Silicon Valley Bank Collapse: KPMG stands by its audits of Silicon Valley Bank and Signature Bank

KPMG, one of the ‘Big 4’ accounting firms that gave Silicon Valley Bank and Signature Bank a clean chit just days before they collapsed, has stated that it stands by its audits of the institutions.

KPMG has been facing a huge backlash for not red-flagging the lenders that collapsed only days later after its audit.

KPMG’s US boss stated that the firm stands behind its audits of SVB and Signature Bank. According to a report, Paul Knopp stated that the audit work considered all evidence known at the time the reports were given, and that market-driven developments in the following days contributed to the banks’ crises.

Since 1994, KPMG has audited SVB’s parent company, and Signature Bank since its foundation 22 years ago.

Auditors are expected to determine if there is serious doubt about a company’s ability to survive the next year prior to the publication of an annual report. If there was any question, an audit opinion contained in the report would have to include a “going concern” caution, however neither bank provided such a warning.

On February 24, exactly two weeks before the bank was seized by regulators in the aftermath of a bank run, KPMG signed its audit opinion on SVB. Signature’s audit opinion is dated March 1, 2011, 11 days before it was seized. Depositors fled after focusing on losses in banks’ fixed-income securities portfolios and the low fraction of deposits guaranteed by a government guarantee.

“With all we know today… we stand behind the reports we provided and believe we fulfilled all professional standards,” Knopp, chief executive of KPMG in the United States, said on Tuesday at an event at the NYU Stern Center for Sustainable Business.

“You have an obligation to evaluate all facts that you know until the day you issue the audit report, which we absolutely did. “What you don’t know with confidence is what will happen after that audit report is produced,” he added, adding that this might involve “market-driven” events and “unpredictable” customer reactions.

“A Royal Commission investigating the Major Consulting Companies is required. The bollocks they drive are on another level. #SVBCollapse following a clean bill of health from KPMG. FFS,” said a user, while another added, “What KPMG knew about the two banks’ financial predicament and what it overlooked will undoubtedly be the subject of regulatory inquiry and lawsuits”.

“A lot has been said and said about SVB’s demise and what caused it. Yet, little has been written about the audit and the clean bill of health they were awarded. Silicon Valley Bank went bankrupt just 14 days after KPMG gave it a clean stamp of health. “This raises questions about the integrity of such audit firms and the processes involved,” observed one LinkedIn user, while another joked, “Oh, the Big Four accounting firms are as reliable as ever.”

“Actions were taken in March that triggered a chain of events that resulted in the closure of those two institutions.”

Sandy Peters, head of worldwide advocacy at the CFA Institute, a professional organisation for investors, said authorities might look into the work done by KPMG to support its audit conclusion, particularly why it chose not to issue a going concern warning.

SVB’s reliance on customers in the technology industry may potentially raise issues about whether its financial reporting appropriately represented that concentration risk, she said. “People will want to know about the auditor; do you have a going concern memo in the audit file? What proof do you have?”