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| KPMG cleared by watchdog in HBOS audit investigation | KPMG cleared by watchdog in HBOS audit investigation |
| (12 days later) | |
| KPMG has been cleared of any wrongdoing over its auditing of HBOS, which was rescued by Lloyds during the height of the 2008 crisis, after accounting regulators concluded the accountancy firm could not have foreseen the bank’s problems. | KPMG has been cleared of any wrongdoing over its auditing of HBOS, which was rescued by Lloyds during the height of the 2008 crisis, after accounting regulators concluded the accountancy firm could not have foreseen the bank’s problems. |
| The accountancy regulator, the Financial Reporting Council (FRC), announced that it had closed an investigation into KPMG which was sparked by pressure from MPs on the Treasury select committee in 2015. | The accountancy regulator, the Financial Reporting Council (FRC), announced that it had closed an investigation into KPMG which was sparked by pressure from MPs on the Treasury select committee in 2015. |
| The FRC concluded “there was not a realistic prospect that a tribunal would make an adverse finding against KPMG in respect of the matters within the scope of the investigation”. KMPG said it was pleased with the findings. | The FRC concluded “there was not a realistic prospect that a tribunal would make an adverse finding against KPMG in respect of the matters within the scope of the investigation”. KMPG said it was pleased with the findings. |
| “The firm’s work did not fall significantly short of the standards reasonably to be expected of the audit, the test that a tribunal would apply,” the FRC said. | “The firm’s work did not fall significantly short of the standards reasonably to be expected of the audit, the test that a tribunal would apply,” the FRC said. |
| The investigation was into the 2007 accounts of HBOS and looked at the description of the bank as a “going concern”. The accounts were published in February 2008 – barely six months before it was taken over by Lloyds in the panic that followed the collapse of Lehman Brothers in September 2008. | The investigation was into the 2007 accounts of HBOS and looked at the description of the bank as a “going concern”. The accounts were published in February 2008 – barely six months before it was taken over by Lloyds in the panic that followed the collapse of Lehman Brothers in September 2008. |
| The extreme funding conditions that arose in October 2008 were not anticipated, the FRC said. | The extreme funding conditions that arose in October 2008 were not anticipated, the FRC said. |
| “HBOS did not expect market conditions to worsen and judged that it would be able to fund itself. The auditor considered and accepted this conclusion. HBOS published its audited financial statements in February 2008 on that basis. The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time,” the FRC said. | “HBOS did not expect market conditions to worsen and judged that it would be able to fund itself. The auditor considered and accepted this conclusion. HBOS published its audited financial statements in February 2008 on that basis. The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time,” the FRC said. |
| The collapse of HBOS and problems at other banks sparked scrutiny of the audit profession and the FRC said that next month it would publish a report on how auditing had changed since the crisis. | The collapse of HBOS and problems at other banks sparked scrutiny of the audit profession and the FRC said that next month it would publish a report on how auditing had changed since the crisis. |
| MPs had called for the regulator to investigate after the publication in November of the formal investigation into what went wrong at HBOS. That also sparked an investigation into the individuals at the bank at the time, and those investigations are thought to be continuing. | MPs had called for the regulator to investigate after the publication in November of the formal investigation into what went wrong at HBOS. That also sparked an investigation into the individuals at the bank at the time, and those investigations are thought to be continuing. |
| KPMG said: “We have always maintained that our audit was robust and undertaken in accordance with the regulations and practice of the time.” | KPMG said: “We have always maintained that our audit was robust and undertaken in accordance with the regulations and practice of the time.” |
| It added: “The collapse of HBOS and other examples of corporate failure and fraud in the last decade have highlighted a gap between what society expects of an audit and what an audit has been designed to do. Since 2008, whilst we recognise that there is more to be done, we have worked hard to contribute positively to this debate and have explored ways to close the expectation gap, for example, by offering extended audit opinions which give a view on corporate risks.” | It added: “The collapse of HBOS and other examples of corporate failure and fraud in the last decade have highlighted a gap between what society expects of an audit and what an audit has been designed to do. Since 2008, whilst we recognise that there is more to be done, we have worked hard to contribute positively to this debate and have explored ways to close the expectation gap, for example, by offering extended audit opinions which give a view on corporate risks.” |