FRC statement following PRA/FCA review of HBOS
19 November 2015
The Financial Reporting Council (FRC) has continued to liaise with the PRA/FCA review team in the course of its review of HBOS. As its work developed, the PRA/FCA requested that the FRC consider whether there are grounds to investigate KPMG in relation to their audits of HBOS for the financial years ended 31 December 2007 and 2008, and by extension any of HBOS’ senior management who are members of a professional body overseen by the FRC, under its disciplinary arrangements.
The FRC has carried out a review of the audit work performed on loan loss provisions in the Bank’s Corporate Division, in response to the concerns raised by the PRA/FCA, the Parliamentary Commission on Banking Standards and the public at large. The review primarily focussed on whether there are reasonable grounds to suspect that there may have been misconduct in the application of the relevant accounting and auditing standards at the time. Based on the findings from this review of the relevant audit work the Conduct Committee of the FRC has concluded that there were not reasonable grounds to suspect that there may have been misconduct as defined under the disciplinary scheme for members of the accounting profession. The FRC will review the full report to ascertain whether it contains any relevant new information.
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. Following concerns regarding the quality of auditing of banks and building societies since the financial crisis, the FRC has increased its focus on the quality of auditing of banks and building societies. In December 2014 the FRC published a thematic review into the audit of loan loss provisions and related IT controls in banks and building societies.
3. The FRC has initiated a number of investigations within the bank and building society sector. The FRC recently fined Grant Thornton UK LLP in relation to its audits of Manchester Building Society following concerns raised with the FRC by the PRA. The FRC investigations into the audit of Co-operative Bank, Cattles, and matters relating to audit procedures carried out on the safeguarding of client assets at BNY Mellon and Barclays are ongoing.