The UK's accounting regulator, the Financial Reporting Council (FRC), is to consider whether the accountancy firm, KPMG, or any individuals require further investigation following a review of the report, published last November by the Prudential Regulatory Authority and the Financial Conduct Authority, into the failure of HBOS plc.

Following a review of the report by the FRC's Conduct Committee it has asked the FRC’s Executive Counsel to undertake preliminary enquiries under the Accountancy Scheme, the disciplinary scheme for Members and Member Firms of the accounting profession where matters involve important issues affecting the public interest in the UK.

These will focus on the extent to which KPMG Audit plc (KPMG), during the course of their audit:

• considered the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements for the year ended 31 December 2007, and
• considered whether there were material uncertainties about the entity’s ability to continue as a going concern that HBOS needed to disclose in the financial statements.

KPMG was HBOS’s external auditor from the Group’s creation in 2001 until the end of 2008. The PRA/FCA report showed how a number of factors - including its rapid expansion, exposure to lower quality lending and large loans to a small number of entrepreneurs  - led to the annual report and accounts for the year ending 31 December 2007 (published early 2008) showing a  a profit before tax of £5.5 billion and the annual report and accounts for the year ending 31 December 2008 (published in 2009) showing a loss of £11 billion. The deterioration in the quality of HBOS’s loan book and the speed with which it all happened, are a notable part of the HBOS story, the report states.

The Executive Counsel will present his findings to the Conduct Committee which will then decide whether KPMG or any members of the Accountancy Scheme are liable to investigation.