KMPG’s Auditing Scrutinized After Trio of Bank Failures

America’s biggest bank auditor is reportedly under fire after a trio of high-profile banking failures.

KPMG, one of the “Big Four” accounting firms, was the auditor for Silicon Valley Bank (SVB), Signature Bank and First Republic Bank, all of which were taken over by federal regulators in the last eight weeks.

And with KPMG having signed off on the health of the banks shortly before their downfall, questions are now being raised about the quality of its work, the Financial Times (FT) reported Wednesday (May 3).

“It’s a three-fer,” Francine McKenna, a former KPMG auditor who now lectures at the University of Pennsylvania’s Wharton School, told the FT. “It’s a dubious achievement . . . and we need tough action to back up tough talk from regulators.”

“You can’t expect auditors to know a bank run is coming,” said Kecia Williams Smith, a former auditor and regulator turned assistant professor of accounting at North Carolina A&T State University. “What is fair is to ask about an auditor’s risk assessment and whether they had the right audit procedures.”

PYMNTS has reached out to KPMG for comment but has not yet received a reply.

As noted here last month, KPMG concluded its audit of SVB 14 days before its collapse. Signature’s number received a clean bill of health March 1, less than two weeks before it was taken over by the Federal Deposit Insurance Corp. (FDIC).

“Auditors are supposed to issue warnings if companies are in trouble, particularly if those signs point to any doubts about an organization’s ability to continue as a going concern after the financial statements are audited,” PYMNTS wrote.

And while both SVB and Signature Bank were brought down within days of each other by customer bank runs that began after KPMG filed its audits, our report noted that “the timing is somewhat embarrassing given how short the period was between the well-regarded auditor’s financial health reports and the disastrous realities that played out.”

The FT report quotes accounting experts who say scrutiny of KPMG’s work could likely center on whether auditors were properly independent from the banks they examined, whether they paid enough attention to warning signs, and whether they had the capability to judge financial statements in light of rising interest rates.

The report adds there could also be questions about KPMG’s outsized role in the financial world, as it audits more banks than its competitors, with clients that include Wells Fargo, Citigroup, and Bank of New York Mellon, as well as the Federal Reserve.