Dubai court orders KPMG to pay $231mn for Abraaj fund audit failure
Dubai, April 15 2023
Group of investors had sued saying they lost money because of poor-quality audit work
A court in Dubai has ordered KPMG Lower Gulf to pay more than $231mn to a group of investors who claim they lost money because of poor-quality audit work by the firm on a fund they were invested in.
The judgment, issued late last month, found that the Big Four firm breached international auditing standards by approving the financial statements of an infrastructure fund managed by collapsed private equity firm Abraaj Group.
The award is one of the largest ever against an accounting firm and exceeds KPMG Lower Gulf’s revenues of $210mn in its most recent financial year.
An official translation of the court ruling said: “The court has concluded from the papers, documents and the report of the appointed expert committee that it is confident that the auditing company had committed many violations when it audited the financial statements of the investment fund.”
KPMG Lower Gulf said in a statement that it believed it had strong grounds to appeal and had taken the case to the court of cassation, or supreme court.
KPMG has not disclosed whether the award would be covered by insurance or if its international network would step in to help with the costs.
KPMG Lower Gulf’s operations were already in the spotlight after allegations of nepotism and cronyism led to the resignation of its former head last October. KPMG and a former partner were also fined $2mn last year by Dubai’s financial regulator for their role in auditing funds run by Abraaj, a one-time emerging market investment pioneer that went bankrupt in 2018.
The judgment highlights the costs and scrutiny facing the Big Four accountancy firms — which also include Deloitte, EY and PwC — after a series of scandals related to audit work for clients that subsequently failed.
In February, KPMG’s UK business settled a £1.3bn claim by liquidators in relation to its audit work for collapsed government contractor Carillion, for an undisclosed sum.
EY was this month fined €500,000 and banned from taking on new listed audit clients in Germany over failures in its work for scandal-hit former payments company Wirecard. EY also faces lawsuits related to its audits of Wirecard and collapsed hospital company NMC Health.
The KPMG Lower Gulf award adds to the challenges facing new chief executive Emilio Pera, who took office in January just after Abu Dhabi’s regulator of government entities and state-related companies blocked the firm from new audit contracts.
The payout was awarded after a long court battle between investors in the Abraaj fund and KPMG.
Investors alleged that KPMG’s failure to properly audit the fund caused them to lose significant sums of money on investments the fund made in Saudi healthcare company Tadawi and Middle East airline Air Arabia, according to the translated court ruling.
KPMG Lower Gulf said in its statement that the Dubai Financial Services Authority “has found that senior management of Abraaj intentionally sought to mislead or deceive KPMG, the regulator, and investors over a period of years”.
When the DFSA imposed its $2mn fine last year it said that an audit of the “expected standard” would have discovered that Abraaj had broken accounting rules and failed to maintain adequate capital.
[The Financial Times]
