AIB shareholders have sanctioned the appointment of accountants KPMG as auditors to its Irish and international operations. AIB deputy chairman Mr John McGuckian has also signalled that it had not ruled out taking a legal action against its former auditors, PricewaterhouseCoopers (PwC), regarding the $691 million (€699 million) fraud at Allfirst.

KPMG was awarded the auditing contract, which was worth €1.8 million in 2001, but several shareholders who attended the reconvened annual general meeting in Dublin yesterday expressed their concern and frustration about the controls and auditing practices adopted by AIB.

In April the bank said PwC had lost the audit account but would continue to provide other consultancy services, and chairman Mr Lochlann Quinn had given the impression AIB would not be pursuing PwC for negligence over the Allfirst fraud. It was "not the job of auditors to disclose fraud", he said.

But yesterday, Mr McGuckian told shareholders the directors had "made no decision on PwC". AIB previously sued the auditors, who had advised it of the value of ICI, the life assurance subsidiary that was placed in administration by the State in the 1980s. That case was settled in the bank's favour.

AIB shareholders in the US have filed several class actions seeking damages because of the fraud. Some had expressed surprise at AIB's stance that it would not be pursuing its auditors for damages.

Mr McGuckian said KPMG's appointment was being made because the bank believed that a "fresh approach" was warranted in the risk control and auditing part of its operations."PwC did not participate in the tender. They had given us notice of their unwillingness to be reappointed."

The bank invited tenders from the major Irish and international accountancy firms, which were assessed by its audit committee, a sub-committee of the AIB board of directors. The committee is chaired by Mr Adrian Burke, former managing partner of Arthur Andersen.

Dissident AIB shareholder Mr Niall Murphy said he was concerned at the KPMG appointment, noting that the firm had recently merged with Arthur Andersen in the Republic. That firm has collapsed following the discovery that some of its executives in the US shredded key evidence of the extent of the fraud at the Texas oil giant Enron. Yesterday it emerged that Andersen was also auditor to WorldCom, at the centre of what is being described as possibly the biggest accountancy fraud in US history.

Mr McGuckian said KPMG had submitted a detailed tender and had made a presentation to the board on the recommendation of the audit committee. Another shareholder, Mr Neil Duggan, inquired about what had influenced PwC's decision to end its long-standing relationship with AIB but did not get an explanation.

Mr McGuckian also refused to allow Mr Burke to discuss the role played by the audit committee and to offer some reassurances that it would be more effective in the future. The deputy chairman said he couldn't guarantee the committee would protect the bank.