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April 19, 2011

UK government body questions bank audits

The UK House of Commons Committee of Public Accounts has questioned the quality of audit and oversight prior to the downturn in their review of Lloyds Banking Group (Lloyds) and Royal Bank of Scotland (RBS).

The committee, set up in 2008 to support the banks and protect the tax payer, said that neither of the banks could prove their assets were not linked to fraud or criminality when they entered the Treasury’s Asset Protection Scheme in January 2009.

“We found this alarming. It places a question mark over the standards and practices of the banks themselves, and whether or not there was effective oversight by regulators and the banks’ own auditors,” Public Accounts Committee chair Margaret Hodge said.

The committee also said that the ‘gaps in information on the banks’ assets’ begs questions about the role played by the auditors of banks ahead of 2008, when the full impact of the financial crisis became apparent.

The Committee recommended that the Treasury and the Department for Business, Innovation and Skills should further discuss improving the audit framework to include the major professional audit and accountancy bodies.

“The Treasury should report back to us within a year on specific actions to ensure that professional audit standards and practices are up to the task of providing robust assurance on the internal control and governance of financial institutions, and on the valuation of assets,” the committee said.

In 2008 Deloitte signed off on RBS’s accounts and PwC did the same with Lloyds.

The Committee based its report on the evidence provided by HM Treasury, and separately from RBS and Lloyds.

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