KPMG fined ?5m for failings during 2009 Co-op Bank audit
By Abigail Townsend
Date: Wednesday 08 May 2019
(Sharecast News) - KPMG has been fined £5m and severely reprimanded over auditing work it carried out for The Co-operative Bank, it was announced on Wednesday, the Big Four firm's second sanction in less than a month.
The Financial Reporting Council ruled that the conduct of KPMG Audit and audit partner Andrew Walker "fell significantly short of standards reasonably to be expected" from an audit firm and partner. Both KPMG and Walker admitted misconduct during the 2009 audit, which was carried out shortly after Co-op Bank merged with the Britannia Building Society.
The FRC highlighted two specific areas of concerns: the audit of fair value adjustments for loans in Britannia's commercial loan book, and the audit of fair value adjustments and liabilities of a series of loan notes also acquired from Britannia.
In particular, the regulator found that KPMG and Walker had failed to obtain enough evidence, failed to exercise "sufficient professional scepticism" and failed to inform Co-op Bank that the disclosure of the expected lives of the loan notes in the financial statements were not adequate.
In a statement, KPMG said: "We regret that some of our audit work around specific elements of the bank's fair value adjustments did not meet the appropriate standards. The work in question was conducted almost a decade ago, and we have significantly enhanced our procedures and training around the areas in question since then."
KPMG's fine has been discounted to £4m and Walker's £125,000 sanction to £100,000 because they settled. Both were also severely reprimanded, and KMPG's audits of credit institutions for the next three years will be subject to review by a KPMG Audit Quality team reporting directly to the FRC.
The fine follows a £6m sanction and reprimand issued against KPMG last week, for the way it audited Lloyd's of London Syndicate 218 in 2008 and 2009. The FRC is also investing KPMG's work for Carillion, the government contractor that collapsed with debts of £1bn last year.
The Big Four accountants - which also include Deloitte, EY and PwC - are coming under intense scrutiny for the way they carry out audits and their dominance of the market. The Competition and Markets Authority has proposed they internally split their audit and non-audit businesses, but MPs have gone further and are recommending the firms are broken up.
In 2013, a £1.5bn black hole was found in the Co-op Bank's balance sheet after it entered bidding for 632 Lloyds Bank branches. A rescue deal saw it taken over by US hedge funds before another £700m rescue package was needed in 2017.
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