1MDB documents still not returned so audit can’t be completed

(Malay Mail Online) – 1Malaysia Development Berhad (1MDB) may need to ask for another extension to submit its latest audited accounts as all its documents were seized in a raid last July, the state-owned firm chief executive officer Arul Kanda Kandasamy has said.

Arul said 1MDB’s auditor Deloitte need to look at the seized documents in order to audit the accounts, going further to clarify that the auditors’ job is to check the accounts that were prepared by the management.

“We have an extension till March 31, 2016, but frankly we need all our documents back before the auditors can audit what is inside the accounts. It is physically not possible,” he told financial weekly The Edge in a six-page interview published today.

When asked if 1MDB will apply for another extension to submit its audited accounts, Arul said: “If we get the documents back in time, we won’t need an extension. But that looks unlikely.”

According to Arul, government investigators took away all of 1MDB’s documents — including ledgers, journal entries, payment vouchers, legal agreements — during the July 8 raid of its office.

He explained that the holding company 1MDB’s accounts are consolidated accounts, which would require the accounts of its subsidiaries to be done.

Currently, the audit for Edra’s accounts are done, while the accounts for its real estate unit is in the process of being signed off by the auditors, Arul said.

After that, the auditors will move up one level to the intermediate holding companies, Arul said, adding that it becomes more difficult the closer it gets to the 1MDB level due to the unavailability of the seized documents.

Last October 2, Arul said 1MDB has received a six-month extension from an initial September 30 deadline to file its audited accounts for 2014 with the Companies Commission of Malaysia, as the documents required for the audit process had been seized by local investigators.

Addressing 1MDB’s change of audit firms several times since its inception in 2009, Arul explained in the interview that the switch from Ernst & Young to KPMG happened when the firm’s shareholding and ownership moved from the Terengganu government to the Ministry of Finance.

“That is not unusual. Typically, when a new shareholder comes in, they will change the auditor.

“Then, 1MDB had KPMG for three financial statements and Deloitte for two financial statements. It is not like we changed auditors immediately, there was some time. Secondly, it is not like we changed from KPMG to Ali, Bala and Chong. We moved from KPMG to Deloitte, which is actually (one of) the largest accounting firms in the world,” he was quoted saying.

He defended the later switch as being necessary following 1MDB’s purchase of power assets.

“And for very good reason, because at the time, 1MDB purchased the power assets. And we had all the foreign assets, and we needed a firm that could give us a good enough proposition to audit those accounts.

“But don’t take my word for it. Look at the difference in the notes to the accounts between 2012 and 2013, you will see there is a lot more details because Deloitte committed to 15 audit partners, not only locally, but also regionally,” he said.

Arul said the change in auditors was not such a major cause for the loss of confidence in 1MDB.

Arul said the three biggest factors that led to the loss of confidence in 1MDB are: 1MDB’s first ever loss of RM665 million, a planned Initial Public Offering (IPO) exercise that never happened, and a RM2 billion syndicated loan which was initially planned to be repaid through the IPO but which the company was unable to refinance when it became due.