March 14, 2023
- Signature Bank, Silicon Valley audited by KPMG
- Auditors responsible for raising red flags about viability
Silicon Valley Bank and Signature Bank collapsed days apart within two weeks of their auditor KPMG LLP signing off on their books.
The Big Four audit firm’s responsibility included assessing the odds of whether the banks could survive the next 12 months. Regulators shuttered Silicon Valley and placed it into Federal Deposit Insurance Co. receivership two weeks after KPMG signed off on the bank’s financials. Signature Bank made it 11 days.
Auditors aren’t fortune tellers, but they are responsible for making sure corporate financials give a fair and up-to-date portrayal of the company’s financial health. With two clients collapsing within days of each other—Silicon Valley fell Friday, and regulators raced to shut down Signature Bank on Sunday night—KPMG’s work will come under scrutiny.
. . .
‘A Lot of Smoke’
But the close proximity between the clean audit reports and the crashes indicates important information was either missing or ignored, said Laura Posner, who represents institutional investors in securities fraud class actions and has sued Big Four audit firms previously.
Auditors should have considered whether liquidity challenges and threats from still-rising interest rates posed substantial risks to the company going forward, said Posner, a partner with Cohen Milstein Sellers & Toll PLLC.
“I certainly would argue that there are a lot of red flags, a lot of smoke,” she said. “The timing is really problematic.”
Read the complete article on Bloomberg Tax.