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Big Four defend auditors’ role

The Big Four audit firms checked with Government there would be state backing for the banks before signing off their accounts as the financial crisis raged, they admitted yesterday.

John Connolly, chief executive of Deloitte auditor to Royal Bank of Scotland, said the UK’s big four accountancy firms initiated “detailed discussions” with then City minister Lord Paul Myners in late 2008 soon after the collapse of Lehman Brothers prompted money markets to gum up.

Ian Powell, chairman of PricewaterhouseCoopers, said there had been talks the previous year.

Debate centred on whether the banks’ accounts could be signed off as “going concerns”. All banks got a clean bill of health even though they ended up needing vast amounts of taxpayer support.

Mr Connolly said: “In the circumstances we were in, it was recognised that the banks would only be ‘going concerns’ if there was support forthcoming.”

He said that the firms held meetings in December 2008 and January 2009 with Lord Myners, a former director of NatWest who was appointed Financial Services Secretary to the Treasury in October 2008.

Mr Connolly told the House of Lords economic affairs committee: “Had we concluded, and the management of the banks concluded, that there was not going to be support then different audit reports would have been forthcoming.”

Lord Lawson said: “It seems you are saying you noticed they were on very thin ice but you were completely relaxed about it because you knew there would be support, in other words the taxpayer would support them.”

Labour peer, Lord David Lipsey said the role of the auditor was to report the true state of a bank and not “mislead markets and investors”.

Mr Connolly said: “What we were very aware of [was that] the consequences of reaching the conclusion that a bank was actually going to go belly up were huge.”

But he insisted auditors would have been prepared to amend their opinion.

Mr Powell of PWC, auditor to Northern Rock, suggested talks had been gone on the previous year as banks were faced with the gumming up of the money markets in the second half of 2007.

“One of key questions around the banks in signing off the audit opinions at the year-end December 31, 2007 was is there is adequate liquidity available to this bank to enable us to form the view it is a going concern and sign off a going concern opinion?”

He added: “That was the depth of the discussion as I understand in December 2007 and in 2008.”

RBS required a capital injection in early 2009 that left it 83% Government owned while At the same time Edinburgh-based HBOS, audited by KPMG, was swallowed by Lloyds in a rescue takeover.

Northern Rock was fully nationalised in March 2008.

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