KPMG stands by Silicon Valley Bank and Signature Bank audits

KPMG’s US chief said he stands behind his audits of Silicon Valley Bank and Signature Bank, which collapsed within days of the release of annual reports certified by the Big Four accounting firm.

Paul Knopp said his audit work considered all facts available at the time the reports were published and that “market events” in the intervening days caused the banks to fail.

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

Before publishing an annual report, auditors must assess whether there are significant doubts about a company’s ability to survive in the coming year. In case of doubt, an auditor’s report included in the auditor’s report would have to contain a “continuation notice”, which, however, was not available at either bank.

KPMG signed its audit opinion on SVB on February 24, exactly two weeks before the bank was seized by regulators after a bank run. The Audit Opinion on Signature is dated March 1st, 11 days before it was confiscated. Depositors fled after focusing on losses in banks’ fixed income holdings and the small proportion of deposits backed by a government guarantee.

“As we take into account everything we know today. . . We stand behind the reports we have issued and believe we have met all professional standards,” Knopp, chief executive of KPMG in the US, said Tuesday at an event at the NYU Stern Center for Sustainable Business.

“You are responsible for considering all the facts known to you until the day you issue the audit report, so we absolutely did that. But what you can’t know for sure is what might happen after this audit report is issued,” he said, adding that this could include “market-driven” events and the “unpredictable” reactions of customers.

“In the month of March, measures were taken that triggered another series of reactions that led to the closure of these two institutions.”

Sandy Peters, head of global advocacy at the CFA Institute, a professional association for investors, said regulators may review KPMG’s work to support its audit opinion, including why KPMG decided not to include a going concern warning.

SVB’s reliance on clients in the technology industry could also raise questions about whether its financial reports adequately reflect this concentration risk, she said. “People will want to know the auditor, do you have a going concern memo in the audit file? What evidence did you take for that?”