The Financial Reporting Council (FRC) has announced it is to launch a formal investigation into KPMG's audit work for the Co-operative Bank under the Accountancy Scheme.

In a statement the FRC said it will be looking at the preparation, approval and audit of the financial statements of the Co-operative Bank plc, up to and including the year ended 31 December 2012.

The FRC started an inquiry into the Co-operative Bank's accounts and KPMG's role as auditors in November last year.

At the time, the Co-operative Bank issued a prospectus informing shareholders about the FRC's actions saying that: 'These enquiries relate to the disclosure in the 2012 annual report and accounts of the bank's regulatory capital position. They also relate to the bank's loan impairment, impairment of its investment in its replacement banking IT platform, and to fair value disclosures.'

The bank's 2012 accounts stated that 'adequate capitalisation can be maintained at all times even under the most severe stress scenarios' and that the bank had a capital buffer which would allow it to ensure it met regulatory minimum requirements'.

However, in its November prospectus the Co-operative Bank described these statements as 'inaccurate', although the directors said they did not believe the 2012 accounts should be reissued as a result. They did, however, say the statements were 'misleading' if read in isolation, but said other disclosures elsewhere in the accounts gave a more balanced view.

The Prudential Regulation Authority (PRA) confirmed earlier this month it is undertaking an enforcement investigation into the Co-operative Bank.