LONDON The FRC said it was considering whether to probe how KPMG checked the books of HBOS, the UK bank that had to be rescued with taxpayer money in the financial crisis.
"We don't currently have it under investigation but we are monitoring the situation quite closely with everything that is going on at the moment, and then we will take a decision whether or not to start an investigation," an FRC spokeswoman said.
A decision would be taken after the Financial Conduct Authority published its report into the HBOS failure in the autumn, 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 the Financial Times on Wednesday there should be an independent investigation into how KPMG audited HBOS in the run up to the bank's collapse.
The FCA does not regulate auditors but its report on the collapse of HBOS will look at some aspects of auditing.
"As part of our report into HBOS, we will look at the factual input of auditors in areas such as provisioning and will ask questions where appropriate," an FCA spokeswoman said.
"However, this is not the same as assessing whether an audit has been conducted correctly, which would be a matter for the FRC to examine," the spokeswoman added.
The FCA replaced the Financial Services Authority from this month and its predecessor has already touched on auditing at HBOS when it fined Peter Cummings, head of corporate lending at HBOS until it was rescued, 500,000 pounds last year.
In its report on Cummings, the FSA said KPMG had consistently suggested that a more prudent approach should be taken to provisioning against possible losses.
"The firm (HBOS) consistently chose to provision at what KPMG identified as being the optimistic end of the acceptable range for corporate," the FSA report said.
"KPMG's view of what constituted the acceptable range was informed by management's assessment of the degree of credit risk in particular transactions," it added.
Pirc has called on the new chairman of the FCA, John Griffith-Jones to step aside until a probe of KPMG's audit is done, as he was working for auditor when HBOS failed.
The FCA report into HBOS will have outside, independent reviewers to check if potential conflicts of interest have distorted its findings.
"John does not sit on the board sub-committee of the FCA which is tasked with overseeing the HBOS report," the FCA said.
(Reporting by Huw Jones, editing by Matt Scuffham)