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UK watchdog to investigate KPMG audit of HBOS bank

LONDON, June 27 (Reuters) - Britain's accounting watchdog said it has opened an investigation into how KPMG audited the books of HBOS, a UK bank that collapsed in 2008 during the financial crisis.

The Financial Reporting Council said it will investigate KPMG's audit of HBOS for the year that ended December 2007.

"The investigation relates to the extent to which KPMG... considered the appropriateness of management's use of the going concern assumption in the preparation of the financial statements for the year ended 31 December 2007," the FRC said in a statement.

It (Other OTC: ITGL - news) will also look at whether there were "material uncertainties about the entity's ability to continue as a going concern that needed to be disclosed in the financial statements".

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The watchdog came under pressure from lawmakers to undertake a full investigation into the audit of HBOS, which was formed through the merger of mortgage lender Halifax and Bank of Scotland.

HBOS had to be rescued in a government-engineered takeover by Lloyds Banking Group (Other OTC: LLOBF - news) , which subsequently needed a 20 billion pound taxpayer bailout.

(Reporting by Huw Jones, editing by David Evans)