy of BMSB’s AFS 2015 and 2016 to MTrustee Bhd, within seven days after furnishing the AFS 2015 and 2016 to BMSB.

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