Investigation into KPMG Audit plc’s audit of HBOS plc

News types: Investigations

Published: 27 June 2016

PN 35/16

The Financial Reporting Council (FRC) has commenced an investigation under the Accountancy Scheme into the conduct of KPMG Audit Plc’s audit of HBOS plc for the year ended 31 December 2007.

This investigation has been instituted by the FRC’s Conduct Committee following the completion of the Executive Counsel’s preliminary enquiries announced on 21 January 2016.

The investigation relates to the extent to which KPMG Audit plc, during the course of their audit of HBOS plc:
  • 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 needed to be disclosed in the financial statements.
Notes to editors:

1.    The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the competent authority for audit and 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 enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

2.    KPMG Audit plc carried out the relevant audit engagement. Its business has now been transferred to KPMG LLP, who will therefore be subject to the investigation.

3.    In relation to enforcement matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme include:
  • Decision to investigate
  • Decision whether to bring disciplinary proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
  • Tribunal hearing
  • Determination and imposition of sanction and/or costs orders
Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.

The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.

Investigations are conducted by Executive Counsel and the Enforcement Division.

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