Accountancy watchdog not barking up the wrong tree
Comment Martin Flanagan
Critics of the accountancy industry and its regulation are often frustrated at what they see as its “After you, Claude” old-boy-network style.
So the measured mea culpa from the sector’s watchdog on its investigation into KPMG’S audit of the stricken HBOS’S accounts just seven months before the bank was rescued by rival Lloyds in the financial crisis is welcome.
Even more welcome is the watchdog, the Financial Reporting Council (FRC), writing to the chair of the Treasury select committee asking for parliament’s help in toughening up the rules so that it is easier to take action against accountants who are members of professional bodies for breaches of relevant rules.
If it ushers in higher standards among auditors and greater candour at their regulator it will have performed a real service and at least some good may have come out of the whitewater ride that was Lloyds’ takeover of HBOS and their subsequent taxpayer bailout.
Not that the FRC has changed its mind on its fundamental earlier finding that KPMG’S audit of the embattled HBOS did not fall significantly short on reasonably expected standards.
But Stephen Hadrill, the FRC chief executive, admits in his letter to Nicky Morgan at the Treasury select committee that the regulator could have move quicker in its initial investigation into KPMG and HBOS, and not just allowed other regulators first dibs on the affair.
As a result, the FRC had looked at best dilatory and reactive rather than proactive, and at worst complacent and unquestioning.
From yesterday’s report issued by the regulator it looks as if it has taken the criticism on board.
Following a reform last year, the FRC can pursue accountants doing auditing work for breaches of relevant rules. That presents a lower and more realistic hurdle than the previous test of having to show misconduct.
The old test remains, however, when it comes to probing accountants working for companies like HBOS who prepared the accounts for external auditing.
If this loophole could be closed, it would benefit everyone the whole industry. Meanwhile, the FRC is to be congratulated for embracing transparency about its own work as well.