The move follows the select committee’s review at the end of last year of a report on the failure of HBOS. This exposed what chair, Andrew Tyrie MP, described as ‘the staggeringly poor quality of HBOS’ loan book’. 

Tyrie was highly critical of the FRC’s decision not to investigate the HBOS case in 2013 and the committee called for the audit watchdog to begin an assessment of the auditors’ actions.

In early February the FRC announced it had launched ‘preliminary enquiries’ into certain elements of the auditing of HBOS. At the time, Tyrie told the regulator ‘given the shocking delay in initiating this work, a less than thorough job would be inexcusable.’

Now Tyrie has made public an exchange of letters with the FRC’s chief executive, Stephen Haddrill, about the timing and conduct of this inquiry.

In them, Haddrill says the timing of the report will depend on the evidence the FRC finds, and the need to ensure the findings are ‘robust’, as they may be tested by an independent tribunal.

‘Nonetheless we would hope to be in a position to report our conclusions in the Spring,’ Haddrill writes.

Haddrill says the 2013 review was carried out under a supervisory inquiry as part of the Accountancy Scheme, which operated under different rules at that point.

True and fair under scrutiny

The review focused on loan loss provisions because of the evidence emerging at the time from the Financial Conduct Authority and the Parliamentary Commission on Banking Standards report on HBOS that this was an area of significant challenge to the preparation of true and fair financial statements.

He writes: ‘At that time the Scheme did not allow the FRC to use a preliminary enquiry as an initial investigative tool but it has subsequently been amended to do so. A supervisory inquiry is conducted with rigour but is not a process with formal information seeking powers. That said, KPMG voluntarily provided us access to the audit files we considered appropriate to our understanding of their work on loan loss provisions.’

Challenged by Tyrie to confirm the scope of the current investigation and any subsequent report, Haddrill has replied to confirm it will be wide ranging.

He writes: ‘We will publish a full report drawn from all of our work in relation to HBOS and bank auditing. This will include the findings from our supervisory inquiry in 2013; the conclusions from inspections of bank audits over many years including our thematic review of the audit of loan loss provisions; the work on going concern led for us by Lord Sharman; and our work on auditor scepticism.’

Commenting on the correspondence, Tyrie said: ‘The FRC’s decision to publish a report is overdue, but welcome. The role of the auditors – for years left unexamined - will now be subject to a measure of public scrutiny. And not before time.

‘The committee will persist with its effort to secure a thorough examination of the role of the auditors.’

KPMG has said a thorough review of the HBOS audit was in the interests of the audit profession, shareholders and society as a whole.

Details of the Treasury select committee HBOS correspondence are here

Essential reading

HBOS-KPMG: looking beyond the audit

Public and regulatory scrutiny is increasingly on auditors but perhaps it is time that the framework within which they operate shares the spotlight too, suggests Ross Dixon, partner at Hickman & Rose

KPMG: a case to answer over HBOS audits?

KPMG has been cleared seven years after HBOS’s failure but if the matter is reopened, the firm may still need to account for its audit work to regulators as the Treasury Select Committee calls for a wider FRC probe, reports Penny Sukhraj