Troubled auditor to face probe into HBOS accounting

The Financial Reporting Council (FRC) confirmed it would consider launching an investigation of KPMG’s role following last week’s damning Parliamentary Commission report on HBOS and once the Financial Conduct Authority (FCA) presents its findings on the bank’s failure in the autumn.

It comes as a further blow to KPMG after it was forced to quit yesterday as auditor of two US firms – nutritional products group Herbalife and footwear maker Skechers – amid an FBI investigation into alleged insider trading involving a former employee.

KPMG, which audited HBOS’s accounts throughout the years leading up to the financial crisis, said: “We stand by the quality of our audit work at HBOS.”

Lloyds Banking Group, which rescued HBOS at the height of the banking meltdown, is also reportedly considering legal action against KPMG for failing to spot the black hole in its accounts.

The Parliamentary Commission on Banking Standards said last week that a combined total of £28bn had been pumped into HBOS by the taxpayer and Lloyds.

HBOS was brought to its knees by reckless lending and billions of pounds of bad debts, but KMPG signed off its accounts in 2008.

There have also been calls for FCA chairman John Griffith-Jones to resign over his role chairing KPMG at the time.

KPMG resigned as auditor to Herbalife and Skechers after it emerged the FBI is investigating allegations that an ex-KPMG senior partner passed information to a share trader. KPMG said it immediately “separated” the partner, who led its audit practice in its Los Angeles business unit, from the firm when it became aware of the allegations last week. It added: “KPMG’s 22,000 partners and employees unequivocally condemn this individual’s rogue actions. This individual violated the firm’s rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG’s long-standing culture of professionalism and integrity.”

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