Audit probe says pre-crash bank numbers added up, under then rules
Auditors who signed off on accounts for the main banks at the time of the crash alerted bank directors and the Financial Regulator of concerns about the scale of potential losses, according to a long-awaited report.
The report was commissioned by the Chartered Accountants Regulatory Board (CARB) to examine how auditors had signed off on books that failed to account for the subsequent spectacularly huge losses from risky loans.
The report says bank audits done by major accountancy firms at the time of the financial crash were "satisfactory" and met international standards.
It looked at how provisions for loan losses were accounted in 2008 and 2009 in audits by KPMG for AIB, Irish Nationwide Building Society (INBS) and Irish Life and Permanent (IL&P); Ernst & Young (EY) audits of Anglo Irish Bank and EBS; and PwC at Bank of Ireland.
Auditors knew loan losses were an issue in 2008, and the risk of impairments was communicated to the audit committees of bank boards.
Auditors also made "significant efforts" to engage with the Financial Regulator, the report states.
However, under the rules then in place, auditors were banned from including calculations of future losses on loans if they were being serviced at the time of the audit.
Improvements have now been made to the auditing standards, CARB said.
"Our overall conclusion is that while the auditors demonstrated that they had satisfactorily applied appropriate audit procedures and the financial statements complied with the international accounting standard applicable at the time, the key accounting standard itself was unsatisfactory," the report's lead author, David Spence, an outside expert, said.