It is unusual for 1MDB and its auditor Deloitte Malaysia to temporarily withdraw the state investment fund's 2013 and 2014 audited financial statements, two financial experts said.
In response to the civil forfeiture suit initiated against 1MDB-related assets by the United States' Department of Justice, 1MDB said on Tuesday that its 2013 and 2014 audited financial statements should no longer 'be relied on' until allegations made by the DOJ were determined in court.
Deloitte Malaysia made a similar stand the following day.
1MDB also announced that Deloitte is quitting as 1MDB's auditor, making it the third audit firm to part ways with 1MDB since its inception in 2009.
Financial analyst Phua Lee Kerk said in corporate practice, a company need not publicly announce such decisions.
“The audited company just needs to report to its shareholders. It doesn't need to tell the world that the (financial) statements can no longer be relied on,” the corporate consultant told Malaysiakini.
The purpose of the dual announcements by 1MDB and Deloitte could be to protect goodwill and avoid blame, Phua added.
“Why do both companies need to issue statements? It's because they may want to cover themselves.
“If I am the client, I will say the auditor did not do their job. The audit firm, of course, will tell the public that it did no wrong.”
Asked whether 1MDB and Deloitte were pointing fingers at each other over the financial statements, he agreed.
“Yes. You could say that,” said Phua.
'Don't blame Deloitte'
Concurring with Phua, chartered accountant Koong Lin Loong said the withdrawal of the audited financial statements was unusual.
However, Koong said Deloitte should not carry the blame.
In the ruling on United Kingdom's Caparo Industries plc vs Dickman, he said, the House of Lords ruled that the conventional auditor had no obligation to pursue an error in a company.
“The ruling said the auditor is not an investigator, and would not actively search for problems. The auditor is appointed to check the accounts.
“The auditor needs to fulfill two criteria - the audited statement must comply with Malaysia's Company Act, and must meet accounting and auditing standards.”
Koong said an auditor checks the accounts based on the client's documents in an accounting period.
Should the auditor find no wrong in the company's account at that relevant time, the audited statement is deemed correct at that point, he added.
For example, an auditor, in 2014, is responsible to verify a company's accounts for 2013, based on the accounting year's documents. But he does not bear the responsibility for errors discovered in the future.
“To the auditors, the statement is correct at that point in time. If something happens after the account was audited and somebody sues the company in 2016, that is not the auditor's business as it had fulfilled its obligations,” Koong explained.
Not forensic auditor
Koong reiterated that Deloitte was performing the duty of an external auditor and not as a forensic auditor in verifying 1MDB's account.
“The (external) auditor audits the (company's financial) statements and supporting books. I think the auditor did no wrong.
“However, if you appointed (Deloitte) as a forensic auditor, then it might have committed wrong as that is a different scope of engagement.”
Forensic auditing carries a heavier obligation than external auditing. This is because the duty of the forensic auditor is to examine and evaluate a firm's or individual's financial information for use as evidence in court.
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