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KMPG fined for Co-op bank audit
08 May 2019
The FRC has fined KPMG £5m (discounted for settlement to £4m) and severely reprimanded over the audit of the financial statements of the Co-op Bank for the year ended 31 December 2009. The firm will also pay £500,000 towards FRC’s costs.
KPMG audit partner, Andrew Walker, has been fined £125,000 (discounted to £100,000) and severely reprimanded.
In addition all KPMG’s audit engagements with credit institutions for audits in 2019, 2020 and 20121 year ends will be subject to an additional review by a separate KPMG audit quality team, who must provide reports to the FRC.
The misconduct occurred shortly after the Co-Op Bank’s merger with the Britannia Building Society. KPMG and Walker both admit their conduct fell significantly short of the standards reasonably to be expected of an audit firm and an audit partner in two areas:
*The audit of fair value adjustments (FVAs) in relation to loans within the commercial loan book acquired from Britannia.
*The audit of FVAs and liabilities under a series of loan notes (Leek Notes), which were also acquired from Britannia.
The misconduct in respect of these two areas included: failures to obtain sufficient appropriate audit evidence; failures to exercise sufficient professional scepticism and a failure to inform the Co-op Bank that the disclosure of the expected lives of the Leek Notes in the financial statements was not adequate.
The FRC has also separately considered the conduct of the CFO of the Co-op Bank. He has previously admitted misconduct and was excluded from membership of the ICAEW for 6 years.
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