Economy

KPMG is cleared over HBOS audit

The head of the Treasury select committee has demanded a "full explanation" from the accounting watchdog for its decision to drop an investigation into KPMG's role as auditor of HBOS.

The Financial Reporting Council (FRC) has closed an investigation into KPMG's audit of HBOS plc, concluding that the firm "did not fall significantly short of the standards reasonably to be expected of the audit".

A spokesperson for KPMG said the firm was "pleased" with the conclusion of the investigation.

The bank was taken over by Lloyds in late 2008 to prevent its collapse.

The accounting watchdog said it had considered the "appropriateness" of KPMG's use of the going concern assumption in the preparation of its financial statements in 2007, as well as whether there were any material uncertainties.

The FRC had previously reviewed KPMG's audit work on HBOS's loan-loss provisions within the corporate division, and said it had not found reasonable grounds to suspect misconduct.

KPMG "considered and accepted this conclusion" and HBOS published its accounts in February 2008 on that basis, the FRC said.

The evidence of market conditions at that time did not show [its] decision of HBOS or the auditor's assessment of it to be unreasonable at the time.

The FRC's investigation into KPMG's work for HBOS began in late 2015, following calls from a whistleblower who lost his job at the United Kingdom bank after raising the alarm about its lending practices in 2004. It will publish a wider report on audit and corporate reporting developments since the financial crisis, including bank audits, in October. That also sparked an investigation into the individuals at the bank at the time, and those investigations are thought to be continuing.

"We have always maintained that our audit was robust and undertaken in accordance with the regulations and practice of the time", the accountancy firm was reported as saying by the Guardian newspaper.

Quite so. But it does make you wonder, if a putative rigorous audit could not result in HBOS being called out before its collapse how many more less egregious examples are out there of superficial audits that fail, even in good faith, to locate the smoking gun.



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