FRC to re-examine KPMG HBOS audit

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The Financial Reporting Council (FRC) has announced that it will undertake a preliminary investigation into KPMG’s auditing of banking giant HBOS before its collapse in 2008.

In a statement issued today the FRC said that Gareth Rees, the accounting regulator’s head of enforcement, will examine whether KPMG was guilty of misconduct after signing off HBOS’s books for 2007.

The investigation will focus on KPMG’s use of the going concern assumption for HBOS’s 2007 accounts, and whether the Big Four firm needed to disclose concerns about the bank’s continued sustainability in the financial statements.

Once Rees concludes his investigation, he will present his findings to the FRC’s conduct committee, which will then decide if KPMG are liable for further investigation.

Should the investigation lead to a full inquiry, both KPMG and the individual accountants who worked on the HBOS statements could face punishment.

The announcement represents a change of heart for the accounting watchdog, who had previously examined the bad debt provisions at HBOS and chosen not to initiate a full investigation. However, the FRC has recently come under pressure from MPs and business leaders to reconsider.

After receiving a clean bill of health in February 2008, HBOS asked shareholders for £4bn to bolster its finances in April before being rescued by a government-backed Lloyds in September. The Lloyds-HBOS bank then went on to almost collapse before being bailed out the following month by the government to the tune of around £20bn.

‘Not before time’

Commenting on the watchdog’s decision, Chairman of the Treasury Committee Andrew Tyrie said: “This is not before time. A great deal depends on the quality of audited accounts. 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 committee will be keeping a close eye on it.”

Although KPMG was cleared over its role as auditor of HBOS in the years before the bank’s near collapse, Tyrie had previously called into question the FRC’s refusal to investigate KPMG’s audit, stating that reviews like this were “essential” to prevent billions of pounds’ worth of taxpayers money being used in bail-outs for financial failures.

Following the announcement a KPMG spokesperson said they 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”.

“We were pleased that the PRA and FCA's report issued last November recognised that KPMG provided robust challenge and delivered clear warnings to HBOS”, continued the statement, “and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted”.

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By redboam
21st Jan 2016 16:56

‘Not before time’

Andrew Tyrie is right on the money here and not just with respect to HBOS.

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21st Jan 2016 20:43

Punishment
Can't really see any auditors being banged up for this, so even if they eventually find KPMG responsible what sort of punishment is going to make a difference?

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By Phil Yaboots
22nd Jan 2016 11:27

Absolutely correct

 

Just so and, guess what, it'll happen again - and again ....

thegreatgrumbleduke wrote:
Can't really see any auditors being banged up for this, so even if they eventually find KPMG responsible what sort of punishment is going to make a difference?
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By DMGbus
22nd Jan 2016 08:27

Whistleblower should give evidence

According to wikipedia..

" In November 2004 Moore was dismissed by HBOS. He claimed this was because he had told HBOS's board that the bank was taking excessive risks with its aggressive sales culture which was out of balance with its systems and controls. He passed his concerns about HBOS to the FSA, who had it investigated by KPMG, whose conclusion, that HBOS had appropriate risk controls in place, was accepted by the FSA.[1][2] Following his dismissal the bank replaced him with a retail sales manager."

source:

https://en.wikipedia.org/wiki/Paul_Moore_%28banking_manager%29

There was a risk that some auditors in times long gone past were "too close" to the management of the companies that they audited ... they might have mistakenly thought that they were working for management rather than for the shareholders.  

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22nd Jan 2016 11:55

Timeline

HSBC demise 2008, 8 years on, yes 8 years on,  someone is brave enough to query one of the Big fours due diligence, going concern concept and work done, or are they its only a preliminary investigation.  Yet again no one wants to rock the boat.

 

I am neutral  on this as I say its impossible to Audit a global bank, however dont no one or any organisation  query the quality of my work, and if you do please wait at least 8 years to start a 'preliminary investigation'. 

 

 

Extract above

The investigation will focus on KPMG’s use of the going concern assumption for HBOS’s 2007 accounts, and whether the Big Four firm needed to disclose concerns about the bank’s continued sustainability in the financial statements.

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22nd Jan 2016 12:21

True and Fair?

The real scandal where all of the big four are concerned is that if auditing the banks had been correctly undertaken, many of the problems that cost shareholders lost billions might have at least been mitigated if not prevented. 

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As they're investigating events before the FRC existed.

They might as well investigate the South Sea Bubble while they're at it.

Pointless waste of resources.

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22nd Jan 2016 17:49

Files no longer in existence ?

Do the Big Four still have a policy of destroying their audit files after signing off ?

Or perhaps the files will be lost in a huge underground archive ? 

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