EDDC external auditors rapped on knuckles – again!

The suggestion when you move home is to change the locks. This lock can’t be changed so maybe an independent locksmith should examine the locks …

“KPMG has been fined £5m and “severely reprimanded” by the financial regulator for a series of failings in its audit of the Co-operative Bank at the height of the financial crisis a decade ago.

Andrew Walker, a partner at the big four accountancy firm who still works there, was fined £125,000 and also severely reprimanded. The Financial Reporting Council (FRC) issued both fines for misconduct that occurred shortly after the Co-op Bank’s disastrous takeover of the Britannia building society in 2009, which ultimately led to the discovery in 2013 of a £1.5bn black hole in the bank’s accounts.

In the second penalty imposed on KPMG in just over a week, it will only pay £4m of the fine as it did not fight the penalty, as well as £500,000 for the FRC’s legal costs. Walker’s fine has been reduced, to £100,000 in the settlement.

The Co-op Bank’s acquisition of Britannia and its risky loan book a decade ago brought the Co-op Bank close to collapse. It ended its 40-year auditing relationship with KPMG in 2014 and appointed EY – another big four firm along with PwC and Deloitte.

KPMG and Walker both admitted that their conduct “fell significantly short” of auditing standards in two areas – valuations of commercial loans acquired from Britannia and the audit of valuations and liabilities under a series of loan notes purchased from Britannia.

The FRC said KPMG and Walker did not obtain enough audit evidence, failed to show “sufficient professional scepticism” and failed to tell Co-op Bank that the disclosure of the expected lives of the loan notes was not adequate.

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.”

Barry Tootell, the former chief financial officer and chief executive of the Co-op Bank, admitted misconduct in 2016 and was excluded from membership of the Institute of Chartered Accountants in England and Wales for six years. He agreed to pay £20,000 for the FRC’s investigation.

Last week KPMG received a £6m fine and a severe reprimand from the FRC for its audit of an insurance firm, Equity Syndicate Management, more than a decade ago. KPMG’s audits of firms and institutions this year and in 2020 and 2021 will be subject to to an additional review by its internal audit quality team, who will report back to the FRC.”