KPMG focus of inquiry

ACCOUNTANCY FIRM KPMG is facing a regulatory investigation into how it audited the books of troubled lender Co-operative Bank in the years leading up to its near-collapse.

The Financial Reporting Council (FRC) has launched an investigation in the wake of a £1.5 billion hole in the lender’s finances which was discovered last year.

It will cover the way accounts were prepared by the bank and reviewed by auditors, and is likely to extend back to 2009, the year the Co-operative took over the Britannia Building Society.

The financial turmoil at the Co-op bank is widely attributed to the takeover, as well as an abortive attempt to buy more than 600 branches from Lloyds.

The FRC investigation is likely to take about a year to conclude whether or not to bring disciplinary tribunal action.

Sanctions can include fines as well as suspension of membership from accountancy bodies.

It said in a statement: “The Financial Reporting Council has launched an investigation into the preparation, approval and audit of the financial statements of the Co-operative Bank, up to and including the year ended December 31, 2012.”

KPMG said it looked forward to cooperating with the FRC and other regulators during the investigation.

“As auditor to the bank, we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgments and disclosures proposed by the bank’s management,” it said.

The new inquiry is the latest in a series of investigations into the Co-op after the Bank of England’s Prudential Regulation Authority (PRA) said earlier this month it would look at the role of senior executive and the Financial Conduct Authority (FCA) said it was looking into “decisions and events up to June 2013”.

The wider Co-operative Group is carrying out a fact-finding investigation and a root-and-branch review of its structure in the wake of drugs allegations about former bank chairman Paul Flowers.

Former Treasury mandarin Sir Christopher Kelly is leading the review, expected to report in May.

At the same time, MPs on the Treasury select committee have been carrying out their own inquiry, grilling senior Co-op executives and others involved with the bank in recent years, including representatives of KPMG.

A Treasury inquiry announced by Chancellor George Osborne has been put on hold pending the outcome of the FCA and PRA investigations.

Picture: PA. KPMG’s auditing of the Co-operative Bank’s books will be examined by the Financial Reporting Council.