KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse

KPMG issued a favorable report on SVB and Signature Bank just weeks before the latter’s collapse.

#KPMG #Gave #SVB #Signature #Bank #Clean #Bill #Health #Weeks #Collapse

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Never forget that KPMG also knew Wells Fargo was making fake accounts and fake credit lines but KPMG basically said it wasn’t their job to report it.


[Source 2 (no paywall)]('t-think-they-were-material-081817)

To be fair to KPMG here, they simply stated that all of their financial statements matched up and all losses were accounted for. Plus, this was before they audited before the bank run.


As an ex auditor – to be fair: an auditor does not issue an opinion on the firm’s health or lack thereof. The auditor gives an opinion on whether the financial statements have been prepaered in all material respects in accordance with applicable reporting framework.

In SVBs case to my knowledge there was no misstatement in its FS. All lossess were properly accounted for and disclosed.

An argument can be made on whether a going concern clause should have been raised (i.e. auditor’s doubt in svb’s ability to conduct business for the next year). However, the main problems of SVB came due to a significat amount of withdrawls. Well, to be fair – any bank would probably go tits up if let’s say even a 30% of deposists were to be recalled at one time. Just the business model that implies a liquidity gap. So giving GC modification based just on the possibility of a significant withrawal is neither prudent nor, it can be argued, ethical – as signing such an opinion would probably cause such a withdrawal in the first place (a self fulfilling prophecy basically)

So no, the auditors are not to blame here I would say.


Title makes no sense. Audits are only required to make sure each company is following GAAP so financials are comparable.

CPA here – 20 years experience.


ITT: people that have absolutely no idea what an audit opinion is, or what auditors do


Yeah sorry KPMG probably didn’t do anything wrong here.

There was nothing wrong with their capitalization and reserve requirements. This was a good old fashioned bank run because investors got spooked and trying to make.ot more than that is incorrect.


That’s because they were in decent shape until Peter Thiel started the run.


Your doctor can give you a clean bill of health moments before you walk out a door and in front of a bus.


Just remember Dodd Frank due to the GFC put in stress testing for banks 50B+. Trump (lobbied by SVB) rolled that to 250B+ and SVB made sure to stay under that threshold.


Well, it is not like SVB committed any actual fraud. (As far as we know.)

Their numbers did add up correctly.

It was what they added up to that was bad, but they didn’t lie about that.

If the company that gets audited puts all their money into lottery tickets and correctly writes that down in their book, the accountants will not see a problem with that.

There are other people and institutions whose job it is to look out for that sort of thing.


It was a bank run that brought down SVB. The feds raised interest rates, the low interest bonds SVB (like all banks) held dropped in value, they had to sell some at a loss to keep enough cash on hand. Peter Theil finds this out, decides the bank is in trouble, pull all his money out and tells all the startups he funds to do the same, word spreads, and it’s a self fulfilled prophecy. Did SVB do anything particularly bad, no.


Article Text –

Accounting firm faces scrutiny for audits of failed banks

Silicon Valley Bank failed just 14 days after KPMG LLP gave the lender a clean bill of health. Signature Bank went down 11 days after the accounting firm signed off on its audit.

What KPMG knew about the two banks’ financial situation and what it missed will likely be the subject of regulatory scrutiny and lawsuits.

KPMG signed the audit report for Silicon Valley Bank’s parent, SVB Financial Group, on Feb. 24. Regulators seized the bank on March 10 after a surge of withdrawals threatened to leave it short of cash.

“Common sense tells you that an auditor issuing a clean report, a clean bill of health, on the 16th-largest bank in the United States that within two weeks fails without any warning, is trouble for the auditor,” said Lynn Turner, who was chief accountant of the Securities and Exchange Commissionfrom 1998 to 2001.

Two crucial facts for determining whether KPMG missed the banks’ problems are when the bank runs began in earnest and when the bank’s management and KPMG’s auditors became aware of the crisis.

What is known about Silicon Valley Bank is that deposit outflows accelerated last month. In its March 8 statement, Silicon Valley Bank said “client cash burn has remained elevated and increased further in February.” The bank said its deposits at the end of February were lower than it had predicted in January.

Both bank audits were for 2022, so auditors weren’t scrubbing the banks’ books for the time period when they ran into trouble. But auditors are supposed to highlight risks faced by the companies they audit. They are also supposed to raise important issues that occur after companies close their books and before the audit is completed.

A spokesman for KPMG declined to comment on the specific audits, due to client confidentiality. In a statement, the firm said it isn’t responsible for things that happen after an audit is completed.

Gold rates today near life-time peak. Silver price at 5-week high. Buy or sell?

Silicon Valley Bank’s deposits peaked at the end of the first quarter of 2022 and fell $25 billion, or 13%, during the final nine months of the year. That means deposits were declining during the period of KPMG’s audit. If the decline was affecting the bank’s liquidity when KPMG signed off on the audit report, that information likely should have been included. Since it wasn’t, the question becomes, did KPMG know or should it have known what was going on?

Auditors are supposed to warn investors if companies are in trouble. They are required to evaluate “whether there is substantial doubt about the entity’s ability to continue as a going concern” for the next 12 months after the financial statements are issued.

Auditors also use their reports to highlight “critical audit matters” that involve challenging, subjective or complex judgments. KPMG in that section of its report focused on the accounting for credit losses at Silicon Valley Bank. But it didn’t address Silicon Valley Bank’s ability to continue holding debt securities to maturity—which, in the end, the bank lacked.

Even if the bank wasn’t struggling last year, KPMG was required to evaluate developments that occurred after the balance-sheet date so the company’s financials were presented fairly.

Signature Bank, which was seized by regulators on Sunday, also faced a run last week but it didn’t have the same balance-sheet issues as Silicon Valley Bank. KPMG signed off on its audit on March 1.

Signature’s bet on the crypto industry led to a surge in deposits, which went into reverse as that market struggled. A large amount of its deposits were uninsured, making it more likely the customers would flee at any sign of trouble. But it hadn’t disclosed the same losses on its investments as Silicon Valley Bank, giving it a greater ability to pay depositors.

The auditing firm could face additional scrutiny. KPMG also audited First Republic Bank, whose shares were down 76% Monday morning, even after the bank got a liquidity boost from JPMorgan Chase and the Federal Reserve.

KPMG’s audit work likely will be scrutinized by regulators, including the Public Company Accounting Oversight Board and the SEC, as well as private litigants that lost money when Silicon Valley Bank collapsed, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. A shareholder lawsuit against the firm concerning its Silicon Valley Bank audit“won’t be an easy one for people to win, even though the timing is spectacularly embarrassing for KPMG,” Mr. Gordon said.

A PCAOB spokeswoman said the regulator “cannot comment on ongoing inspection or enforcement matters.” An SEC spokesman declined to comment on the Silicon Valley Bank audit.

One argument KPMG could try in court is that the run on the bank started after the firm signed its audit report. A state banking regulator, the California Department of Financial Protection and Innovation, in a filing Friday said the bank was “in sound financial condition prior to March 9,” when depositors withdrew $42 billion.

Douglas Carmichael, the PCAOB’s chief auditor from 2003 to 2006, said it was unclear how the California regulator could have determined the bank’s financial condition. “It seems like a premature analysis. How could they know without examining?” he said.

“Auditors are always under the microscope when the company fails shortly after the issuance of a clean opinion,” Mr. Carmichael said. “The shorter the period, the greater the concern would have to be.”

Silicon Valley Bank almost doubled its assets and deposits during 2021. It got in trouble because it bought long-term, low-yielding bonds with short-term funding from depositors that was repayable upon demand. Accounting rules said it didn’t have to recognize losses on the assets as long as it didn’t sell them. When rising interest rates caused the bonds’ value to drop, it got stuck in them, and they kept falling. Silicon Valley Bank still had to maintain enough liquidity to pay withdrawals, which became increasingly difficult.

The $1.8 billion investment loss Silicon Valley Bank disclosed last weekstemmed from Silicon Valley Bank’s decision to sell all its “available for sale” securities during the first quarter. Silicon Valley Bank didn’t say when it started or when it completed the sales. It isn’t clear if Silicon Valley Bank used the proceeds of those sales to help cover withdrawals.

In the March 8 disclosure, Silicon Valley Bank said it expected to reinvest proceeds from the sales. But money is fungible, and it is unclear if selling the available-for-sale securities may have freed up other sources of cash to help pay departing customers.

Most of the capital hole in Silicon Valley Bank’s balance sheet was in government-sponsored mortgage bonds that Silicon Valley Bank classified as “held to maturity.” That label allowed Silicon Valley Bank to exclude unrealized losses on those holdings from its earnings, equity and regulatory capital.

In a footnote, Silicon Valley Bank said the fair-market value of its held-to-maturity securities was $76.2 billion as of Dec. 31, or $15.1 billion below their balance-sheet value. The fair-value gap was almost as large as Silicon Valley Bank’s $16.3 billion of total equity—which, KPMG could point out, is something anyone reading the financial statements could have seen.

Silicon Valley Bank stuck to its position that it intended—and had the ability—to hold those bonds to maturity. KPMG allowed the accounting treatment. Now it will be up to the Federal Deposit Insurance Corp. to sell the securities.

The bank’s troubles put KPMG in a no-win situation. If it had called attention to Silicon Valley Bank’s falling deposits, or issued a warning about Silicon Valley Bank’s ability to continue as a going concern, it could have set off a run on the bank. By not raising these issues, it will face questions about how it missed the signs that the bank was headed for trouble.

One of the agencies likely to ask pointed questions of KPMG is the FDIC. After a bank fails, the FDIC’s Office of Inspector General regularly conducts investigations and publishes detailed reports called failed-bank reviews that identify the causes of the collapse and the parties most responsible.

Such reports are studied carefully by private litigants eyeing defendants to sue for damages. On that front KPMG caught a break over the weekend: The government said it would backstop all of both banks’uninsured depositors, in effect helping to bail out KPMG as well. The backstop won’t affect losses suffered by the banks’shareholders.


r/accounting feasting on some of these takes


Auditors audit financials not regulatory reserves.


That’s not really the purpose of an audit. We don’t opine on whether or not they make smart investments, we issue an opinion on their financial statements. This is an operations failure, not a regulations failure.


Because the investment strategies that SVB was involved with is the industry norm across the board.


It’s amazing how many big business failures we’ve had in the last two decades. I had an accounting professor that truly believed that the Big 5 (before Andersen fail) had a line that they would never cross when performing an audit. Well that line had basically been obliterated. It seems like the new line is, if you’re affable, have a positive public profile, and have a network and gobs of money, they’ll give you any opinion that you want. I think it’s fair to ask, do the Big 4 even understand some of the businesses that they’re auditing so as to address going concerns?


If it was the job of an auditor to say “If there’s a bank run, this bank will fail” then they’d have to say that about literally every bank they audit.

This SVB bank failure really isn’t what most of the public thinks it is. This is not comparable to 2008. SVB wasn’t taking on crazy risk, they got caught in a liquidity trap because they couldn’t offload what most people consider to be one of the safest assets without taking a huge loss. The reason they needed to take a huge loss was because interest rates have skyrocketed. This is just a weird situation all around and I don’t think it’s fair to blame SVB.


Lots of armchair accountants in this thread.


Auditors make sure the rules and regulations were done.

If SVB decided to over leverage themselves on government bonds, but they followed policy in doing so, then the auditor is fine is giving the green light.


The KPMG part of this story is a giant nothing burger.

SVB had statements saying:

* what they own and what they owe to others

* how much money they made last year

* how much cash they brought in last year

KPMG verified:

* yes they do own those things and yes they do owe those things to others

* yes they did make that much money

* yes they did bring in that much cash

Finally, if you want to talk going concern, [the 3rd paragraph in this comment addresses it pretty well.](

Blaming KPMG for anything really in this situation just shows you have no idea what you’re talking about.


So there’s some misunderstanding about what CPAs do and don’t do.

Let’s be very clear. SVB was profitable. Did they have credit risk issues? Potentially? Yes they did.

Were those disclosed properly? I don’t know I haven’t looked.

This bank failing wasn’t from financial performance. It was because of a run as well as improper liquidity standards from reduced regulation.

Let’s be Very clear about that when we talk about this


Read the letter at the beginning of the financial statements for every accounting firms CYA statement. No audit guarantees a “clean bill of health”


KPMG were in a tough spot on this one, issuing an adverse opinion on the audit could have tanked shares and caused a run on the bank. Or they issue clean with a bunch of management recommendations (which most likely all got ignored) and this all still happened and it blew up in KPMG’s face. But what they forgot is telling the truth still looks the best when everything thing hits the fan.


I’m surprised that WSJ wrote this article. Nothing in SVB’s financial statements would have warranted KPMG refusing it unless there are mis-statements or fraud. If it turns out that there were fraudulent activity going on and their financial statements were phony, only then would this be an issue.


It’s not a good look for KPMG and it fits in with a string of other equally inadequate audits by other accounting companies in the financial realm


Here’s the thing: SVB actually had a clean bill of health. It would have passed every stress test, even the more stringent ones for the biggest banks. Go find Kevin Drum’s write up if you are skeptical

This was a Silicon Valley tech bro bank run. And that’s far scarier.


This headline is so disingenuous that this article should be taken down as misinformation. It serves no purpose but to confuse and mislead.


Just like Moody’s and other firms that cater to the financial industry: if you speak critically of your clients, you won’t have any more clients. Yay Capitalism!


“Clean bill of health”

I do not think that phrase means what you think it means


And no Fed stress testing as per their lobbyists.


Never quite understood how rating agencys made it out alive from the subprime crisis, those papers had AAA ratings up until shortly before collapse


A stress test, not an audit, is what could have predicted this. They were not subject to stress tests by regulators because they lobbied a republican congress and president to change the requirements for bank stress tests


As counterintuitive as it seems, SVB appears they were solvent and that it would have even passed the stringent LCR liquidity requirements on larger banks.

The problem is depositors mistook a routine bond sale as a sign that SVB was having problems, and the executives couldn’t calm their nerves, driving a panic and run on the bank. A 25% bank run. No bank could have survived a 25% run regardless of interest rates.

Also note, nearly every bank has longer dated bonds with lower interest rates. It wasn’t the type of investments they had, it was purely the run on the bank that caused this.


KPMG couldn’t predict that tech bros are sheep and there would be the world’s first Twitter bank run.


Basically “John’s dentist confirmed they had no cavities and all teeth we accounted for weeks before he was hit by a bus”


Well if all those people didn’t want their money back ….

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