THE FRC has confirmed plans to “undertake preliminary enquiries” into launching an investigation into KPMG’s work as auditors of HBOS prior to the bank’s collapse in 2008, overturning its earlier conclusion that it lacked sufficient grounds to suspect the auditor of misconduct.
In a statement, the accounting watchdog said it has asked its executive council to undertake preliminary enquiries into the KPMG’s work under its disciplinary scheme for members of the accounting profession.
The FRC said it will examine why KPMG afforded HBOS a ‘going concern’ status a year before the bank’s catastrophic failure and subsequent rescue by Lloyds TSB. The executive counsel will then present its findings to the FRC’s conduct committee “which will then decide whether KPMG or any member are liable to investigation”.
The apparent volte face comes after the FRC had previously concluded that there were not reasonable grounds to suspect KPMG of any misconduct following a review of audit work performed on the bank’s loan loss provisions.
That decision, made in response to the official inquiry into HBOS’s failure which found HBOS had “kept its auditors under pressure” in an attempt to keep the provisions for bad loans down, provoked vociferous criticism of the FRC, most notably from Andrew Tyrie, who chairs parliament’s powerful Treasury Select Committee,
At a hearing in December, the Conservative MP said he was “flabbergasted” that the FRC had failed to launch a formal investigation into KPMG’s work. At the same hearing, special adviser Ian Cornish, chairman of Shawbrook Bank, said the FRC’s decision not to ask for more documents from the Bank of England’s PRA and FCA for a discussion “struck us as quite shocking really – just a lack of curiosity, apart from anything else, given a situation of such obvious public interest”.
A KPMG spokesman, said: “We have consistently supported the regulatory process as we believe a thorough review is in the interests of the audit profession, shareholders and society as a whole. We were pleased that the PRA and FCA’s report issued last November recognised that KPMG provided robust challenge and delivered clear warnings to HBOS and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted.
“We will continue to co-operate with the FRC as it makes its preliminary enquiries. In the interests of everyone, it is now important that final conclusions are reached in a timely fashion.”
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