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LONDON, April 10 (Reuters) - Britain's audit regulator saidit was considering whether to probe how KPMG checked the booksof HBOS, the UK bank that had to be rescued with taxpayer moneyin the financial crisis.
"We don't currently have it under investigation but we aremonitoring the situation quite closely with everything that isgoing on at the moment, and then we will take a decision whetheror not to start an investigation," an FRC spokeswoman said.
A decision would be taken after the Financial ConductAuthority published its report into the HBOS failure in theautumn, the FRC said.
KPMG said it stands by the quality of its work at HBOS,which is now part of Lloyds Banking Group.
UK shareholder advisory group Pirc said in a letter to theFinancial Times on Wednesday there should be an independentinvestigation into how KPMG audited HBOS in the run up to thebank's collapse.
The FCA does not regulate auditors but its report on thecollapse of HBOS will look at some aspects of auditing.
"As part of our report into HBOS, we will look at thefactual input of auditors in areas such as provisioning and willask questions where appropriate," an FCA spokeswoman said.
"However, this is not the same as assessing whether an audithas been conducted correctly, which would be a matter for theFRC to examine," the spokeswoman added.
The FCA replaced the Financial Services Authority from thismonth and its predecessor has already touched on auditing atHBOS when it fined Peter Cummings, head of corporate lending atHBOS until it was rescued, 500,000 pounds last year.
In its report on Cummings, the FSA said KPMG hadconsistently suggested that a more prudent approach should betaken to provisioning against possible losses.
"The firm (HBOS) consistently chose to provision at whatKPMG identified as being the optimistic end of the acceptablerange for corporate," the FSA report said.
"KPMG's view of what constituted the acceptable range wasinformed by management's assessment of the degree of credit riskin particular transactions," it added.
Pirc has called on the new chairman of the FCA, JohnGriffith-Jones to step aside until a probe of KPMG's audit isdone, as he was working for auditor when HBOS failed.
The FCA report into HBOS will have outside, independentreviewers to check if potential conflicts of interest havedistorted its findings.
"John does not sit on the board sub-committee of the FCAwhich is tasked with overseeing the HBOS report," the FCA said.
