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KPMG faces investigation over Co-op Bank auditing

The Financial Reporting Council has launched an investigation into KPMG’s auditing of the Co-operative Bank.

The FRC, the UK disciplinary body for accountants and actuaries, will investigate the preparation, approval and audit of the financial statements of the Co-op Bank, up to the year ended 31 December 2012.

The Co-op Bank was forced to withdraw a bid to buy 632 Lloyds Banking Group last year when it discovered a £1.5bn capital black hole.

The bank is already subject to enforcement investigations by the FCA and Prudential Regulation Authority, an internal review, an independent Treasury-commissioned inquiry and a Treasury select committee inquiry into the failed Lloyds’ branches bid.

In December partners at KPMG were grilled by Treasury select committee MPs over KPMG’s role in the Co-op’s takeover of Britannia Building Society.

The FRC may refer the matter to a disciplinary tribunal following the investigation, which can impose sanctions and costs orders.

A spokeswoman for KPMG says: “Given the issues the bank has experienced in recent months and the associated high media profile and public interest, it is understandable there should be appropriate regulatory scrutiny.

“As auditor to the bank we believe we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgements and disclosures proposed by the bank’s management.”

Yellowtail Financial Planning managing director Dennis Hall says: “It is right KPMG is investigated, given the Co-op Bank had such a huge hole in its balance sheet.”

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