Dubai Court Orders KPMG to Pay $231m over Abraaj Fund Audit

The Ruling

In a decision that sent shockwaves through the financial world, KPMG Lower Gulf has been ordered by a Dubai court to pay over $231 million to a group of investors who claim to have lost money due to poor auditing practices of the firm. The audit in question was on an infrastructure fund that was managed by Abraaj Group, which was a failed private equity company. The court found that KPMG had violated international auditing regulations by approving financial records of the fund. The ruling is a stark reminder of the importance of maintaining high standards in the auditing profession and ensuring that companies are held accountable for any failures.

KPMG’s Response

In response to the ruling, KPMG Lower Gulf has appealed against the decision to a higher court. The company believes that it has strong grounds to contest the decision and that it remains dedicated to serving its clients and communities in the Lower Gulf. This is a bold move by the company, which is clearly not willing to take the court’s decision lying down.

Background

To fully understand the implications of this ruling, it is important to look at the background of the Abraaj Group. The company was founded in 2002 and claimed to manage around $14 billion in assets at its peak. It was the largest private equity company in the Middle East and a significant investor in emerging markets around the world. However, it was forced into liquidation in 2018 after an audit was conducted on its $1 billion healthcare fund, which alleged mismanagement of money. This raised serious questions about the company’s governance and led to a loss of confidence among investors.

KPMG’s Relationship with Abraaj

KPMG considered the Abraaj Group to be one of its most valued clients, classifying it as a “global priority” client and referring to it as “one of our crown jewel clients” when discussing it with other KPMG member firms. However, the Dubai Financial Services Authority (DFSA) found that “senior management of Abraaj intentionally sought to mislead or deceive KPMG, the regulator, and investors over a period of years.” This is a stunning revelation and raises serious questions about the relationship between KPMG and Abraaj.

DFSA’s Decision

Last year, the DFSA fined KPMG LLP $1.5 million and former audit principal Milind Navalkar $500,000 for failing to follow international standards during audits of Abraaj Capital Limited (ACLD), an Abraaj Group entity, for several years up to October 2017. In its decision, the DFSA said that had KPMG performed its audit of ACLD to the expected standard, it would have identified that for more than five years, ACLD’s financial statements did not conform to accounting rules and that the unit had failed to maintain adequate capital resources while concealing the true state of its finances from the audit firm. This is a damning indictment of KPMG’s audit practices and raises serious questions about the company’s commitment to upholding high standards in the auditing profession.

Conclusion

In conclusion, the recent court ruling against KPMG is a stark reminder of the importance of maintaining high standards in the auditing profession. The company’s reputation has taken a hit due to its involvement with Abraaj, and this recent court ruling only adds to its troubles. The company will need to wait for the outcome of its appeal to see whether it will be required to pay the full amount to the investors.