KUALA LUMPUR (May 19): Former 1Malaysia Development Bhd (1MDB) chief executive officer (CEO) Datuk Shahrol Azral Ibrahim Halmi denied that he swept "everything under the carpet" by changing the external auditor which declined to sign off the accounts. 

During cross-examination, the accused Datuk Seri Najib Razak's counsel Tan Sri Muhammad Shafee Abdullah asked Shahrol whether he knew the reason for the termination of Ernst & Young (EY) as 1MDB's auditor, He noted that EY lasted "hardly a year" as the fund’s auditor.

The defence lawyer, Muhammad Shafee, pointed out that EY had requested for more documents and information relating to the joint venture (JV) between 1MDB and PetroSaudi International Ltd (PSI) in order to assess the value of the investment made by 1MDB. EY declined to sign off on 1MDB's accounts for the financial year ended March 31, 2010 (FY10) without the proper documents on the investment in PSI.

"At the time, there was a strong disagreement on how to value the JV in terms of the book value that was supposed to be put in 1MDB's financial statements.

"After continued disagreements, I recall I was updating Jho Low (fugitive businessman Low Taek Jho) throughout the process, and the proposal to replace EY with KPMG was discussed. I don't remember who came up with the idea but it wasn't me," Shahrol told the court.

Shahrol said he had requested for the relevant documents from PSI’s two former directors, Patrick Mahoney and Tarek Obaid, but the duo never provided any information.

He said he had brought up the issue with the board of directors of 1MDB and even notified Najib, who also wore the hat of the chairman of the board of advisors of 1MDB, of his difficulty in obtaining the required documents.

When asked if he suspected that something was not right, Shahrol replied that he was not suspicious of anything at the time as he had the impression that the deal was among Tarek, Prince Turki Abdullah Abdulaziz Al Saud (a founder of PSI) and Najib.

Shahrol said he had also sought help from Jho Low on whether the documents could be obtained via a government-to-government (G2G) arrangement.

Given that the necessary documents could not be obtained, the board decided to recognise the investment in PSI as Murabaha notes instead of an equity stake in the JV. 

Since EY refused to sign off on the accounts, 1MDB appointed KPMG as its new auditor, which signed off on the accounts following the conversion of the recognition of the fund's investment in the JV.

"I put it to you that instead of resolving the matter at that early stage in 2010, you, being the CEO, decided to sweep everything under the carpet by changing the auditor," said Muhammad Shafee.

"I disagree," said Shahrol.

The 1MDB-Tanore trial resumed today. Najib is facing four charges of abusing his position to obtain bribes totalling RM2.3 billion, and 21 charges of money laundering involving RM4.3 billion under the 1MDB-Tanore trial.

The trial continues tomorrow.

The Edge is covering the trial live here.

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