MPs are increasing the pressure on the Financial Reporting Council (FRC) to launch a serious investigation into KPMG’s audits of failed bank HBOS, which the accounting regulator has refused to do so far, as parliamentarians claim that it needs to act quickly in order to maintain its ‘public and professional credibility’ in the quality of UK audit
The regulator originally turned down a suggestion from the Bank of England that it should look at how KPMG audited the bank before its collapse in 2008.
Now Andrew Tyrie chair of the Treasury select committee has written a strongly worded letter to Stephen Haddrill, the FRC’s CEO, saying the regulator should reconsider the need for an investigation into both KPMG as the bank’s auditors and HBOS senior management.
Tyrie writes: ‘Were the FRC to remain of the view that an investigation was not justified, then its decision would, in turn, warrant detailed scrutiny.’
He said the committee expects a ‘thorough re-examination’ to be commenced immediately.
In November, the Treasury select committee issued its independent review into the failure of the HBOS Group which stated ‘the audit process was an important part of the story of HBOS’s failure’.
At the time, Tyrie said he would write to the FRC about the misjudgement made of the scale of impairments on the balance sheet, and about whether the auditors allowed themselves to be influenced by undue pressure from senior executives and the board of HBOS.
In his earlier letter, Tyrie stated that the FRC needed to ‘consider afresh their original conclusion that there were no grounds for an investigation of KPMG, relevant senior KPMG people, and relevant senior HBOS management in relation to the audits of HBOS’s financial statements for 2007 and 2008.
‘It is surprising that the FRC didn’t conclude - and a long time ago - that this work was needed, not least to provide greater public confidence about bank audits after the catastrophe of 2008.’
The FRC said in its response to Tyrie’s first letter when the select committee report was published: ‘Based on the findings from this review of the relevant audit work, the conduct committee of the FRC has concluded that there were not reasonable grounds to suspect there may have been misconduct as defined under the disciplinary scheme for members of the accounting profession.’
Neither the FRC nor KPMG has commented on the latest letter.
The letter to Stephen Haddrill at the FRC is available here
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