The DFSA found that audit of Abraaj Capital Ltd. was handled only by KPMG llp. And Abraaj Capital was the sole Abraaj entity licensed to operate in DIFC. Image Credit: Shutterstock

Dubai: The DIFC regulator Dubai Financial Services Authority has imposed a fine of Dh5.50 million ($1.5 million) on the audit firm KPMG and another of Dh1.83 million on an ex-KPMG auditor, Milind Navalkar, for failures related to their work with Abraaj Capital.

The penalty is the highest ever imposed on auditor to date by DFSA.

The confirmation follows the withdrawal by KPMG and the individual for a review of the fines by the Financial Markets Tribunal. ”This action underscores the important role auditors play, as corporate gatekeepers, in enhancing investor confidence and maintaining the DIFC’s reputation as a global financial services hub,” said Ian Johnston, Chief Executive of DFSA.

It was last month that DFSA confirmed the strictures. There have been others related to former officials at the private equity firm Abraaj, including its founder Arif Naqvi.

The DFSA had imposed a fine of $15.27 million on Abraaj Capital Limited in July 2019. ACLD was the only Abraaj entity authorised by the DFSA and the only entity in the Abraaj Group audited by KPMG LLP.

“The fine imposed on KPMG LLP reflects that it was only responsible for the audit of ACLD,” said DFSA in a statement. “The other entities in the Abraaj Group were audited by other audit firms in the KPMG global network that operate outside of the DIFC.”

Missing out on 'basic procedures'

“The DFSA found that KPMG LLP failed to perform some of the most basic audit procedures,” the statement said. “Had KPMG LLP performed its audit of ACLD to the expected standard, it would have been reasonable to expect it to have identified that, for more than five years:

• ACLD’s financial statements did not conform to accounting rules;

• ACLD failed to maintain adequate capital resources; and

• ACLD was concealing the true state of its finances from KPMG LLP.

KPMG LLP’s practices and Mr Navalkar’s professional competence fell far below the standard expected, which allowed ACLD to conceal its practice of window dressing for many years

- Ian Johnston, Chief Executive of DFSA

'Involved in failures'

As for Navalkar, he was found by DFSA to be ‘involved in the failures committed by KPMG LLP, as he had overall responsibility for the conduct of the audits and reviews of ACLD'. In particular, Navalkar:

• Signed off audit reports without ensuring adequate audit procedures had been performed to enable an opinion to be formed on whether ACLD’s financial statements represented a true and fair view of the condition and the state of affairs of the firm; and

• Failed to ensure the audits of ACLD’s financial statements were conducted in accordance with accounting rules