KPMG is probed for HBOS failure
ACCOUNTING giant KPMG is to face a disciplinary probe over its handling of Halifax Bank of Scotland accounts.
In a victory for the Mail, industry watchdog the Financial Reporting Council (FRC) is to begin a preliminary investigation into how KPMG gave HBOS a clean bill of health before the financial crisis.
HBOS was rescued in a Government-engineered takeover by Lloyds Bank at the peak of the financial crisis in 2008.
It is the role of the FRC to maintain standards and ensure the quality of auditing in the UK. City & Finance has campaigned for KPMG to face scrutiny for its role in the scandal.
KPMG has already been probed for the collapse of HBOS by the FRC, but it had never faced a disciplinary procedure before.
Last year long-awaited Bank of England and Financial Conduct Authority reports were published. In them, barrister Andrew Green lambasted the decision by regulators to punish just one former executive – Peter Cummings.
The FRC was criticised by Andrew Tyrie, chairman of the Treasury Select Committee. He said it had made a serious mistake in refusing to open a formal investigation into KPMG.
‘A great deal depends on the quality of audited accounts,’ he had said. ‘They were found wanting during the financial crisis. It is essential that everybody fully understands why. That is why this investigation is so important.’
The FRC has said it had been waiting for the publication of two explosive reports before deciding on what steps to take. It is reviewing the regulators’ final reports to see if there is new information.
yesterday, it said it had asked its executive counsel to undertake preliminary enquiries under its disciplinary scheme into how KPMG and its staff audited the books of HBOS before its nearcollapse. The FRC said: ‘It’s not a U-turn. We have said consistently since 2013 that we would need to see the full report on HBOS’ failure to see if there was fresh information that would enable us to undertake disciplinary action.
‘We are doing what we said we would do all along. The HBOS report in November indicated concerns about HBOS’ going concern assumptions, which need to be looked into. We are doing that.’
The FRC would not give a timetable for its second probe. ‘The timescale will be affected by the degree of co-operation we receive,’ it said.
If it manages to build a case for misconduct it would be heard by an independent tribunal which could levy unlimited fines. In 2008 KPMG sounded some alarms, but the question will be whether they were followed through with sufficient vigour.
KPMG made it explicit that bad debt figures proposed by HBOS management were not acceptable, and insisted on a further £1.9bn being added. It also found 85 weaknesses in the lenders’ controls.
But by November 2008, the situation was so dire the auditors realised the processes for assessing bad debts ‘could no longer be relied on’ – a way of saying the accounts were possibly not worth the paper they were printed on.
A KPMG spokesman said: ‘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.’