skip to main content

KPMG fined over defective audit of Co-op Bank, faces extra checks on audits

KPMG has been fined and reprimanded by UK regulators over a defective audit of the Co-op Bank
KPMG has been fined and reprimanded by UK regulators over a defective audit of the Co-op Bank

Accounting giant KPMG has been fined and reprimanded by regulators over a defective audit of Britain's Co-op Bank and its audits of lenders will face additional checks for three years. 

The UK's Financial Reporting Council said KPMG had been fined £5m, reduced for a settlement to £4m. 

KPMG audit partner Andrew Walker was also fined £125,000, discounted for settlement to £100,000, and reprimanded. 

The penalties relate to a 2009 audit of the Co-op Bank shortly after its ill-fated merger with the Britannia Building Society, which pushed it to the brink of collapse. 

The penalties come at a difficult time for Britain's big four accountancy firms - which also include PwC, Deloitte and EY.

Regulators are calling on the Big 4's audit functions to be ringfenced from consultancy after a string of auditing failures on major firms including BHS and Carillion. 

All KPMG's audit engagements with credit institutions for audits ending in 2019, 2020 and 2021 will be subject to an additional review by a separate KPMG audit quality team who will provide reports to the FRC, the regulator said. 

KPMG will also pay £500,000 towards the FRC's costs. 

The FRC said KPMG and Walker both admitted their conduct fell significantly short of standards expected in assessing the fair value of Britannia's loan book. 

The accountancy firm failed to obtain sufficient evidence and to exercise sufficient professional scepticism and failed to inform Co-op Bank the financial statements were not adequate. 

"We regret that some of our audit work around specific elements of the Bank's Fair Value Adjustments did not meet the appropriate standards," a spokeman for KPMG said. 

"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," he added. 

After further years of tough trading Co-op Bank was rescued by a consortium of US hedge funds in 2017. 

The lender separately reported first quarter results this morning, with a pre-tax loss of £28.6m for the first three months of 2019.