AIB has chosen KPMG to replace PricewaterhouseCoopers (PwC) as its auditor after the €777 million Allfirst fraud. The selection followed a tender for the contract worth €2.5 million to PwC last year.

Despite AIB's insistence that it had the "highest regard" for PwC, the audit firm was not invited to participate in the tender. But PwC will continue consulting work for the bank in the IT and taxation areas. The firm was dropped despite the insistence of AIB chairman Mr Lochlann Quinn that it was not the job of auditors to uncover fraud.

Shareholders at yesterday's a.g.m. in Belfast questioned why the US banker who investigated the Allfirst affair, Mr Eugene Ludwig, had not assessed why the auditors failed to detect the fraud for five years. He did not interview PwC but called for a comprehensive review of the audit and risk management functions at the bank.

Mr Quinn said the bank had placed no limits on the scope of Mr Ludwig's inquiry. Mr Ludwig blamed a trader, Mr John Rusnak, for the losses and said the fraud was not uncovered due to a combination of bullying, laziness and weak management. The inquiry led to the discovery that the fraud had begun in 1997 and became progressively worse in the following five years. AIB restated its accounts for the period in February.

PwC has made no comment on the loss of its lucrative contract. Its final AIB audit report, read to the meeting, made no reference to the fraud. Like many such reports it said: "We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounts are free from material misstatement whether caused by fraud or other irregularity or error."

Mr Quinn said AIB would vigorously defend a High Court action taken by its group internal auditor, Mr Eugene McErlean. He said Mr McErlean had not been dismissed and had been absent since March and had produced a doctor's note.

Despite the bank's use of the title group internal auditor, Mr Quinn said it was always understood the position had no role in its US business. Last March AIB said it would recruit an external figure for the position. The bank is expected to claim in court that the post was awarded to Mr McErlean for five years in 1997 and that that period had elapsed.