The Dubai Financial Services Authority (DFSA) has sanctioned penalties worth $2 million on Abraaj auditor KMPG LLP as well as former audit principal Milind Navalkar

The Dubai regulator said it had imposed financial penalties of $1.5 million on the firm and $500,000 on Navalkar for failing to follow applicable international auditing standards when performing audits of Abraaj Capital Limited (ACLD) for many years up to 2017.

The authority said that in its view, had the firm performed its audit of ACLD to the expected standard, it is likely it would have identified key issues.

The failings related to the auditing of the group include the failure of the company's financial statements to conform to accounting rules over a period of five years, the failure to maintain adequate resources, and the concealment of the true state of its finances.

The DFSA said it had made the decisions in June 2021 but has only been able to publish them more than 15 months later as both the firm and Navalkar sought an order from the Financial Markets Tribunal (FMT) preventing publication, which was rejected, then appealed, and then last month rejected once more by a DIFC court.

The DFSA said: “Mr Navalkar was KPMG LLP’s Audit Principal appointed to the audit of ACLD.  He was responsible for signing off the audit report for ACLD’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 DFSA imposed a financial penalty of $15.27 million on ACLD in July 2019 for failing to maintain adequate capital resources in breach of DFSA rules and for providing the DFSA and its auditor with false and misleading information relating to its capital resources, the authority said.  

“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,” the DFSA said.  

“The company 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,” the regulator said. 

ACLD was the only Abraaj entity authorised by the DFSA and the only entity in the Abraaj Group audited by KPMG LLP. 

The other entities in the Abraaj Group were audited by other audit firms in the KPMG global network that operate outside of the DIFC.

(Reporting by Imogen Lillywhite; editing by Seban Scaria)

imogen.lillywhite@lseg.com