The quality of KPMG's audit work has returned to the spotlight after two banks — Silicon Valley Bank and Signature Bank — failed within days of the auditor signing off on their accounts.
"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, former Chief Accountant of the Securities and Exchange Commission (SEC).
Silicon Valley Bank was seized by regulators on March 10 after poor capitalization led to a surge of withdrawals that threatened to leave it short of cash. Signature Bank, which regulators seized on March 12, faced a run on its deposits but did not have the same balance-sheet issues as Silicon Valley Bank. Instead, it had made a bet on crypto assets that led to an increase in deposits, which reversed as the market struggled. KPMG had signed off on the accounts of both banks within 14 days of their collapse.
According to Erik Gordon, a professor at the University of Michigan's Ross School of Business, KPMG's audit work will likely be scrutinized by regulators, including the Public Company Accounting Oversight Board (PCAOB) and the SEC, as well as private litigants that lost money in the collapses.
KPMG may soon face even more scrutiny for its audit of First Republic Bank, which is struggling to stay afloat even following a liquidity boost from JPMorgan Chase and the Federal Reserve.
Starling will soon publish "Renal Failure: A Crisis in Audit Culture?", a Deeper Dive supplement to our 2022 Compendium, which will discuss the recent rash of scandals in the audit profession and how it impacts society at large. Join Starling Insights to be alerted when it is released!