(Sept 22): Deloitte Malaysia has failed to professionally handle the financials of 1Malaysia Development Berhad (1MDB), leading the audit giant to understate the debt-ridden firm’s losses by at least RM3.24 billion, says a DAP lawmaker.
DAP national publicity secretary Tony Pua said Deloitte failed to account for the "cost of options" in the troubled firm.
"The failure to conduct its audit of 1MDB in a professional manner did not only result in severely understated losses.
"Deloitte’s failure also meant that not many people were able to see through how ridiculous the agreement was with IPIC, where 1MDB had to pay at least US$993 million (RM4.2 billion) to secure a US$3.5 billion loan," he said, referring to the International Petroleum Investment Company by its acronym.
"That represented an unbelievable 28.4% cost to 1MDB, on top of more than 9% paid to Goldman Sachs for arranging the bonds.
"Such a transaction, which must be approved by the prime minister or finance minister himself, must ring the loudest alarm bells and must be investigated thoroughly by all relevant authorities to uncover the culprits behind the scene," he said in a statement today.
The Wall Street Journal reported on Thursday that another US$993 million which was allegedly paid to IPIC by 1MDB remained unaccounted for, 10 days after allegations surfaced that a US$1.4 billion payment was made by 1MDB to IPIC in 2012.
Pua, who is also Petaling Jaya Utara MP, said this questioned Deloitte's professionalism when it audited 1MDB's 2013 and 2014 accounts.
He cited the International and Malaysian Financial Reporting Standards 2 (IFRS2) which states that any “share-based payment requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation rights) in its financial statements”.
He said this meant that 1MDB paid for the services of IPIC with the options to acquire shares in the former’s subsidiaries.
He added that IPIC provided the “service” of guaranteeing 1MDB’s US$3.5 billion bond.
Pua said the “cost” of these options granted to IPIC must be accounted as an expense in the financial statements.
"Deloitte is fully aware of the granting of the above options to IPIC since 2012. Surprisingly however, the audit firm failed to expense or provide for the cost of the options in the audited accounts for 2013 or 2014," he said.
Pua added that Deloitte was fully aware that 1MDB paid at least US$993 million to terminate or buy back these options from IPIC, when it signed off the accounts for the state investor’s March 2014 financial statement.
He said this also meant Deloitte would be aware that the options granted to IPIC in exchange for the US$3.5 billion guarantee was worth at least US$993 million.
"Therefore a proper audit would have reflected the US$993 million expense in the profit and loss statement of 1MDB. In other words, 1MDB, as audited by Deloitte, severely under-declared its losses by a massive RM3.24 billion based on the then exchange rate of RM3.26 to the US dollar.
"How can Deloitte, an international auditing firm make such a massive blunder by failing to account for the massive options expense as required by IFRS2, adopted by the Malaysian Accounting Standards Body?" he said. – The Malaysian Insider