Report: Deloitte fails to challenge SC’s RM2.2m fine over audit of 1MDB subsidiary’s RM2.4b Islamic bond

Deloitte was the auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for the financial years ending March 31, 2015 to 2016. — Reuters pic
Deloitte was the auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for the financial years ending March 31, 2015 to 2016. — Reuters pic

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KUALA LUMPUR, Dec 24 — Audit firm Deloitte PLT today failed at the High Court to challenge the RM2.2 million fine imposed by regulator Securities Commission (SC) last year over alleged failures linked to the audit of a 1Malaysia Development Berhad (1MDB) subsidiary, a report has said.

According to news portal Malaysiakini, High Court judge Datuk Seri Mariana Yahya today decided that the RM2.2 million fine was valid and dismissed Deloitte’s court challenge.

On January 30, 2019, the SC reprimanded Deloitte, and imposed  RM2.2 million in penalties on the audit firm for four breaches of the law over its failures to comply with the Capital Markets and Services Act 2007 (CMSA) over its audit of a RM2.4 billion Islamic bond issued by 1MDB unit Bandar Malaysia Sdn Bhd (BMSB).

Bonds are typically where the company that issues it takes on debts to raise funds, with the company required to eventually pay the full sum of amount borrowed along with regular interest payments.

Deloitte was the auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for the financial years ending March 31, 2015 to 2016, with 1MDB being the holding company of both firms and 1MDB RE (now TRX City Sdn Bhd) one of the third-party security providers of the Islamic bonds and the immediate holding company of BMSB.

According to the SC, two of Deloitte’s breaches were the failure to immediately report to the SC about irregularities that may have a material effect on the ability of BMSB to fulfill its obligations in repaying the holders of the Islamic bond, despite notes by Deloitte in BMSB and 1MDB RE’s audited financial statements and auditors’ report in 2015 and 2016 of ongoing investigations on 1MDB and of the audit firm’s inability to obtain sufficient appropriate audit evidence to determine whether the advances made to 1MDB from the Islamic bond could be recovered.

The maximum fine of RM2 million for these breaches was imposed by the SC.

The SC had also said it had imposed a fine of RM200,000 on Deloitte for the two remaining breaches of failing to send BMSB’s audited financial statements in 2015 and 2016 to MTrustee Bhd within seven days of giving the same documents to BMSB.

Deloitte had previously said that it had applied to the SC to review the administrative sanctions, and that it had on November 14, 2019 filed a judicial review application against the SC’s dismissal of its application to review the administrative sanctions in the form of the RM2.2 million fines and to seek clarity in how the relevant laws apply for the benefit of the firm and other stakeholders in the capital markets.

In its judicial review application, Deloitte was repeatedly seeking to have the court reverse the SC’s August 19, 2019 review decision to maintain the RM2.2 million fine, and also for a court order to quash the review decision.

Deloitte had also reportedly sought for the RM2.2 million fine it had paid to the SC to be returned.

The High Court in Kuala Lumpur had on November 25, 2019 allowed Deloitte to proceed with its judicial review application by granting leave.

This judicial review application was dismissed today by the High Court.

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