Reports published by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) last year saw most of the blame for HBOS’s failure placed on senior figures at the bank. The report recommended that a number of former employees should face a ban from working in the financial services sector.
KPMG worked as HBOS’s auditor in the run up to the 2008 financial crisis, and was criticised for signing off risky loan books in the years leading up to the bank’s collapse.
However, the FRC had previously turned down the opportunity to launch an investigation into the audit conducted by KPMG.
In a letter sent to the council in December, chairman of the Treasury Select Committee Andrew Tyrie MP urged the accounting regulator to revisit whether an investigation should be carried out.
Now the FRC has confirmed it will look into whether KPMG properly considered HBOS’s financial stability in the run up to its collapse and the disclosure of this in its financial statements.
The FRC’s findings, which will be carried out by its executive counsel, will determine whether KPMG or any member of the firm are liable to investigation.
Commenting on the announcement, Tyrie said the decision was ‘not before time’.
“A great deal depends on the quality of audited accounts. They were found wanting during the financial crisis. It is essential that everybody fully understands why. That is why this investigation is so important. The committee will be keeping a close eye on it,” he added.
A spokesperson for KPMG said it supported a ‘thorough review’ of the accountancy profession.
“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 and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted.
“We 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.”