KPMG Audit plc’s audit of HBOS plc

04/16

The Financial Reporting Council’s (FRC) Conduct Committee has reviewed the full report from the PRA and FCA into the failure of HBOS plc. and has asked the FRC’s Executive Counsel to undertake preliminary enquiries under the Accountancy Scheme, the disciplinary scheme for Members and Member Firms of the accounting profession where matters involve important issues affecting the public interest in the UK.

These will focus on the extent to which KPMG Audit plc (KPMG), during the course of their audit:

• considered the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements for the year ended 31 December 2007, and

• considered whether there were material uncertainties about the entity’s ability to continue as a going concern that HBOS needed to disclose in the financial statements.

The Executive Counsel will present his findings to the Conduct Committee which will then decide whether KPMG or any Member are liable to investigation.
 
Notes to editors:

1.  The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

2.  In relation to disciplinary matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:

• Preliminary enquiries
• Decision to investigate
• Investigation
• Decision whether to bring disciplinary proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
• Tribunal hearing
• Determination and imposition of sanction and/or costs orders

 
The FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.
 
The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.

Investigations are conducted by Executive Counsel and the Professional Discipline team within the Conduct Division.