Apakah bila sebuah firma audit telah melaporkan akaun 1MDB sebagai bersih maka kita harus terima seadanya ? Apakah sebuah syarikat audit itu maksum ?
Actually artikel ini ditulis sebagai respon kepada kenyataan awal Ketua Audit yang tidak mahu meneliti akaun 1MDB atas alasan ia sudah pun di audit oleh Deloitte, salah satu firma audit terbesar.
Bagi saya, penulis adalah seorang yang mahir dalam isu yang diperkatakannya dan sudah meneliti akaun 1MDB. Point2 beliau amat relevan untuk kita renungi.
Maksumkah Deloitte sehingga kita langsung tidak pertikaikan status bersih yang telah mereka berikan kepada 1MDB ?
Why skip 1MDB, a letter to the auditor-general – AH Manaf
Published: 13 November 2014 10:22 AM
I read with concern your reply on why you did not audit 1MDB, saying their accounts had already been audited by one of the "Big Four", and that it is a "very laborious task" to audit a firm.
In view of the controversies surrounding 1MDB, passing the buck to “The Big Four” is simply not good enough. It creates a misleading impression of the role, scope and limitations of external auditors.
Companies involved in the biggest scandals in financial history employed leading audit firms. Enron was audited by Andersen. Our own BBMB was audited by Touche Ross (later swallowed up by Deloitte who happens to be 1MDBs current auditor). Deloitte was the auditor in the Transmile scandal.
Lehman Brothers the golden boy of investment banking that went spectacularly bankrupt in 2008, was audited by Ernst & Young. It is chilling to remember that Lehmans went bust by selling US$50 billion worth of toxic asset to Cayman Islands banks on the understanding that they would be bought back eventually.
What this created was the impression that Lehman’s had US$50 billion more cash than it did and US$50 billion less toxic assets than it held. All this under the nose of Big 4 Ernst & Young.
Auditors are not infallible, if they were, there would be no financial scandals. Audit firms are businesses like any other and operate within the scope of auditing standards which themselves are not infallible.
Sir, I do not dispute that reopening 1MDBs books is “very laborious task”. The decision whether to take on this task should be determined among other things by the entity’s risk profile and I would like to ask whether you factored these considerations into your decision?
1. 1MDB has gone through 3 of the Big 4 firms in the space of 5 years according to reports in The Star, The Edge and the Singapore Business Times.
2. 1MDBs first auditor was Ernst & Young who resigned without signing a single set of accounts (The Star, The Edge).
3. 1MDBs second auditor KPMG resigned late 2013 (i.e., many months after FY March 2013 ended) without signing off the accounts.
4. 1MDBs third auditor Deloitte issued unusually lengthy notes and critical judgments to the FY 2013 accounts. In the industry this can be termed “Cover Your Back”, disclosing as much detailed information as possible in order to protect your reputational risk in the event of future problems.
5. Add to this 1MDBs unusual and inexplicable late filings of annual reports for FY 2013 and FY 2014. Some of 1MDBs subsidiaries have allegedly not filed accounts since FY 2013.
1MDBs former 100% subsidiary SRC International’s accounts have not been filed since March 2012. This subsidiary is now 100% held by the MOF and has borrowings of RM4bn via KWAP bonds guaranteed by the government. The auditor of SRC in FY 2012 was Deloitte International.
As I explained, auditors are not infallible. They cannot 100% evaluate a company’s financial health.
However, they are trained to watch out for “alarm bells” and evaluate fraudulent and other risk factors.
The question is, why did 1MDB's first two auditors extricate themselves from a lucrative and prestigious government account?
With 1MDBs multiple auditors, late filings, missing subsidiary accounts, I find it astounding that your alarm bells as the Auditor-General of Malaysia have not rung at all.
You as the Auditor-General have extensive powers as enshrined in the Audit Act 1957 including the power to “call upon any person for any explanations and information which the Auditor-General may require in order to enable him to discharge his duties”.
I would like to ask, before dismissing the need for the “laborious task”, did you make any enquiries formal or informal to ascertain the claim and discover the reasons why 1MDB had 3 external auditors in 5 years?
Did you communicate with officials at the MOF to find out why 1MDBs ex-subsidiary SRC, now 100% owned by MOF has not filed accounts since FY March 2012?
With borrowings of RM4 billion from pensions fund KWAP guaranteed by the government, surely this company warrants the interest of the Auditor-General’s office.
In addition to the unusual pattern of 1MDB auditors and annual reports, there is publicly available information which also rings alarm bells and enhance the case for investigation.
1. 1MDB's unusual revaluation policy. 1MDB's revaluation surpluses recorded in the accounts are RM826 million (FY2011), RM569 million (2012), RM2.7 billion (2013) and RM896 million (2014).
Therefore, total revaluation in the last 4 years amounts to a colossal RM4.9 billion. If you deduct this amount from 1MDB's current shareholders funds of RM2.4 billion, 1MDB is in a position of negative equity of RM2.5 billion, i.e., the company would be “balance sheet insolvent”.
I will not go into the applicability of MFRS14, but this begs the question why 1MDB adopted an unusual revaluation policy in contrast to most property developers who book in land at cost or book value?
The simple calculations show that if 1MDB did not undertake this unusual revaluation policy, its shareholders funds would be negative to the tune of RM2.5 billion, and the company would be considered “balance sheet insolvent”.
In the event of a material downturn in the property market this has serious implications for 1MDBs asset cover.
2. The infamous RM7 billion Caymans account (SPC). As you know, Segregated Portfolio Companies (SPCs) are notoriously difficult to value.
Deloitte took pains to highlight in the notes that they depended on unidentified “independent third party valuers”, meaning they themselves did not do a mark-to-market or other valuation. Furthermore much of 1MDBs total RM16 billion cash and portfolio investments held abroad is classified by Deloitte in the notes as "Level 3 assets", i.e., illiquid assets whose fair value cannot be determined by observable measures (high levels of Level 3 assets have been implicated in insolvent companies of the 2007 global financial crisis).
These issues are highlighted for users of the accounts to read and make their own informed interpretations. My question is, did you?
A brief look at the history of this Cayman's 7 billion and how it came into being as noted in the accounts is again enough to raise alarm bells.
A joint venture with Petrosaudi, mubahara notes, KPMG's "emphasis of matter" (audit flagging up significant uncertainty), stake purchased by an undisclosed third party and finally the 7 billion proceeds placed in an off-shore Cayman account.
We therefore should ask the question, why did Deloitte highlight in the accounts that they did not evaluate this Cayman portfolio investment themselves?
Sir, taking all this into account, can you really claim you have done everything in your power to dismiss all allegations and doubts before dismissing the need for the “laborious task” of opening 1MDBs books?
I also address this question to the chairman of the Public Accounts Committee, Datuk Nur Jazlan Mohamad, in view of the PAC’s role of examining not only the audit report but the “accounts of public authorities and those administering public funds” and “other matters it deems fit.” – November 13, 2014.