On Questions of Auditors’ Role in 2008 Crisis, KPMG Answers Anew

Lucas Gilmore, “Big 4″ observer
December 21, 2010 /

About one month after the House of Lords Economic Affairs Committee questioned the role of audit firms during the financial crisis with the Big Four defending themselves, KPMG has new revelations.

Accounting firm KPMG, which was implicated in the interrogation carried out by the House of Lords Economic Affairs Committee in November, stated in a letter addressed to the Lords the reasons for not expressing skepticism on the representations made by banking and building firms in their financial statements prior to the economic crisis.

In November this year, the Big Four accounting firms have cleared themselves as to why they did not warn the investors before the crisis struck that the banks thereafter affected were actually in the verge of falling. The audit firms said it was not their job to give opinions pertaining to the matter and that they were confident the government would use the taxpayers’ money to save the affected firms.

The letters, written two months after the Lehman Brothers filed for bankruptcy, contained snippets of conversations between the audit firms and the government discussing the financial health of companies severely hit by the crisis. In one instance, KPMG, Deloitte, Pricewaterhouse Coopers, and Ernst & Young were said to have asked for the advice of House of Lords if they could treat the UK banks’ financial status as “going concerns.”

In the same letter, the audit firms were said to have been seeking reassurance from the government that it would continue its recapitalization of the failing banks in order to finalize the going concern status of the banks instead of putting an “emphasis of matter” paragraph to their annual financial statements.

Lord Myners responded to the audit firms’ plea, giving them assurance that the government would continue its bail-out for the companies that could still be saved from the verge of collapse.

Lord Lawson said in November that it was “astonishing” to learn that the audit firms used only the assurance from the government to treat the failing banks as going concerns.

However, the audit firms tried to downplay Lord Lawson’s statement and said Lord Myners’s nod was only part of the set of reasons upon which they based their decision of declaring the ailing banks as going concerns.

Regulators are currently on their way to proposing new rules on the functions of audit firms to prevent the risk in 2008 from happening again.

 

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