Arqaam Capital and Ernst & Young have settled allegations of flouting global accounting standards over valuations of art, agreeing to pay fines of US$50,000 (Dh183,650) each for failing to comply with International Financial Reporting Standards (IFRS).
The Financial Markets Tribunal, an independent arm of the Dubai Financial Services Authority, approved the settlement yesterday, requiring Arqaam to restate its accounts in 2009, as well as to pay for the costs incurred by the DFSA during its investigation and the FMT's costs.
Ernst & Young, a professional services company, was found to have broken International Standards of Accounting (ISA) when it audited Arqaam's finances for the same year.
Arqaam had been due to contest the allegations against it at a public hearing in Dubai yesterday. Instead, it and Ernst & Young gave their consent to orders made by the Tribunal.
"Arqaam has agreed to a minor restatement of its 2009 accounts (and its notes to its 2010 accounts) to account for the artworks, as recommended by the global head of IFRS at Deloitte, an expert witness engaged by Arqaam to opine on this matter," Arqaam said.
"The agreed restatement confirms that there was no misstatement of Arqaam's income or losses and will not affect subsequent years."
The DFSA, the regulator within the Dubai International Financial Centre (DIFC), said the ruling was a reminder of its commitment to maintaining international standards within the free zone.
"Where authorised firms and auditors are in breach of DFSA legislation, in this case by not meeting accounting or audit standards, the DFSA will hold such firms to account," said Ian Johnston, the chief executive of DFSA, announcing the ruling. "It is important that the financial statements of financial services firms are clear and do not have the potential to mislead."
Arqaam had denied any wrongdoing in the affair, as did its auditor, Ernst & Young. For its part, the DFSA said there had not been any dishonesty by either group.
Details of the case date back to 2007 when Arqaam asked the artist Farhad Moshiri to paint eight works for a total of $200,000. Two years later, they were valued at $2.45m by Artspace, a Dubai art gallery.
Arqaam asked Ernst & Young about how to reflect the increase in its accounts.
In September 2009, Arqaam entered into two agreements with Alissar, a Syrian company.
In the first deal, dated July 29, 2009, Arqam sold the works to Alissar for $2.45m. In the second, dated the next day, the investment bank bought the paintings back for the same price.
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