In a statement issued yesterday 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.
The purpose of the this preliminary investigation according to Gareth Rees, FRC’s Head of Enforcement, is to 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. It will seek find out whether the Big Four firm needed to disclose concerns about the bank’s continued sustainability in the financial statements.
The findings will be presented to the FRC’s conduct committee, whose members will then determine whether KPMG are liable for further investigation.
Should the Conduct Committee opt for a full inquiry, both KPMG and the accountants who worked on the HBOS statements could be held accountable and face punishment.
In their report issued last November, the PRA and FCA acknowledged that “ KPMG provided robust challenge and delivered clear warnings to HBOS which resulted in a more prudent approach to provisioning than would otherwise have been adopted”.
In February 2008, HBOS asked shareholders for £4bn to boost its finances before being rescued by a government-backed Lloyds in September. The Lloyds-HBOS bank nearly collapsed before being bailed out by the government the following month to the tune of circa £20n.
KPMG will co-operate…
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”.