KINIBIZ Many a talk has this and other Tigers had about that so-called strategic fund of ours, yes, 1Malaysia Development Berhad (1MDB). But the snowball just gets larger and larger as it barrels down the hill completely out of control. And no one seems to care.
Tiger warned that when accounts are delayed , it means dire things. And it was not far wrong. While the picture painted was one of a fund which continued to make profits, they were as illusory as El Dorado and arose purely because of unjustified revaluation of investment property.
But the signs are ominous - of a problem much bigger than unearned profits and of a situation which is rapidly spiralling out of control and may eventually see much bigger losses in the offing.
According to the delayed annual report, the land held for the Bandar Malaysia and Tun Abdul Razak Exchange or TRX projects were classified as investment properties in accordance to the Malaysian Financial Reporting Standards (MFRS) which 1MDB adopted for FY13 in lieu of the previous Financial Reporting Standards (FRS). The classification was made because the blueprints for both developments had not been finalised.
The new standards stipulate that fair value gains from investment properties are to be recognised in profit and loss, implying that the RM2.73 billion in revaluation gains were only recognised in 1MDB’s profit and loss statement because the fund had not finalised the blueprints for both projects.
Imagine that, the revaluation gain would not have arisen if the blueprints had been finalised. And 1MDB was going to eventually finalise them anyway but found it convenient and expedient to classify it as investment property meantime, pushing the envelope in a very wrong way.
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This article was written by P Gunasegaram.