UK Accounting Watchdog Too Slow to Investigate HBOS

On Thursday, Britain’s accounting watchdog said that it should have been faster in investigating on why KPMG gave HBOS’s accounts the green light just seven months before the bank had to be rescued by rival Lloyds during the global financial crisis.

Britain's accounting watchdog was too slow to investigate HBOS audit.

The Financial Reporting Council stated in September that it was closing its investigation into the audit, stating that it had found out that KMPG’s work for HBOS, “did not fall significantly short of the standards reasonably to be expected.”

The FRC called on parliament to make it easier to bring cases against accountants wherever they work. It also promised to be more open about its work. The regulator have been accused of being too weak and not clear.

“A learning point for the FRC is that we should have adopted a more proactive approach to our early enquiry in relation to HBOS rather than a heavy reliance on other regulators,” said Stephen Haddrill, FRC Chief Executive.

On Thursday, KPMG said that it has maintained its work to meet the applicable audit standards of the time, and that it had considered the risks the bank was facing.

The FRC said that it wanted to make it easier to take an action against accountants who are members of professional bodies for breaches of relevant rules.

Following a reform last year, the FRC can now follow accountants, who work for an audit company for breaches, presenting a lower legal hurdle than the previous test of having to show misconduct.

However, the old challenge remains when it comes to investigating professional accountants working for companies like HBOS and preparing accounts for external auditing.

According to Haddrill, he wanted the same breaches rule for all accountants, wherever they work.

The backing of professional bodies is needed to make the change but Haddrill said that there were additional choices if this was not forthcoming.

“We would appreciate your support for this and, if necessary, legislation,” stated Haddrill.

The FRC also published a report setting out its thinking about why it closed the case against KPMG. They said that it could not show misconduct.

“As the FRC’s report notes, the intensification of the financial crisis in late 2008 was not foreseen by market participants,” KPMG stated.

KPMG also added that the Bank of England continued to forecast positive GDP growth until August 2008.

The FRC said it was only now taking the lead in responding to and investigating audit matters and has expanded its enforcement division.

They also confirmed that they would publish a summary of reasons for closing an investigation, following criticism that it does not sufficiently explain its action.

Trade12 is a community of brokers and investors serving the quality service to all present and potential clients. Join our community. Trade12 awaits you!