MPs call for action against auditor over HBOS fiasco

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The powerful Treasury Select Committee of MPs has demanded that accountancy watchdogs “immediately” revisit their decision to take no action on KPMG’s audit of failed bank HBOS.

In a letter written in the wake of the recent incendiary report by Andrew Green QC into the failure of the bank and its oversight by regulators, committee chairman Andrew Tyrie has demanded the Financial Reporting Council (FRC), which regulates accountancy firms, “reconsider the need for an investigation into HBOS’s auditors”.

Mr Tyrie and the committee received input from external experts prior to launching his volley against the FRC.

In the letter he added: “Bearing in mind the level of public support and losses to shareholders, it appears unlikely that the HBOS case does not clear the hurdle required to trigger a thorough re-examination.

“Were the FRC to remain of the view that an investigation was not justified, then its decision would, in turn, warrant detailed scrutiny.”

That is a clear shot across the bows of an FRC that has faced criticism for not taking a tough enough line with the audit profession in the past.

It is run by Stephen Haddrill, a former civil servant turned trade association boss, and chaired by Sir Win Bischoff, a former chairman of Lloyds, which rescued HBOS in 2008, a year before he joined.

Mr Haddrill’s apparent reluctance to take up the issue stands in stark contrast to the swift review ordered by the Bank of England’s Andrew Bailey in the wake of Mr Green’s findings that financial watchdogs could and should have taken disciplinary action against HBOS executives. This could lead to the launch of proceedings.

Mr Tyrie has also written to the Institute of Chartered Secretaries & Administrators – another professional body – over what the report said was poor minute-taking at HBOS board meetings, and asking what steps it had taken in response.

The FRC issued only a terse statement saying it “noted the letter’s contents”.

The Green report, which harshly criticised the original investigation into HBOS’s collapse by the Financial Services Authority, was not commissioned to look into the role of auditors, saying this was up to the FRC. While Mr Green’s team remained in regular contact with the FRC and invited it to consider investigating KPMG and its people, the regulator declined, saying only that it would “consider” any new information from his report after publication.

KPMG-audited accounts for HBOS claimed the bank turned a profit in the year to December 31 2007 of £5.5bn into an £11bn loss a year later. They also stated that impairments for bad loans were £1.3bn in June 2008 but £12bn by the end of the year.