Dubai FSA imposes its largest ever fine on an auditor

The Dubai Financial Services Authority (DFSA) has imposed fines of $1.5m (AED5.5m) on KPMG LLP and $500,000 (AED1.8m) on Milind Navalkar a former KPMG LLP audit partner and DFSA registered audit principal.

In a statement on 3 November, the DFSA said this was the largest fine it had ever imposed on an auditor.

The DFSA had published its decisions relating to KPMG LLP and Mr Navalkar in October 2022. Both KPMG LLP and Mr Navalkar referred the DFSA's decisions for review by the Financial Markets Tribunal (FMT), an independent appeal tribunal.

But KPMG LLP and Mr Navalkar have since withdrawn their FMT references and therefore will not contest the DFSA's findings in its decisions, the regulator said.

The DFSA imposed a fine of $15,275,925 on Abraaj Capital Limited (ACLD) 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. The other entities in the Abraaj Group were audited by other audit firms in the KPMG global network that operate outside of the DIFC.

As a DFSA Registered Auditor, KPMG LLP was required to follow international auditing standards when performing its audit of ACLD.

However, the DFSA found that KPMG LLP failed to perform some of the most basic audit procedures. 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 had failed to maintain adequate capital resources; and
ACLD was concealing the true state of its finances from KPMG LLP.

Ian Johnston, chief executive of the DFSA, said: "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. 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."

Navalkar was found by the 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.

Navalkar was also found to have failed to act with professional competence and due care, contrary to Principle 3 of the Principles for Audit Principals.

The DFSA further said It did not suggest that KPMG LLP or Navalkar committed any deliberate misconduct, nor that they were aware of the misconduct of ACLD. The DFSA accepted that ACLD deliberately misled KPMG LLP, and by extension Navalkar.