How did Deloitte fail in its statutory auditor duties for BMSB and 1MDB RE?

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Deloitte Penalised for Multiple Breaches in Statutory Auditing Duties

Deloitte PLT has been reprimanded and fined a total of RM2.2 million by the Securities Commission Malaysia (SC) for four breaches related to its role as the statutory auditor for Bandar Malaysia Sdn Bhd (BMSB) and 1MDB Real Estate Sdn Bhd (1MDB RE). These failures occurred during the financial years ended March 31, 2015, and March 31, 2016, concerning the RM2.4 billion sukuk murabahah programme issued by BMSB in 2014.
Failure to Report Irregularities

Deloitte committed two significant breaches under Section 276(3)(b) of the Capital Markets and Services Act 2007 (CMSA) by failing to promptly report irregularities to the SC. These irregularities had a material effect on BMSB's capacity to meet its obligations to repay sukuk holders. This failure to discharge its statutory duties was particularly serious, as Deloitte had noted issues within the Audited Financial Statements (AFS) for both BMSB and 1MDB RE.
Audit Qualifications and Emphasis of Matter

Despite identifying concerns, Deloitte included an audit qualification in its independent auditors' report for 1MDB RE's AFS for the financial years ending March 31, 2015, and March 31, 2016. This qualification indicated that sufficient audit evidence could not be obtained to ascertain the recoverability of advances made to 1MDB from the sukuk proceeds. Furthermore, Deloitte included an emphasis of matter in its reports for both BMSB and 1MDB RE's AFS for the same periods, highlighting that 1MDB was under investigation by multiple authorities.
Doubt on Going Concern Status

Deloitte's reports for 1MDB RE's AFS for the financial years ended March 31, 2015, and March 31, 2016, also highlighted a material uncertainty. This uncertainty, stemming from the ongoing investigations into 1MDB, could cast significant doubt on the Group's and the Company's ability to continue as a going concern. This disclosure, while noted, did not absolve Deloitte of its reporting obligations regarding other irregularities.
Failure to Furnish AFS to MTrustee Bhd

In addition to the reporting failures to the SC, Deloitte was fined RM200,000 for two other breaches under Section 276(1) of the CMSA. These breaches involved failing to provide copies of BMSB's AFS for 2015 and 2016 to MTrustee Bhd within the stipulated seven-day period after submitting them to BMSB. The cumulative fines imposed by the SC amounted to RM2.2 million.

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How did Deloitte fail in its statutory auditor duties for BMSB and 1MDB RE?

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