While Silicon Valley Bank’s outside auditor KPMG LLP cited potential losses on loans as a critical matter two weeks before its collapse, the audit firm missed the inherent bond losses and unreliable deposits that took the financial institution down, The Wall Street Journal reported.
A KPMG spokesperson told FOX Business, “It’s important to recognize that audit opinions, which only address the financial statements and internal controls of the business, are based on audit evidence available up to and at the date of the opinion.”
The accounting firm gave Silicon Valley Financial an unqualified opinion as part of the company’s annual financial filing issued on Feb. 24 for the year ended Dec. 31, 2022.
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“Any unanticipated events or actions taken by management after the date of an opinion could not be contemplated as part of the audit,” KPMG added.
In 2017, the Public Company Accounting Oversight Board introduced ‘critical audit matters’ to make audit opinions more useful to investors. However, the new standard failed to pinpoint what caused depositors and investors to lose confidence in small to midsize banks in 2023, the WSJ reported.
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Smaller banks depend on deposits for funding, which are less reliant during economic downturn and can hamper the bank’s capacity to secure long-term assets.
According to the board, auditors are required to record any critical audit matters when reviewing a public company, which are defined as significant impacts on the financial statements and involve challenging, subjective, or difficult assessments.
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On Dec. 31, 2022, Silicon Valley Bank parent-company SVB Financial Group had $91 billion of held-to-maturity bonds on its balance sheet, with a fair value of just $76 billion, representing a $15 billion loss that erased most of the bank’s $16 billion in total equity at the end of the year.
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