Probe into KPMG book-keeping at Co-op

The Financial Reporting Council (FRC) probe will cover the way accounts were both prepared by the bank and reviewed by auditors, and is likely to extend back to 2009, the year it 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 around a year to conclude whether to bring disciplinary tribunal action.

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

KPMG said: “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.

“We look forward to co-operating with the FRC (and other regulatory authorities) in their investigations.”

The new probe 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 executives. Another regulator, the Financial Conduct Authority (FCA) said it was looking into “decisions and events up to June 2013”.

Meanwhile, the wider Co-operative Group is carrying out a fact-finding investigation as well as a root-and-branch review of its structure in the wake of drugs allegations about former bank chairman Paul Flowers, who is from Bradford.

Former Treasury mandarin Sir Christopher Kelly has been leading a review, expected to report in May, into what went wrong at the lender.

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 into deep freeze pending the outcome of the FCA and PRA investigations.