Financial Reporting Council looking at the way the bank provided information about its capital position in its annual report, which was audited by KPMG
Accounting regulators have added to the list of investigations into the Co-operative Bank by announcing a formal review of the 2012 accounts which were audited by KPMG.
The Financial Reporting Council (FRC) investigation is looking at the way the bank provided information about its capital position in its annual report and is the latest to be launched against the bank and its former owner, the Co-operative Group of supermarkets, pharmacies and funeral homes which now owns just 30% of the bank following the rescue fundraising.
The other 70% of the bank is owned by bondholders, including US hedge funds, and due to be floated on the stock market this year.
The FRC said it had begun an "investigation under the Accountancy Scheme into the preparation, approval and audit of the financial statements of The Co-operative Bank plc, up to and including the year ended 31 December 2012".
The potential for an investigation by the Financial Reporting Council (FRC) was flagged in the risk warnings during the bank's £1.5bn emergency capital raising last year.
In the 1,000 pages of documents released to accompany the fundraising, which was completed in December, the bank said City regulators had asked about disclosures relating to the regulatory capital position, as well as details about the loan-impairment provision, the impairment charge of its IT systems and the way it had valued its debt.
At the time the bank said it had examined the information provided and concluded that it did not need to reissue its report and accounts. This was because while some of the statements about capital could appear inaccurate if read in isolation, this was not the case if read alongside the rest of the accounts.
The investigation puts fresh emphasis on the role of auditors and may increase pressure on John Griffith-Jones, who is the chairman of the City regulator the FCA and who was boss of KPMG. In a statement, KPMG said: "As auditor to the bank we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgements and disclosures proposed by the bank's management."
The announcement by the FRC came just minutes after the Group announced that it would no longer sell off the insurance business originally put on the block in a scramble to raise cash to plug the capital shortfall in the bank.
Euan Sutherland, chief executive of the Co-op Group, said: "Having considered the sale process, and in light of the changed requirements on us under the bank recapitalisation process, we believe it is in the best interests of our members, customers and colleagues, that we retain this strong business and develop it further. We received a significant amount of interest in the general insurance business, which reflects its potential. "
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