The British Treasury Select Committee has upped political pressure on the UK Financial Reporting Council (FRC) over its probe into KPMG’s audit work for failed bank HBOS in the run-up to the 2008 financial crisis.
Last month the FRC confirmed plans to "undertake preliminary enquiries" under the Accountancy Scheme into the Big Four firm’s work for HBOS and consider whether signing the bank’s audit as a "going concern" was appropriate.
The British accounting regulator looked into investigating KPMG’s handling of HBOS audits in 2013 but did not go ahead with it. It has since overturned this denouement after considering the long-awaited Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) report (published in November 2015).
Of which, concerns relating to KPMG’s relationship with HBOS were revealed. Namely, that the auditor had raised issues of bad debt to management but the calls went unheeded. HBOS then collapsed in 2008 after Lloyds bought it, culminating in a tax payer funded bailout of £20.5bn (US$29.7bn).
The FRC has said the latest enquiry will focus on KPMG’s preparation of financial statements for year ending 31 December 2007 and management’s use of the going concern assumption alongside whether material uncertainties about HBOS’ health should have been disclosed in financial statements.
Treasury Select Committee chairman Andrew Tyrie responded the review is "long overdue" in a letter dated 3rd February to FRC chief executive Stephen Haddrill.
"Furthermore, the process by which the FRC has reached this decision, as well as the approach it plans for preliminary enquiries, raises a number of concerns," Tryie continued.
A spokesperson for KPMG told this magazine the ball is not in their park to respond to Tyrie’s latest letter but would reiterate that it: "consistently supports the regulatory process, as we believe a thorough review is in the interests of the audit profession, shareholders and society as a whole".
Tyrie also asks in his letter why the accounting regulator has chosen to focus on two particular auditing elements of KPMG rather than undertaking a broader review, and whether there is scope for the review to be broadened.
Moreover, he asks what provision would be made for independent and external oversight to underpin the FRC’s enquiries into HBOS and has requested a deadline for the FRC to report its findings.
The FRC has told this magazine a response will be issued to Andrew Tyrie shortly, and that’s it has to say at this stage.