Since several banks were bailed out by taxpayers during the 2007-09 crisis, politicians have been asking 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 are 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 audits. 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.