Written by: Keith Tully
Published: 9th May 2019
The professional services firm KPMG has been issued a £4 million fine for failings relating to its auditing work for Co-operative Bank, which almost collapsed in 2013.
The Financial Reporting Council (FRC) has meted out the fine and taken action against KPMG’s audit partner Andrew Walker on a personal basis.
Both KPMG and Mr Walker have admitted misconduct in relation to their auditing of Co-op Bank financial statements for the year ending December 31st 2009.
Mr Walker has been fined £100,000 and has been “severely reprimanded” by the FRC, which is responsible for overseeing and promoting transparency within corporate reporting and auditing contexts across the UK.
The FRC has made clear that the misconduct it investigated relates to work done shortly after Co-op Bank merged with the Britannia Building Society.
“KPMG and Mr Walker both admitted that their conduct fell significantly short of the standards reasonably to be expected of an audit firm and an audit partner,” the council has said in a statement.
It added that KPMG failed to obtain “sufficient appropriate audit evidence” and failed to “exercise sufficient professional scepticism” during its work with Co-op Bank at the end of the last decade.
A further consequence of the FRC’s investigations and conclusions is that KPMG will face closer scrutiny of its auditing work for credit institutions during each of the next three years.
An issue of particular importance to the regulator in the case related to KPMG’s auditing work on fair value adjustments linked to commercial loans being acquired by Co-op Bank as it went about buying the Britannia Building Society.
Co-op Bank almost collapsed following the discovery of a £1.5 billion capital shortfall on its books in 2013 but it was rescued by bondholders, including US hedge funds soon after.
The bank subsequently lost tens of thousands of customers and, in October 2016, saw its former chief executive and chief financial officer Barry Tootell banned from membership of the UK’s accountancy body for six years.
In response to the FRC’s decision in the case, a spokesperson for 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.”