1MDB’s auditor KPMG told the company not to rely on its reports over three years as they don’t show a “true and fair” assessment of the troubled state fund’s finances.
KPMG retracted the audit reports for financial years ended March 2010, 2011 and 2012, as it didn’t have access to relevant documents that Malaysia’s new government has since declassified, 1MDB said in a statement Tuesday. The withheld information would have “materially impacted” the assessments had it been made available to the auditor, KPMG said in a June 8 letter to the fund.
Prime Minister Mahathir Mohamad is seeking to recoup $4.5 billion of funds potentially lost through 1MDB as he seeks to uncover the extent of wrongdoing at the state investment firm, whose full name is 1Malaysia Development Bhd. A week after sweeping into power, he ordered the auditor-general to publicly release a report that was protected by the Official Secrets Act since 2016, and revived an investigation that has led to former premier Najib Razak and his wife being questioned by the Malaysian Anti-Corruption Commission.
In his first statement to the media since taking the role, Finance Minister Lim Guan Eng said he was shocked to find that some ministry documents linked to 1MDB were labeled as “red files” and weren’t accessible by state auditors.
KPMG was terminated as 1MDB’s auditor in December 2013 during the audit of that year’s financial statements, and it didn’t have access to information related to 1MDB subsequently, the accounting firm said in a statement on its website. The firm also didn’t complete the audit for the year ended March 2013, it said.
While the declassified auditor-general report highlights possible anomalies in some 1MDB transactions, it cautions that the audit team also had limited access that significantly affected their findings. 1MDB didn’t submit management accounts for the year ended March 2015 and bank statements from foreign financial institutions. The audit team couldn’t access computers, notebooks and servers at 1MDB for the purpose of crosschecking and analyzing its findings.
In a separate statement, 1MDB named Asri Hamidon, the deputy secretary-general of the finance ministry, as its new chairman. Asri currently oversees government investment at the ministry. The fund’s day-to-day running will be managed by an executive committee led by Rashidah Mohd Sies and Wan Mohd Fadzmi Wan Othman, as well as Mohammad Faiz Azmi, executive chairman of PwC Malaysia.
KPMG’s retraction of 1MDB’s reports comes after its quality of work in the U.K. was criticized by the country’s accounting regulator. In an unprecedented assessment, the Financial Reporting Council said auditors at the firm don’t challenge management enough, aren’t sufficiently skeptical and are inconsistent in their execution of audits.