This article first appeared in The Edge Financial Daily on June 27, 2018 - July 3, 2018

KUALA LUMPUR: KPMG Malaysia has written to inform 1Malaysia Development Bhd (1MDB) to disregard the audited accounts for the financial years ended March 31, 2010 (FY10), FY11 and FY12, signed off by the former auditor.

In a statement yesterday, the beleaguered strategic investment fund said it had received the letter dated June 8 from KPMG Malaysia, its auditor for FY10, FY11 and FY12.

“In the letter, KPMG Malaysia advised us that 1MDB should immediately take all necessary steps to prevent any further or future reliance on the three audit reports for FY10, FY11 and FY12.

“According to KPMG Malaysia, they reached the above decision after going through the recently declassified Auditor-General’s Report on 1MDB and other relevant documents that were withheld from them by the previous management of the company,” said the statement.

KPMG said if the documents had been disclosed to the audit firm, the information would have materially impacted the financial statements and the relevant audit reports.

KPMG Malaysia also advised 1MDB to notify the relevant authorities of the latest status of the audit reports.

The Auditor-General of Malaysia had conducted a probe on 1MDB and issued a report of its findings. However, public access to the report was denied as it was classified a national secret under the Official Secrets Act 1972. The Auditor-General’s Report was declassified on May 15 after Pakatan Harapan took over Putrajaya.

KPMG Malaysia also issued a statement confirming that it sent the letter to 1MDB on June 8.

“KPMG Malaysia has, and continues to, fully cooperate with all relevant authorities investigating matters associated with 1MDB. Given the ongoing investigations by the authorities, it would not be appropriate for us to comment further,” said the audit firm.

KPMG Malaysia said on Dec 31, 2013, during the audit of 1MDB’s financial statements for FY13, KPMG Malaysia’s appointment as auditor was terminated and the firm did not have access to information related to 1MDB subsequent to that date.

KPMG Malaysia took over the audit of 1MDB from Ernst & Young Malaysia (EY) in September 2010. According to the Auditor-General’s Report, EY was sacked on Sept 15, 2010 as it would not sign off on the FY10 accounts of 1MDB, unless it was provided with certain documents on the US$1 billion joint venture with PetroSaudi International.

The Auditor-General’s Report also stated that on Dec 31, 2013, KPMG Malaysia’s contract was terminated and Deloitte Malaysia was appointed the auditor of 1MDB. According to the report, KPMG Malaysia wanted to qualify 1MDB’s accounts for FY13 unless it was provided with enough proof on the value of the investments in Bridge Global SPC via Brazen Sky Ltd.

Deloitte Malaysia then announced its resignation in July 2016, following a US Department of Justice (DoJ) complaint alleging an international scheme to siphon more than US$3.5 billion from 1MDB.

In a statement dated July 2016, Deloitte Malaysia said the DoJ’s complaint contained information that “would have impacted the financial statements and affected the audit reports” for FY13 and FY14, had the information been provided to the auditor at the time of auditing.

Deloitte notified 1MDB of its intention to resign in February 2016.

Having appointed three of the “Big Four” international accounting firms in Malaysia, 1MDB then resorted to appointing UK-based Parker Randall International as its auditor in January last year, to replace Deloitte.

PricewaterhouseCoopers Malaysia, the only “Big Four” audit firm not appointed by the previous 1MDB board, was hired by the government last month to conduct a special position audit on 1MDB.