KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse (wsj.com) 103
Silicon Valley Bank failed just 14 days after KPMG gave the lender a clean bill of health. Signature Bank went down 11 days after the accounting firm signed off on its audit. From a report: What KPMG knew about the two banks' financial situation and what it missed will likely be the subject of regulatory scrutiny and lawsuits. KPMG signed the audit report for Silicon Valley Bank's parent, SVB Financial Group on Feb. 24. Regulators seized the bank on March 10 after a surge of withdrawals threatened to leave it short of cash. "Common sense tells you that an auditor issuing a clean report, a clean bill of health, on the 16th-largest bank in the United States that within two weeks fails without any warning, is trouble for the auditor," said Lynn Turner, who was chief accountant of the Securities and Exchange Commission from 1998 to 2001. Two crucial facts for determining whether KPMG missed the banks' problems are when the bank runs began in earnest and when the bank's management and KPMG's auditors became aware of the crisis.
they sell (Score:5, Funny)
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The most expensive rubber stamp is probably McKinsey's, but I would agree KPMG is up there as a contender.
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It's as bad as ISO9000. People treat it like some sort of proof of quality, but in fact, if the auditors see someone complete a unit, then hurl it across the factory floor such that it hits the wall and lands broken in a pile, as long as the documentation says that's what he's supposed to do, the box gets ticked and all is well as far as they're concerned.
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Where did I say the auditors don't know their job? Their job is to make sure things are done consistently as documented and I described auditors doing that.
Of course, that provides no assurances of consistency between products, they could be documented to be different and that would pass.
Though like any certification where the auditee is paying the auditor, there is likely to be some give and take. Probably more than the auditors would like.
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Of course, that provides no assurances of consistency between products, they could be documented to be different and that would pass.
When I write about the item you can buy, I mean the same brand and same model. I didn't realise that could somehow not be evident from my point... And no, they can't make that differently and get away with it just by documenting it. It would have to be a different part / model. Whe
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A common tactic is to produce a "Walmart special" item that differs only by SKU with significantly lower quality and/or de-featured. Often special for Black Friday.
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due dilligence vs. audit... (Score:1)
...are two different things.
Here the topic is the audit work at SVB.
(Not that an audit should not be diligent, though...)
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They sell the world's most expensive rubber stamp
Possible, but I'll also go with lowered federal requirements (which they lobbied for and got in 2018) led to a weakened ability to withstand the mass withdrawals that happened after some people got (depending on your point of view) nervous or mad. Didn't take long after Thiel pulled his money, and telling his companies they should pull their money, from SVB for them to be sunk. Now one could see that as forward thinking, but perhaps there should be some seizure of messaging servers and emails from all comp
Re: they sell (Score:1)
Itâ(TM)s not just 1 bank, itâ(TM)s multiple and everyone agrees it is because of poor management at the Fed, inflation etc. Trying to pin blame on 1 investor is a bit of a cop out. As long as the Fed promises and continues to bail out these banks, this will continue to happen. The Fed set the reserve rate to 0% and expanded the overnight credit repo to $1.5T with a $700B quantitative easing program soon after Biden came to office. Something tells me that making the same mistake from the 2009-2013
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Not that the Democratic Party is blameless, but blaming Biden is a bit rich when TFG and Republican leadership (with lobbyists) crafted the monstrosity that removed stress testing for SVB.
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Even Barney Frank (D-MA), the guy with the name on the Dodd-Frank act said the Dodd-Frank act wouldn't have done anything to stave the disaster in the bank Barney Frank himself was on the board of.
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https://popular.info/p/silicon... [popular.info]
Turn off the Fox News man, you're embarrassing yourself.
As a note: Remember how I said Democratic members weren't blameless?
https://www.grid.news/story/ec... [grid.news]
Retired Barney Frank was one of th
Re:they sell (Score:4, Interesting)
Yeah, A company that we were working with once insisted that we got a third party audit done. It was such a joke. They basically just checked that we were following our own procedures that we created for ourselves. It really didn't even matter if those procedures actually made any sense or had any real value.
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Yeah, A company that we were working with once insisted that we got a third party audit done. It was such a joke. They basically just checked that we were following our own procedures that we created for ourselves. It really didn't even matter if those procedures actually made any sense or had any real value.
Yep, this is what happens when industries are permitted to self-regulate.
Of course we're following the code we wrote to benefit us.
Comment removed (Score:4, Insightful)
Too Medium To Fail (Score:4, Interesting)
One difference between now and the 2007 crisis is that the "Intertubes" spread rumors faster and wider, magnifying panics. Medium-sized banks may need more regulation to match the big dogs, because a rash of medium-sized bank failures can also crash the economy.
We have to start viewing banks as financial infrastructure, not just businesses. Businesses need a safe place to put their cash in a way that's not trampled during Intertube panics.
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One difference between now and the 2007 crisis is that the "Intertubes" spread rumors faster and wider, magnifying panics.
One difference between now and 2007 is a single fucking tweet from the wrong influencer billionaire can cause this now. That's how much value we put in one or two (biased) opinions out there, and it's even worse today when you consider there's still an actual market for selling hype and bullshit.
And no, we don't have to consider banks as some kind of entity that cannot fail. Taxpayers have paid enough for that shit. You run any business badly or corruptly, you should be punished. As in shut the fuck dow
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> And no, we don't have to consider banks as some kind of entity that cannot fail. Taxpayers have paid enough for that shit. You run any business badly or corruptly, you should be punished. As in shut...
Don't get me wrong, I like to see jerks punished as much as anybody, but when the economy is having the jitters, too many failing at once creates a ripple affect that spreads to everybody, not just the bad guys. Regular folks get "punished" for the misdeeds of such jerks.
> The real answer is for busine
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Don't get me wrong, I like to see jerks punished as much as anybody, but when the economy is having the jitters, too many failing at once creates a ripple affect that spreads to everybody, not just the bad guys. Regular folks get "punished" for the misdeeds of such jerks.
A healthy bank is a healthy bank. If people want their money then they should be able to have it.
Regulations can garantee that for every depositor. If they don't then it's the system that's corrupt.
In this case it sounds like a few bankers and/or auditors need throwing in prison. At least one of them was lying.
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Were you born a clueless moron, or did you work hard to become one?
The only way for a bank to guarantee that 100% or depositors have access to 100% of their deposits 100% of the time is to - (drum roll) hold on to 100% of the deposits 100% of the time! Ergo, the bank isn't a bank, but a safe deposit company. Meaning, you will have to pay the bank to hold your money as they have no other way to fund any of their operations.
One of the ways a bank makes money is to take the deposits and lend a portion of the
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An interesting point and unarguably true. However, does it really apply here? I mean wasn't the loss like 1% of their holdings and the run was like 25% of their holdings in a day? I mean that is 2x what any of the other banks is required to be able to endure.
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The customer base was very particular where by a small number of customers could start a sizable run and the correlation between these customers is very high. This isn't the same for traditional banks.
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And no, we don't have to consider banks as some kind of entity that cannot fail. Taxpayers have paid enough for that shit. You run any business badly or corruptly, you should be punished.
QFT. ...and the only way to stop it is to start throwing bankers in prison. Iceland did it and there have been no downsides, quite the opposite in fact - their economy started booming soon after.
https://grapevine.is/news/2018... [grapevine.is]
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And no, we don't have to consider banks as some kind of entity that cannot fail. Taxpayers have paid enough for that shit.
Taxpayers hardly paid anything for the 2008 bailout.
Really? Tell that to every person who lost their job due to it, which also had the ripple effect of losing cars, homes, families, stability and sanity.
Hell, I was one of the lucky ones and even I can still see that obvious impact. Don't be so damn ignorant in your bubble next time.
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I wouldn't say discount the intertubes entirely, but don't value the opinion of one rich dude so much. This worship of people with a lot of money as if it means anything but born on 3rd base and got lucky is the problem.
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One difference between now and the 2007 crisis is that the "Intertubes" spread rumors faster and wider, magnifying panics.
Now if you said the '89-90 S&L crisis, that would be something. However literally everyone I know, even folks pretty far outside of IT were refreshing market watch every 5min in 2007. The smart phones have turned up the speed a little but for the most part the panic crisis was no less and no more internet driven.
banks are not infrastructure, that kind of thinking just sets up a new aristocracy, banks are businesses and they should be treated like businesses. That is allowed to fail and in some cases a
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Gov't is one tool of society, private enterprise is another. Neither is the best tool for all jobs, they screw up in different ways for different reasons. It's a matter of balancing to keep things in check. Perfection is not an option, but a reasonable compromise and balance is.
yet another conspiracy, zzzzz... (Score:1)
P.S. As far as your sabotage conspiracy theory, this is Slashdot, not a church. We expect solid evidence, not gut feelings.
WRONG (Score:5, Informative)
that the bank has (and always had) enough assets to cover its liabilities
Sorry but this is utterly wrong.
The assets they have only can cover liabilities (depositors) *IF* allowed to hold to maturity.
But because of interest rate rises the long term assets SVB had are worth much less now - they have bonds for example paying 1% over ten years, and as you can imagine no-one wants to buy such a crappy bond at face value if they can buy one now at 5%, so the sale value is less than face.
This is the major problem is that assets that if sold now would be worth much less, are not recorded (the whole mark to market issue). So an auditor can pass a clean bill of health even though the bank is in reality completely insolvent as SVG was, because there was literally no way to cover all depositors in the short term.
All you can do is ignore audits and look at every bank to determine the overhang that exists.
the bank was unhealthy (unlikely)
Unlikely eh? Then why did the CEO and other high level execs sell off millions in shares a week before the bank was closed?
Why were a number of insiders able to get all money out of the bank days in advance of the closures?
Pretty obviously the bank was far, far from healthy and they knew the hammer was coming. All actual action points to that effect.
The next few months should be interesting.
Months? Won't be that long.
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Re:WRONG (Score:4, Informative)
The Financial Times article on the bank's demise says the portfolio dropped in value by $15bn dollars, so considering the size of the portfolio, that is a pretty significant shortfall, I'd say. Assuming the FT's numbers are right, but they usually are.
"Searching for yield in an era of ultra-low interest rates, it ramped up investment in a $120bn portfolio of highly rated government-backed securities, $91bn of these in fixed-rate mortgage bonds carrying an average interest rate of just 1.64 per cent. While slightly higher than the meagre returns it could earn from short-term government debt, the investments locked the cash away for more than a decade and exposed it to losses if interest rates rose quickly.
When rates did rise sharply last year, the value of the portfolio fell by $15bn, an amount almost equal to SVB’s total capital. If it were forced to sell any of the bonds, it would risk becoming technically insolvent."
FT Article [ft.com]
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If I had not been so careful, I would have lost my house.
The bosses of this shitty bank did not act as carefully as me and took a stupid risk.
Will they lose their houses?
Why not ?
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They are not misunderstanding. They are on the other side of the deal.
When interest rates are low BORROWERS should lock in those rates. LENDERS should avoid doing so.
SVB in this case was lending money to the US Treasury. They locked in low rates which was reckless. *** Part of the regulatory reform had to been to require mark to market for balance sheets. If SVB had been required to mark to market, their balance sheet would have shown deterioration immediately when the Fed started raising rates, and S
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No, he's just saying if you give out too many loans when interest rates are low, you'll run into problems when they go up.
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I am saying that if *I* had taken risks with my finances and those risks did not work out, *I* would have lost my home.
The bosses of this shitty bank took risks with the bank's finances and those risks did not work out.
So will they lose their houses?
Why not ?
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To be fair, the banks, all of them, all over the world, probably should have started hiking their fixed rates before they did. In general the "everybody should own a house" line that pretty much everybody pushes exposes economies to just this sort of situation. If it's not individuals exposed to massive risk with variable mortgages, its banks exposed to the same risk with fixed ones.
It is pretty ironic that the OP is patting himself on the back for his prudence in taking out a fixed rate mortgage and chasti
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All right, why don't you tell us what you think their stupid risk was then?
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You replied to my comment. I not only read it, I wrote it.
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Look up the thread.
Work out what is going on.
Hint: When someone quotes something, it means they are referring to a *previous comment*.
Come back and apologise for your abject stupidity.
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It all works great until your depositors come and demand 25% of their money. Commercial banks' primary business is borrowing money at variable, short term rates (they call these "deposits") and lending it in long term variable or fixed formats (bonds, mortgages, business loans).
If your creditors, er, depositors decide they want a good chunk of their money back and you're in a weird situation where nobody wants to buy your long term loans, you've got a problem.
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Okay dude, have a nice day.
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If your creditors, er, depositors decide they want a good chunk of their money back and you're in a weird situation where nobody wants to buy your long term loans, you've got a problem.
Which is why you don't use demand-deposits to fund long-term loans. I think I've said this in every post. I'm happy to clarify again but it might help if you ask questions instead of making statements. Banks have multiple ways to fund loans. The longest-term is the owners' money (tier 1 capital). Then they can issue long-term bonds (10 years plus) to get funding. They can find depositors who will agree to longer-term deposits (certificate of deposit) in exchange for higher interest-rates. In some cas
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but given what's come out since, that the bank has (and always had) enough assets to cover its liabilities [...] there's actually no good reason to assume KPMG was automatically wrong for positively rating the bank.
Just having enough money to cover your liabilities only means a company isn't insolvent. Not that a company is healthy. It was SVB's $1.8 billion in surprise unrealized losses which caused the bank run. This is the type of thing I (as a lay person) would expect auditors to find. If auditors cannot find out that a bank barely has enough money to cover its liabilities, what good is doing an audit in the first place?
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It was SVB's $1.8 billion in surprise unrealized losses
Here's a fun fact, they were not a surprise at all. Many people have been pointing out these unrealized losses by various banks for years now.
This is the type of thing I (as a lay person) would expect auditors to find.
By current law, auditors are not allowed to mark the unrealized losses as losses.
It might be something you would WANT them to be able to add to review, but again they are literally not allowed to record those losses.
But it doesn't reall
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> If auditors cannot find out that a bank barely has enough money to cover its liabilities, what good is doing an audit in the first place?
Like military Generals, auditors tend to prepare for the patterns of the last war. If future wars are different, they are caught off guard.
The "failure" seems to be a combination of not factoring in interest rate changes well enough, and "internet panic" spreading faster than it has in the past.
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> The "failure" seems to be a combination of not factoring in interest rate changes well enough, and "internet panic" spreading faster than it has in the past.
They didn't have a CRO for 9 months and had a bunch of assets that aren't currently valuable enough to cover deposits, so once people realized this, what were they supposed to do? The bank had already effectively lost their money. I know that no CRO doesn't mean that nobody is sitting at the risk desk, but the fact that they were forced out in we
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If we accept that this was the bank of Silicon Valley small business, the so called start up, we must also admit many of these are borderline Ponzi schemes. They have no business plan other than to get more funding to cover costs and pay off
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It was a combination of your second and third items [cnn.com].
Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.
In the day leading up to the bank's collapse, multiple prominent venture capitalists took to Twitter in particular, and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash. Founders and CEOs then shared tweets about the concerning situation at the bank in private Slack channels, according to The Wall Street Journal.
On the other side of a screen, startup leaders raced to withdraw funds online - so many, in fact, that some told CNN the online system appeared to go down. Still, the end result was a modern race to withdraw funds, which House Financial Services Chair Patrick McHenry later described in a statement as " the first Twitter fueled bank run."
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If it couldn't survive one rich dude suggesting people bank elsewhere, it was necessarily not healthy.
In essence, you're saying he was healthy as a horse until that giant glob of fat in his arteries broke free and blocked several sclerotic coronary arteries.
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> , that the bank has (and always had) enough assets to cover its liabilities
In a mark to market liquid model .. I suspect not which is why they were taken over
> just something to help liquify the bank's assets at fair market value
No - the bank didn't need this to sell assets at a fair market value. There issue was that they needed to sell them above the fair market value.
The issue was that their assets were poorly structured in such a way that they couldn't withstand a small run without critical dam
Re: I wouldn't assume anything (Score:2)
From reading their 10-K filing in Feb, it looks like they were aware. KPMG is the best banking Auditor in the world. I am not kidding, this is their bread and butter. Some of the most boring stuff to read too!
People need to understand what Auditors do. And that they look at LAST years numbers and growing concerns. The banks 10-K doesn't look great. The financials do, but it's pretty obvious the bank was on thin ice and the markets were only getting hot & humid. I am sure Feb's 10-K already played a pa
You didn't need to be an auditor (Score:5, Informative)
https://seekingalpha.com/artic... [seekingalpha.com]
Buy high and sell low is not a good strategy. I don't know what they audited. The audit probably was not an assertion that the bank was well run but rather that the financial statements were accurate (which they were).
It was likely due to those accurate financial statements that SVB had no chance of attracting new investors. Why the stock was trading at insane prices is a different question.
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https://slashdot.org/comments.... [slashdot.org]
Bank runs are only catastrophic in a sick economy. Governments shouldn't be in any business, especially insurance, they are incapable of running any business. However the current situation is not about SVB or its clients, it is about government bonds - preventing bank runs on other banks, preventing realization that US debt IS garbage, just like mortgage debt was garbage back in 2008. USA just gave up on the US dollar, the Fed admitted that it cannot raise interest rates, th
Prediction: (Score:1)
"KPMG files for bankruptcy, causing a panic in auditing investments."
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My father was a partner in KPMG at a small regional office at the time. There was actually a move afoot to merge Arthur Andersen and KPMG before the whole Enron scandal. However, the KPMG partners voted the merger down because there was something hinky about Arthur Andersen's books.
KPMG is the son of Arthur Anderson? (Score:2)
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What happened to Arthur Anderson after Enron, I wonder.
It's easy enough to look up. The company broke apart, becoming Accenture, Protiviti and Anderson Tax.
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I assumed KPMG was a lite-rock radio station.
KPMG did nothing wrong (Score:5, Interesting)
What a lot of people fail to understand here is that KPMG is only allowed to record things in a certain way determining the value of a bank, by the current rules long term assets are recorded at face value even if actual sale value today is vastly less.
What could KPMG have done differently? They recorded the values of assets held as they are according to the rules, they literally can't do anything else.
That number recorded was higher than the value of deposits, even though if a lot of people needed money out assets would have to be sold for far less than recorded value.
If you want to find blame blame the rule that doesn't force banks to mark assets to market values on a regular basis.
Re:KPMG did nothing wrong (Score:4, Informative)
What could KPMG have done differently? They recorded the values of assets held as they are according to the rules, they literally can't do anything else.
Done differently? What makes you assume they want to? Let's stop pretending KPMG doesn't need to kiss and lick the hand that's feeding them.
Gut feeling is we'll find a few representatives of KPMG standing alongside banking lobbyists, defending their right to make millions by letting things slide more than usual. Rules for thee often includes those who exist because of rules for thee.
Put another way, this is hardly the first time KPMG has been in the spotlight for a questionable audit. They're practically infamous for it now, and yet they're still one of the "best" out there? That doesn't happen by accident.
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> recorded the values of assets held as they are according to the rules, they literally can't do anything else.
Can auditors give "suggestions" or "side warnings" even if the rules limit their formal assessment score? That may not be good enough to hold of rippling problems, but it's a start.
Re:KPMG did nothing wrong (Score:4, Interesting)
And this is the thing that a lot of people don't understand about balance sheets.
I attend a small church in a big city. The church acquired the property upon which it operates 80 years ago for the princely sum of $2,500. The property is now worth north of $5,000,000. Every AGM, when we go through the financials with the congregation at the Annual General Meeting, there is inevitably someone who asks why the property is still recorded as $2,500 when it's worth so much more.
It's because that's how the accounting works.
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It's because that's how the accounting works.
That's how US GAAP accounting works. IFRS allows for and encourages ongoing revaluation of assets like property.
Under IFRS rules the Silicon Valley Bank would have been required to report the bonds at fair value, what they were currently worth on the market. The difficulties they were facing would have been absolutely clear.
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going concern (Score:1)
What could KPMG have done differently?
Well, they should have expressed their doubts about the bank's ability to continue operating in the foreseeable future. Which they did not, apparently (didn't read TFA).
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Which they did not, apparently (didn't read TFA).
The TFA was written by an idiot; I am correcting the idiocy. That was the whole point of my post, is pointing out what the article got wrong. What the article is asking for is not what the auditor does.
If you need an auditor, you cant run your business (Score:1)
Audit Constraints (Score:2)
When a firm like KPMG is hired they are usually given a very specific set of constraints. It isn't like a government audit where there is a subpoena and the government auditors can look at anything and everything. I'm sure SVG was very specific in what they asked KPMG to do and what documents KPMG was allowed to work from. Sad but that's the way firms do things.
How could they? (Score:2)
The basics were solid, KPMG couldn't predict Peter Thiel engineering a panic. Without that trickseyness, they'd have been fine.
Re:How could they? (Score:5, Insightful)
Except if they'd evaluated the bank's liquidity in addition to its assets, obvious problems would have clearly shown up. I'm not a banking expert by any means, but if an audit doesn't also check to see if those assets can be turned into cash in the event of a run (or other event that demands a lot of cash right then, right there), then it seems to be of limited usefulness.
Accounting firms are a scam (Score:2, Insightful)
All accounting firms are bullshit. How are you supposed to trust an accounting company that is paid from the same company that it's supposed to create a report about? It's a conflict of interest and is always biased.
Garbage in, garbage out (Score:5, Informative)
Before you dump a truck of dung on KPMG, maybe first of all check what the standards are they tested for. Because all KPMG, or any auditor, can do is to verify whether a company complies with the standards and regulations.
If those are garbage, the audit result is garbage.
KPMG (Score:2)
Audits are months in the making (Score:2)
Who made the commission on $200B bond sales? (Score:2)
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my mattress (Score:3)
I'm keeping all my money under my mattress from now on. It also has the benefit of unwrinkling the bills.
Who is paying them? (Score:2)
You mean they gave a clean bill to the customer who pays for the audit?
I am SHOCKED!!!
KPMG scam (Score:2)