DFSA announced the moves against KPMG LLP and an audit principal after getting favourable judgements from Financial Markets Tribunal. Image Credit: Supplied

Dubai: The Dubai regulator DFSA have recommended action against its registered auditor, KPMG LLP, and a former audit principal, Milind Navalkar, for failings related to the auditing of the Abraaj Group entity, Abraaj Capital ltd. (ACLD).

KPMG LLP has been hit with a $1.5 million fine while Navalkar gets a $500,000 penalty. 

KPMG LLP and Mr Navalkar have disputed the DFSA findings and 'applied for review of the decisions to the Financial Markets Tribunal (FMT). "The DFSA’s decisions are therefore provisional and reflect the DFSA’s belief as to what occurred and how it considers KPMG LLP’s and Mr Navalkar’s conduct should be characterised," the regulator said in a statement.

The DFSA’s decisions may be confirmed, varied or overturned as a result of the FMT’s review. (It was earlier this year that DFSA issued a hefty $135.56 million fine on Arif Naqvi, the Abraaj Group's founder.)

The DFSA’s decisions were issued in June 2021 - "however, the DFSA is only now able to publish information about the decisions as both KPMG LLP and Mr. Navalkar sought an order from the FMT preventing publication.

"The FMT refused both KPMG LLP’s and Mr Navalkar’s applications for privacy and both then appealed to the DIFC Court against that FMT decision."

A judgment was then issued by the DIFC Court on September 16 dismissing the appeals of KPMG LLP and Navalkar, which meant that FMT’s original decision to refuse the applications for privacy was upheld. The FMT’s decision refusing the privacy applications will be published on the FMT section of the DFSA’s website.

Milind Navalkar's role

Navalkar was KPMG LLP’s Audit Principal for Abraaj Capital. He was responsible for signing off the audit report for the company's financial statements and ensuring the audits and reviews of ACLD’s financial statements and DFSA Returns were carried out to the required standard.

"The DFSA found that Mr. Navalkar was knowingly concerned in KPMG LLP’s breaches and he also failed to act with professional competence and care," the regulator said.

Action against Abraaj Capital

* The DFSA imposed a penalty of $15.27 million on Abraaj Capital in July 2019 for failure to maintain adequate capital resources and in breach of DFSA rules. The fine was also for providing the DFSA and its auditor, KPMG LLP, with 'false and misleading information relating to its capital resources'.

* ACLD also omitted to provide its auditor with information relating to material transactions with other Abraaj Group entities and prepared financial statements which did not accurately represent ACLD’s financial position.

* ACLD was also knowingly concerned in unauthorised activities of its parent, Abraaj Investment Management Limited (AIML), which the DFSA also previously took action against in July 2019 by imposing a fine of $299.3 million.

$1.5m fine for KPMG LLP
The DFSA imposed a financial penalty of $1.5 million on KPMG LLP and $500,000 on Milind Navalkar for failure 'to follow applicable international auditing standards when performing audits of ACLD for a number of years up to October 2017'.

"In the DFSA’s view, had KPMG LLP performed its audit of ACLD to the expected standard, it is likely it would have identified that, for more than five years:

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

* ACLD had failed to maintain adequate capital resources; and

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