Treasury Select Committee asks watchdog to look at HBOS auditors again

The Treasury Select Committee has asked the accountancy watchdog, the Financial Reporting Council, to look at HBOS auditors again. Andrew Tyrie, the Committee’s chairman, wants the Financial Reporting Council’s (FRC’s) chief executive, Stephen Haddril, to re-examine the need for a probe into the auditing of HBOS plc by KPMG.

HBOS plc collapsed in 2008 during the financial crisis and was later rescued in a government-operated acquisition by Lloyds TSB, which subsequently required a £20 billion bailout by British taxpayers.

Mr. Tyrie, Conservative Member of Parliament for Chichester, said:

“The shortcomings of the audit process were serious. As a result, Parliament’s specialist advisers concluded that the circumstances surrounding the audit, conducted by KPMG, deserved ‘thorough scrutiny by the FRC’. Given the findings of the full report, the accompanying report by Andrew Green QC into enforcement and the report of Parliament’s specialist advisers, confidence in the audit process will have taken a knock.”

According to Andrew Tyrie, an investigation into KPMG’s auditing of HBOS is ‘essential’. (Image: chichesterconservatives.com)

“It is now essential – in the interests of public confidence – that the FRC get on with this investigation, and without delay.”

The Financial Reporting Council is Britain’s and the Republic of Ireland’s independent regulator responsible for promoting high quality corporate governance and reporting.

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Two explosive reports in November

Two explosive reports were published in November: the Financial Conduct Authority (FCA) and the Bank of England examined why HBOS – a banking and insurance company formed in 2001 when the Bank of Scotland and Halifax plc merged – collapsed and whose fault it was, while Andrew Green QC (barrister) criticised the regulators’ decision to punish just one former executive – Peter Cummings.

Lord Stevenson, Andy Hornby and up to eight other former HBOS executives may face enforcement action following the damning report by Barrister Green. They could be facing a lifetime ban from working in the financial services industry.

In November, the watchdog said no reasonable grounds were found to suspect misconduct in its examination of HBOS audits of the FCA’s and Bank of England’s investigation.

Andrew Green QC lambasted the decision by regulators to punish only one HBOS former executive. (Image: www.blackstonechambers.com)

According to KPMG – one of the world’s Big Four auditors (along with Deloitte, EY and PwC) – a Financial Conduct Authority document in 2012 noted that it had suggested to HBOS management that it should take a more conservative approach to provisioning (setting an amount aside in the company’s accounts for a known liability).

Mr. Tyrie and colleagues at the Treasury Select Committee are interviewing Bank of England officials as well as Andrew Green QC on their reports regarding HBOS.

HBOS plc is a British banking and insurance company, a wholly owned subsidiary of the Lloyds Banking Group. (Image: Wikimedia)

What is the Treasury Select Committee?

The Treasury Select Committee, known officially as the House of Commons Treasury Committee, is a Committee in charge of examining the expenditure, administration and policy of HM Treasury, with all of its associated bodies and agencies, including the Royal Mint, the Financial Conduct Authority, the Prudential Regulation Authority, HM Revenue and Customs, and the Bank of England.

Since 2010, the Treasury Select Committee has taken on new powers, including a veto for appointments to the independent Office for Budget Responsibility. It has forced the Financial Services Authority to make public a detailed report into its handling of the Royal Bank of Scotland’s collapse.

Video – Report refers HBOS collapse to inquiry

Seven years after the collapse of Halifax Bank of Scotland (HBOS), the inquiry into its failure has referred the matter to another inquiry. The Financial Times’ Caroline Binham and Patrick Jenkins discuss what is in the 600-page report.