The UK Parliamentary Treasury Committee has released their final report regarding the failure of British bank HBOS, in which the Financial Reporting Council (FRC) is criticised for its alleged “lack of diligence and curiosity” investigating KPMG’s audit work of the bank.
The report states that the FRC’s decision not to investigate the audits of HBOS in 2013, well before the completion of the final HBOS report was a “serious mistake.”
Furthermore, the report stated that the process by which the FRC reached its decision suggests “a lack of curiosity and diligence.”
“These failures are all the more concerning given the scale of the problems at HBOS, and the clear public interest at stake,” added the report.
The committee also criticised the FRC’s slow approach to the issue, and stated that the accounting regulator “belatedly reconsidered its position”, only after considerable pressure from Parliament.
The committee therefore expects the FRC to undertake an extremely thorough analysis of the HBOS case as the auditing of the bank is the “one major element” in a case that is “still yet to be subject to adequate scrutiny.”
The final report also revealed that the committee will consider the regulatory approach of the FRC in more detail “regardless of the outcome of the FRC’s investigation process” adding that the extremely “tardy response by the FRC appears to be as inexplicable as it is unacceptable.”
In a review of the events leading up to the investigation, the report stated that the FRC first looked at the HBOS case in 2013 and at that time it found no “reasonable grounds” to suspect any misconduct in KPMG’s auditing of HBOS.
The FRC committed however to reviewing the full HBOS report once published, in case of further information being revealed.
In November 2015, following the publication of the final report by the PRA/FCA [Financial Conduct Authority and Prudential Regulation Authority] the FRC indicated that it would check again to see if the report contained any new evidence to warrant an investigation.
The Treasury Committee wrote to the FRC to urge it to reconsider the need for an investigation, given the significant public interest in HBOS.
The concern over the FRC’s decision to announce it would not be investigating the HBOS case in 2013 was also raised by the UK financial regulators.
In June 2016, the FRC subsequently announced that it had commenced an investigation into KPMG’s audit of HBOS for the year ended 31 December 2007.
Comment: The Financial Reporting Council has failed and needs to be replaced
Accounting experts: FRC’s reply to Treasury Committee on KPMG’s HBOS audit enquiries shows “shocking inertia”
FRC preliminary inquiries of KPMG’s audit of HBOS – Timeline
FRC, KPMG’s audit of HBOS – Timeline (chart)