Watchdog drops probe into KPMG's audit of BAE The UK's top accountancy regulator has dropped a long-running investigation into the auditing of commissions paid by BAE Systems, claiming it would have to delve too far back into the past. The Financial Reporting Council said it had little hope of securing a misconduct finding against KPMG, BAE's auditor, because it would have to examine work done before 1997. The watchdog launched an investigation into KPMG's auditing of the defence contractor in 2010 after BAE settled corruption probes in the US and UK by agreeing to pay fines of nearly £300m. The FRC investigation was focused on audit and advisory work done by KPMG between 1997 and 2007. On Thursday, it said this would not have been enough to take the investigation to the next stage, which would have involved putting forward a formal disciplinary complaint to be judged by an independent tribunal. "Subsequent investigations have shown that proper assessment of KPMG's conduct would require consideration of work undertaken in earlier years," the FRC said. "Because there is no realistic prospect that a tribunal will make an adverse finding in respect of a complaint relating to work done so long ago it has been concluded that it is not in the public interest to extend the investigation to the years preceding 1997," it added. BAE had settled with the UK's Serious Fraud Office by admitting to a minor accounting charge relating to its activities in Tanzania, for which it paid a £30m penalty. Critics alleged that this was too lenient. Tony Blair's government was condemned internationally seven years ago for successfully pressing the SFO to drop its investigation into BAE's Saudi Arabian arms deals worth tens of billions of pounds on grounds of national security. The settlement between BAE and the US Department of Justice in 2010 involved a criminal fine of $400m (£263m) and a guilty plea by the British company to a charge of conspiring to make false statements to the US government. The matters examined by the US authorities included "substantial payments" to shell companies and third party intermediaries, including payments linked to defence work BAE has done for Saudi Arabia. KPMG said it had denied misconduct when the investigation was announced in 2010. "We welcome the announcement by the Financial Reporting Council that the case has been closed and that no further action is proposed," it said. Prem Sikka, a professor of accounting at the University of Essex, attacked the decision to drop the case. "It just shows how the FRC is really a cheerleader rather than a regulator for the big accountancy firms," he said. Prof Sikka, a noted critic of the accounting establishment, also criticised the slowness of the investigation. The FRC said this partly reflected the need to get security clearance. The FRC has been trying to clear a backlog of old cases. Earlier this week a tribunal upheld its complaint against Deloitte and one of its former partners, Maghsoud Einollahi, over their work for various companies involved with MG Rover and the quartet of businessmen who bought it in 2000.