KPMG cleared over audit of HBOS accounts
● ‘No realistic prospect’ a tribunal would make adverse regulatory finding – FRC
KPMG has been cleared by the accounting watchdog over its auditing of HBOS in the run-up to the lender’s near collapse in the 2008 financial crisis.
The Financial Reporting Council (FRC) said it had closed the investigation into KPMG’S handling of HBOS’S accounts, concluding that KPMG’S work did not fall short of standards.
The FRC said: “There is not a realistic prospect that a tribunal would make an adverse finding against KPMG in respect of..the investigation.”
Accountancy giant KPMG has been given a clean bill of health by the industry regulator over its auditing of HBOS in the run-up to the bank’s nearcollapse in the financial crash.
The Financial Reporting Council (FRC) said yesterday it had closed its investigation into the handling of HBOS’S accounts, saying there were no grounds for further action.
“There is not a realistic prospect that a tribunal would make an adverse finding against KPMG in respect of the matters within the scope of the investigation,” the FRC said.
“The firm’s work did not fall significantly short of the standards reasonably to be expected of the audit, the test that a tribunal would apply.”
It will come as a relief to KPMG, which has also been drawn recently into a scandal in South Africa over its work with the politically connected Gupta family.
The accountancy
firm launched a probe 15 months ago into its auditing of the 2007 accounts of HBOS, amid concerns over whether the accountancy firm had properly examined if the bank was a going concern.
HBOS, formed from the merger of Halifax and Bank of Scotland in 2001, had forecast that it would be able to fund itself in 2008 and did not expect wholesale financial market conditions to worsen as they did, according to the FRC.
The regulator said KPMG “considered and accepted this conclusion” and the bank published its accounts in February 2008 on that basis.
It added: “The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time.
“The extreme funding conditions which arose in October 2008 were not anticipated.” There were warning signs when a £4 billion rights issue launched by HBOS in July 2008 flopped as 92 per cent of the shares were left with the underwriters. HBOS was subsequently taken over by Lloyds TSB in the financial crisis that autumn after expanding too quickly with risky lending and management failures, and shortly afterwards Lloyds had to be bailed out with £20.5bn of taxpayer cash.
Nicky Morgan MP, chair of the Treasury committee, said yesterday that the former Financial Services Authority (FSA) had warned HBOS was “an accident waiting to happen”, and the Parliamentary Commission on Banking Standards said the bank’s corporate governance was a “model of self-delusion”.
Morgan added: “The FRC initially decided not to investigate KPMG’S audit of HBOS. The Treasury comittee concluded that ‘this was a serious mistake’.
“It was only after pressure from the committee that the FRC decided to investigate the role of auditors in the bank’s demise.
“When it publishes its detailed report next month, the committee will expect the FRC to provide a full explanation of its decision not to take further action against KPMG.”