* Watchdog review to focus on loan losses, IT controls
* Report to be published end of 2014
By Huw Jones
LONDON, Dec 12 Britain's accounting watchdog
will begin reviewing bookkeeping at banks in the second quarter
of 2014 to find out why the lessons of the financial crisis are
being applied so slowly.
Several banks in Britain had to be shored up by taxpayers
during the 2007-09 crisis, prompting policymakers to ask why
auditors gave the lenders a clean bill of health beforehand.
The Financial Reporting Council said its review will start
in the second quarter of next year, as soon as this year's
annual reports have been completed.
It will look at what action top accounting firms took to
address specific issues the watchdog already raised with
individual accounting firms earlier this year regarding bank
A key issue is checking how banks set aside enough capital
to cover souring loans after the crisis revealed some lenders
were woefully undercapitalised when losses mounted.
The FRC will publish its report by the end of 2014.
"The FRC is concerned that the pace of improvements in the
quality of auditing of banks and building societies has not been
sufficient," the watchdog said in a statement on Thursday.
Britain's biggest banks, such as HSBC, RBS,
Lloyds and Barclays are all audited by the
so-called Big Four accounting firms: KPMG, Deloitte, EY and PwC.
The FRC said it has increased its monitoring of bank and
building society audits, but the findings have shown they are
below the average of all audits inspected.
The latest monitoring showed problems with the adequacy of
testing loan loss provisions and general IT controls.
"Early indications from the latest cycle of audit
inspections suggest that it is unlikely that the FRC will be
able to report that significant progress has been achieved," the
FRC Chairman Baroness Hogg said the watchdog wants to see a
"genuine step change" in the quality of bank and building
The FRC said it will inspect banks and building societies
and was announcing the review now so that auditors are aware of
its expectations in advance of the 2014 audit season.
The watchdog will meet chairs of audit committees at banks
and building societies to discuss how they can reinforce the
quality of financial reporting.
The FRC is separately scrutinising financial reports from
Co-operative Bank, including disclosures on loan