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KPMG audit of Co-op Bank in spotlight

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7th Nov 2013
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As the Co-operative Bank prepares to cut hundreds of jobs as part of a rescue plan, questions have been asked about the thoroughness of it's auditor, KPMG. 

KPMG said that it did some due diligence before the Co-op's troubled merger with Britannia Building Society, which was largely blamed for a £1.5bn capital shortfall at the bank. Earlier this week, the Co-operative Bank said it would cut about 15% of its branches. Hundreds of jobs are expected to be lost.

In a statement to AccountingWEB, KPMG said that its due diligence work "did not include a recommendation on the merits of the Britannia deal.”

A spokesperson for the profession's regulator, the Financial Reporting Council (FRC), said it could not comment on whether it would investigate KPMG's audit of the Co-op. 

KPMG also declined to comment, although AccountingWEB understands that the Big Four firm has not heard from the FRC about an investigation into the Co-op audit.

KPMG is already facing two investigations by the FRC. One is into whether the firm was independent when it audited Pendragon, a franchised car dealership operator, in 2010 and 2011. The other investigation is into whether KPMG had committed an ethical breach in relation to the non-timely disposal of a shareholding in a client entity.

KPMG's audit of the Co-op was discussed by MPs on the Treasury select committee last month when they questioned Barry Tootell, the former chief executive of the Co-operative Banking Group.

One MP on the committee asked Tootell whether with hindsight the advice from KPMG was a "little bit dodgy". Tootell did not criticise KPMG. He denied that it was over reliant on KPMG's judgement, saying only that there was extensive discussion about the wording of the statutory accounts (as there was each year) between the co-op board, its financial department internal auditors and KPMG.

Did the 2012 accounts give a accurate views of the Co-op bank's finances, the committee asked? Tootell tried to differentiate between the role of its 2012 accounts and the bank's prospects - namely, trying to plug a huge shortfall in capital.

Critics of current UK audit rules, including some MPs and audit experts, say that audits focus too much on the past financial year and not on future risks. The narrow focus is one reason why the Big Four firms failed to warn investors of bank failures in the financial crisis, it has also been argued.

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By ver1tate
09th Nov 2013 15:58

KPMG

Having worked with one of the big accountancy firms, I suspect that they all work to the same routine.

Day one; senior partners  and senior staff  descend on the premises.

Day two ; senior staff and a handful of junior staff attend.

Day three; one senior staff member and numerous juniors, including trainees attend.

This goes on for weeks until at last we revert to day one scenario.

Some weeks later, the client receives a fee note charging mainly senior staff rates,

Is it any wonder that errors are made? 

 

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By RKemsley
11th Nov 2013 14:10

Historical Records

The relationship between scope of an audit is a challenge to be discerned between auditing firm and client- I sense that there is a sense of 'best interest' on both parties, The auditors want to be paid and the client wants a clean bill of health. Audits are reviewing past transactions and do not project the effect of those transactions into the future. This is not the scope of an auditor. If we are to seek financial forecasting and cashflow reports, then we are looking at management accounting and investment advice which is a completely different set of skills and regulations to audits. It comes back to the business either way to evaluate the reports within the scope they have been written too. If there was a brave auditor out there that raised concerns, then I would either expect them to be silenced or be in an internal audit role.  The concern is how 'bad' information is released about a client as this can cuase huge damage to the client's business .

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By DMGbus
11th Nov 2013 14:34

Post Balance Sheet events

I thought that auditors were required to review post Balance Sheet events.

Some auditors might follow FRC21 or predecessor SSAP17.

Others might not.

Some auditors might be over sensitive to bringing potential issues to the shareholders attention in their audit report as it might upset the management / directors to whom they might consider that they are selling their signatures (the cosy relationship problem which might justify high pubic interest audits to be rotated more frequently) (or the conflict of interest problem that is invisible to some auditors/advisors).

Events after the Reporting Period

Events after the end of reporting period may be classified into two types:

Adjusting Events - Those events that provide further evidence about conditions that existed at the end of reporting period.Non-Adjusting Events - Those events that reflect conditions that arose after the end of reporting period.- See more at: http://accounting-simplified.com/standard/ias-10-events-after-the-report...

 

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