This article first appeared in The Edge Financial Daily, on July 27, 2016.

KUALA LUMPUR: Deloitte Malaysia has notified 1Malaysia Development Bhd (1MDB) of its intention to resign as the embattled state fund’s auditor, and the 1MDB board is now looking for a new auditor.

“Until a new auditor is appointed, Deloitte will remain as auditor on record,” said 1MDB in a statement yesterday.

“The board appreciates the professionalism displayed by Deloitte to date and highlights that Deloitte will continue to audit key subsidiaries of 1MDB, including but not limited to TRX City Sdn Bhd (formerly known as 1MDB Real Estate Sdn Bhd), Bandar Malaysia Sdn Bhd and Edra Bhd,” it added.

1MDB disclosed that Deloitte had notified it of its intention to resign on Feb 26, but the fund did not say why it making the announcement only now.

However, Deloitte  in a separate statement referred to the civil forfeiture complaint filed by the United States Department of Justice (DoJ) on July 20.

It said the complaint contains information, which, if known at the time of the 2013 and 2014 audits of 1MDB, would have impacted the financial statements and affected the audit reports.

Accordingly, it said, the audit reports issued by Deloitte in connection with the 2013 and 2014 financial statements of 1MDB should no longer be relied upon.

Deloitte took over the auditing of 1MDB accounts from KPMG, which had decided to issue a qualified audit report for 1MDB’s 2013 financial statements. KPMG was replaced in December 2013, before issuing its audit report.

KPMG was reportedly dismissed after a difference of opinion on the fair value of 1MDB’s investment in Bridge GLobal SPC through Brazen Sky Ltd.

Deloitte verified the accounts for the 2013 and 2014 financial years, with an unqualified opinion without any qualification or emphasis of matter.

As for the 2015 accounts, 1MDB has been given an extension by the Companies Commission of Malaysia until Sept 30, 2016 to approve the audited financial statements.

Deloitte’s auditing standards, however, have been questioned since 2015, as 1MDB struggled to pay its matured debt obligations and service its interests.

Meanwhile, 1MDB in its statement yesterday called on all parties not to rely on the 2013 and 2014 accounts “as a precautionary measure” in the wake of the civil forfeiture complaint filed by the DoJ.

The request, said1MDB, is pending a final and conclusive determination by a court of law of allegations contained in the complaint.

“While the board remains confident that no wrongdoing has been committed by 1MDB, and that the past audited financial statements continue to show a true and fair view of the company’s affairs at the relevant points in time, the board has decided that, as a precautionary measure, the 2013 and 2014 audited financial statements of 1MDB should no longer be relied on by any party, pending as described in the complaint,” said 1MDB.

On July 20, the DoJ announced that it had filed a civil forfeiture complaint in a bid to seize more than US$1 billion (RM4.06 billion) in assets, including luxury real estate and a jet, allegedly bought using 1MDB funds.

Individuals named in the complaint include “Malaysian Official 1”, Prime Minister Datuk Seri Najib Razak’s stepson Riza Aziz and his company Red Granite, which invested more than US$100 million to finance a 2013 Hollywood movie The Wolf of Wall Street.

Others named in the suit include Penang-born businessman Low Taek Jho, popularly known as Jho Low, and Mohamed Badawy al-Husseiny, a former director of Aabar-BVI.

Although the DoJ did not specifically name “Malaysia Official 1”, the individual was described as a “high-ranking official” who was the “ultimate beneficiary” of US$681 million.

STATEMENT BY DELOITTE MALAYSIA

KUALA LUMPUR, 26 July 2016 — On 20 July 2016, the Office of the Attorney General of the United States of America announced that the Department of Justice filed a civil forfeiture complaint against certain entities and individuals and contemporaneously filed related actions seeking the civil forfeiture of numerous assets held in the names of these parties (“Complaint”).

According to the Complaint filed, this is a civil action to forfeit assets involved in and traceable to an international conspiracy to launder money misappropriated from 1MDB.

The Complaint contains information, which, if known at the time of the 2013 and 2014 audits of 1MDB, would have impacted the financial statements and affected the audit reports and, accordingly, those audit reports issued by Deloitte Malaysia dated 28 March 2014 and 5 November 2014 respectively in connection with the 2013 and 2014 financial statements of 1MDB should no longer be relied upon.

RESIGNATION AS AUDITORS

On 26 February 2016, Deloitte Malaysia had tendered its notice of resignation as auditor of 1MDB to 1MDB’s Board of Directors and had lodged the notice of resignation with the Companies Commission of Malaysia.

Since that date 1MDB has advised that it was focused on finding a new auditor, but has yet to inform Deloitte Malaysia of the appointment of any new auditor.