Auditors Didn’t Flag Risks Building Up in Banks – WSJ

When KPMG LLP gave Silicon Valley Bank a clean bill of health just 14 days before the lender collapsed, the Big Four audit firm flagged potential losses on loans as a so-called critical audit matter. But the audit opinion was silent on what actually brought down the bank—its unrealized bond losses and ability to hold them given a reliance on potentially flighty deposits.

“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,” said Erik Gordon, a University of Michigan business professor. “How could they miss the interest-rate risk?”

The current banking crisis is the first big test of critical audit matters, a measure designed to help investors decode risks and uncertainties buried in financial statements.

Source: Auditors Didn’t Flag Risks Building Up in Banks – WSJ