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MP SPEAKS Deloitte Malaysia’s reputation as an independent and established international auditing firm lies in complete tatters as controversy rages over the financial status of 1Malaysia Development Bhd (1MDB), the wholly-owned subsidiary of the Ministry of Finance.

Deloitte took over the auditing duties of the books of 1MDB after the previous auditor, KPMG, quit its role well past the March financial year-end of the company in 2013.  Since then the firm has signed off the accounts of 1MDB without even an emphasis of matter, not to mention any qualification.

However the Deloitte’s auditing standards have been heavily questioned over the past six months as 1MDB struggled to pay its matured debt obligations and service its interests.

In particular, how is it possible that Deloitte’s audit partner, Ng Yee Hong, was able to get it so wrong by signing off its March 2014 accounts on Nov 5, 2014, without any qualifications when 1MDB was, in all practical terms, insolvent?

The auditors wrote that “the group’s holding of cash and short-term deposits, together with committed funding facilities and net cash flow from operations, are expected to be sufficient to cover its cash flow needs” (page 144).

However, by the end of the same month of November, 1MDB was forced to repeatedly extend its repayment of a RM2 billion loan that was due. 

In fact, 1MDB had to beg local billionaire, Ananda Krishnan, who assisted by arranging a private loan from local investors to finally settle the loan in February, mere days before a default event was declared.

Emergency bailout from government

Since then, 1MDB had received an emergency bailout fund of RM950 million from the federal government to assist in servicing its loans. 1MDB is also forced to sell its prized real estate to local government-linked funds to keep itself afloat. 

On top of that, 1MDB has been negotiating to dispose of all its energy assets, which it had purchased at an inflated price in order to raise funds to pare down its debts.

It beggars belief that a firm of Deloitte’s standing was so wrong over a multi-billion ringgit state-owned firm, which has resulted in massive losses for the Malaysian taxpayers.

The international accounting and financial community is also scrutinising Deloitte’s assessment of the firm’s classification of RM13.4 billion of ‘Level 3’ assets.  “Level 3 fair value measurements are those derived from valuation techniques… that are not based on observable market data (unobservable inputs).”

While the classification may be technically correct, the question remains if Deloitte has its responsibilities “to maintain professional scepticism throughout the audit” and to identify and assess “the risks of material misstatement due to fraud”, as required under the International Standards of Auditing (ISA).

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 suggest that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets.”

As a result of failing to perform their duties professionally and independently, the prime minister and the 1MDB board of directors have been using the Deloitte name as a shield against any misdeeds or malpractice, to defend the distressed 1MDB. 

Deloitte’s name gets tainted and dragged through the mud, making the firm the butt of jokes in the financial circles.

As an allegedly reputable international audit and accounting firm, it must come clean and protect its image of auditor independence and compliance with ethical standards in discharging its professional responsibilities. 

As it remains the auditor for 1MDB for the financial year ending March 2015, Deloitte must now leave no stone unturned for its audit of the company and restate the previous year accounts, where appropriate, in order to present the true picture of the financial state of the RM42 billion indebted company.


TONY PUA is DAP national publicity secretary and the MP for Petaling Jaya Utara.

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