KPMG under fire for failing to flag risks that brought down Silicon Valley Bank

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KPMG had audited the bank for nearly two decades. Less than a fortnight before the bank's failure, it

Critical audit matters

Valeria Martinez

KPMG had audited the bank for nearly two decades. Less than a fortnight before the bank's failure, it signed its final audit opinion.

KPMG has come under fire for failing to flag the risks that brought down Silicon Valley Bank in its audit of the bank two weeks before its collapse.

The Wall Street Journal reported on Monday (10 April) that the Big Four audit firm had flagged potential losses on loans as a so-called critical audit matter, but not of the unrealised bond losses that ultimately led to the bank's collapse.

KPMG had audited the bank for nearly two decades. Less than a fortnight before the bank's failure, it signed its final audit opinion.

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Critical audit matters were introduced in 2019 to inform investors of matters arising from the audit that required "especially challenging, subjective, or complex auditor judgement", and how the auditor responded to them.

Martin Baumann, a former chief auditor at the Public Company Accounting Oversight Board who had a leading role in designing the measure, told the WSJ Silicon Valley Bank's unrealised losses in its bond portfolio appear to "meet every definition of a possible critical audit matter".

Erik Gordon, a University of Michigan business professor, added: "The auditors failed to mention the fire in the basement or the box of dynamite on the first floor, but they did point out the peeling paint on the flower box. How could they miss the interest-rate risk?"

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Silicon Valley Bank bought US Treasuries while interest rates were close to zero, the value of which dropped sharply as rates shot up last year, leaving the bank with significant unrealised losses. 

As a result, it lost $1.8bn last month when it sold a sizable portfolio of bonds. It tried to raise more than $2bn to close the hole in its balance sheet, but this led to a bank run as its loss report and fundraising attempt alarmed investors and depositors.

KPMG has been contacted for comment.