Outlook The accountancy firms responsible for the audits of this country's failed banks have yet to be hit by any serious aftershocks from the earthquake of the financial crisis. That might be changing, and not before time, because the issue represents the dog that hasn't barked.
There are grounds for asking some very hard questions of the accountancy profession, questions that really ought to have been asked by now.
Take HBOS and its auditor KPMG, which has so far been telling anyone who cares to listen that it "stands by" the quality of its audit work. Its decision to cheerfully sign off on the group's financial statements a matter of months before the bank was howling "rescue me" are at the very least open to debate even before one drills down into the detail and gets on to the vexed subject of provisioning. Or the lack of it.
Take the company's corporate division, whose boss Peter Cummings is (shockingly) the only person to have faced disciplinary sanction as a result of their role in the affair.
In June 2008, according to the Financial Services Authority's final notice on him, "management information" indicated that his division had sustained loan impairment losses of just £369.9m in the year running up to May 2008. That represents 0.3 per cent of the £125bn loan book. Even to a layman's eyes, that seems to be extraordinarily low. By contrast, the Parliamentary Commission on Banking Standards has put the losses at the same division between 2008 and 2011 at something like £25bn, or 20 per cent of the loan book.
Yet the auditors don't appear to have raised this as an issue. Maybe they were simply carried away by the crazy optimism of the HBOS board. If so, if they were willing to take management's reassurances so willingly, one might ask what on earth the point is of their audit in the first place.
You'd think, faced with this information, that the accountancy profession's regulators would want to take a serious look at the affair, but so far the Financial Reporting Council has only been willing to say that it is "monitoring" the situation "quite closely". Well, thank goodness for that!
And what of the new Financial Conduct Authority? If the FRC is intent on dithering, perhaps the FCA could consider the issue as part of its investigation into the Financial Services Authority's regulation of HBOS.
Erm, no. Audit, it has been decided, is outside the scope of that inquiry. This decision was taken at a meeting attended by the FCA's chairman, John Griffith-Jones, who, prior to taking on the role, just happened to be head of the UK business of KPMG. He apparently declared an interest when the matter was discussed, but as the governance consultancy Pirc has suggested, it would have been better if he had not attended the meeting at all and left the decision to others. In fact, it would be better if he wasn't involved in financial regulation at all. At least not while the questions about KPMG's role at HBOS remain unanswered.
In Martin Wheatley, the FCA found the right person to be its chief executive. He undertook the same role in Hong Kong, and, to date, has said all the right things. He appears intent upon learning the lessons of what went wrong in the past. Unfortunately, it has absolutely the wrong person as its chairman.
If the regulators won't ask questions about KPMG, others are (at last) set upon doing so. Take the Commission, which will cover the issue of audit in its final report in May. Lord Lawson has been making the running here, and doesn't appear to have been much taken with what he has found. If the Commission's conclusions on the subject of auditing banks are even half as explosive as those contained within its report on HBOS, Mr Griffith-Jones and the FCA could find themselves with a very big problem.
Members of the Treasury Select Committee have also been raising the issue. So it isn't going to go away anytime soon.
Because of this and for the sake of the FCA, and its credibility, until this issue is resolved Mr Griffith-Jones should do the honourable thing and step aside.