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KPMG faces FRC probe into Co-op audit

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21st Jan 2014
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The Financial Reporting Council (FRC) has opened an investigation into the “preparation, approval and audit” of the Co-operative Bank’s financial statements up to and including the year ended 31 December 2012.

The likelihood of such an investigation has been on the cards since October, when MPs on the Commons Treasury select committee discussed the Big Four firm’s audit of the Co-op with Barry Tootell, the former CFO and then chief executive of the Co-operative Banking Group.

The FRC has now gone public with its intention to investigation KPMG under the Accountancy Scheme.

The auditor put out an official statement saying it would co-operate fully with the probe. “Given the issues which the bank has experienced in recent months and in the light of the high media profile and public interest associated with these issues, it is understandable that there should be appropriate regulatory scrutiny. Reviews by the Treasury Select Committee, the Financial Conduct Authority and the Prudential Regulation Authority  are either underway or have been announced, and it is to be expected that this scrutiny should extend to the audit whilst recognising that the auditor is independent of the events which gave rise to the issues experienced by the bank,” the firm said. 

“As auditor to the bank we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgements and disclosures proposed by the bank’s management.”

 The FRC investigation will be carried out by an executive counsel and professional discipline team within the Conduct Division. If disciplinary proceedings do follow, the executive counsel will submit a complaint to the Conduct Committee, which will convene a disciplinary tribunal.

This process is not unlike previous mechanisms such as the joint disciplinary scheme (JDS) and can take some time to reach a conclusion. The FRC’s previous ruling, delivered in December, hit EY with a reprimand, a £750,000 fine and £425,000 costs for its failings in relation to the 2005 financial statements of the retail savings company Farepak.

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