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MPs call for HBOS audit investigation

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26th Nov 2015
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KPMG has been cleared over its role as auditor of HBOS in the years before the bank collapsed, but MPs have called for a new investigation into the Big Four firm’s role.

The Bank of England/Financial Conduct Authority (FCA) report into the 2008 collapse of HBOS blamed the bank’s board, senior management and its regulators.

The report, written by QC Andrew Green, said it was not in its remit to “opine” on the quality of KPMG’s audit, including the firm’s scrutiny of the deteriorating loan book and whether any of its warnings about the financial position of HBOS were good enough.

The Financial Reporting Council (FRC) has said that the auditor will not be investigated.

But Andrew Tyrie, an MP and chairman of the Treasury select committee, said it was clear from the Bank of England/FCA report and a previous parliamentary report, that the HBOS audit was an important part in its failure.

Tyrie said that the FRC would “need to consider afresh” its original conclusion that there were no grounds for an investigation into KPMG’s audit.

He said that the latest report was “better late than never” but he criticised the FSA [the regulator at the time] for its response to HBOS’s collapse.

The Bank of England/FCA report said: “[The HBOS board and senior management] failed to set an appropriate strategy for the firm’s business and failed to challenge a flawed business model which placed inappropriate reliance on continuous growth without due regard to risks involved. In addition, flaws in the FSA’s supervisory approach meant it did not appreciate the full extent of the risks HBOS was running and was not in a position to intervene before it was too late.”

KPMG said in a statement: “It was clearly right that a thorough review was undertaken and we have co-operated with it throughout. We are pleased that the PRA and FCA’s report has recognised that KPMG provided robust challenge and delivered clear warnings to HBOS and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted. We also welcome the FRC’s announcement today that it has reviewed the audit work performed on loan loss provisions and concluded that there were not reasonable grounds to suspect misconduct by KPMG.

“The financial crisis put a spotlight on bank audits and we have worked hard to ensure our audits are of the highest standards. This was recognised in the FRC’s Annual Quality Inspection Report on KPMG in May 2015, which noted that we had made significant improvements on our audit work on loan loss provisioning.”

The FRC said that it had reviewed HBOS’s audit work on “loan loss provisions” in HBOS’s corporate division and concluded that there were “no reasonable grounds to suspect that there may have been misconduct”.

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