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KPMG faces a potential investigation following the UK Financial Reporting Council's (FRC’s) decision to undertake preliminary inquiries into the firm's auditing role in the case of the now-collapsed UK bank HBOS.
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KPMG in the crosshairs of audit investigation
25 January 2016
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The FRC announced via a statement that the body’s conduct committee has asked the FRC executive counsel to undertake preliminary inquiries 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”.
According to the statement, the inquiries will focus on the extent to which the KPMG 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.”
At the conclusion of the inquiries, the executive counsel will present his findings to the conduct committee, which will subsequently decide whether KPMG or any members are liable to investigation.
The decision serves as an about-face for the FRC, which had previously deemed in November 2015 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”.
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