A regulatory investigation has cleared KPMG over its audit of HBOS bank in 2007 as the financial crisis struck City institutions.
The Financial Reporting Council (FRC) announced yesterday that its investigation of HBOS would close. It said: “The firm’s work did not fall significantly short of the standards reasonably to be expected of the audit, the test that a Tribunal would apply.”
The FRC’s investigator, the Executive Counsel, looked at the auditor’s examination of the “going concern” assumption used by the bank’s management in financial statements for the year ending 31 December 2007.
The counsel looked at how KPMG considered the “appropriateness” of its use and whether the auditor had considered whether there were “material uncertainties” about the bank’s ability to continue as a going concern that should have been disclosed.
The FRC said: “In early 2008 HBOS concluded that its financial statements for the year ended 31 December 2007 should be prepared on a “going concern” basis.
“HBOS did not expect market conditions to worsen and judged that it would be able to fund itself. The auditor considered and accepted this conclusion. HBOS published its audited financial statements in February 2008 on that basis.
“The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time.”