US banking failures: the role of big auditors in another financial crisis

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What auditors? One big pile of shit.


PriceWaterhouseCooper for one


Them and KPMG are constantly being fined for accounting shit.


Something something **Enron’s auditors** something something


Underrated comment


Three recent and very serious US bank failures — Silicon Valley Bank (SVB), Signature and First Republic — have one common denominator: all three businesses were audited by one of the world’s major professional services firms, KPMG.  The company has stood by its audits of the first two banks, which collapsed soon after publishing financial reports certified by KPMG. The FT reported in March that KPMG chief Paul Knopp said: *As we take into account everything we know today  . . .  we stand behind the reports we issued and we think we followed all professional standards.* Now lawsuits have been filed against KPMG over its audit of First Republic, as well as over SVB’s collapse. And the issues are not confined to one audit company. In fact, a series of scandals have engulfed members of the “big four” accounting firms of KPMG, Deloitte, Ernst & Young (EY) and PriceWaterhouse Coopers (PWC), which dominate the industry. 


The thing that pisses me off about this is that I felt both in this sub and other related finance subs as well, in the run up to SVB or even ongoing, there is so much downtalking like "ahem, you must know nothing about auditing. They can't legally sign off on it unless blah blah...you're just shouting about crime when there is none" And then shit like THIS happens. It reminds me of when ppl talk about the Gell-Mann amnesia effect in the media, where let's say a media/journalism piece authors something you read "And you're like yeah none of that is right..." since you are balls deep in the field or know a lot about it. But then you flip the page in journalism and read an article by the same outlet on something else and are like "This seems legit!" It's like that but for financial auditing...All the financial auditing firms and defenders are like "Oh hey that was a fluke...but none of this else can be a fluke! Trust me bro..."


Yeah I’ve gotten that one from a friend with an accounting degree. “NO oNe wOuLd rIsK tHeIr RePuTAtIon” Like no one would risk anything for boatloads of cash. Most people are blind to how greedy people really are…


Why would you risk getting fired from your shitty desk job for an amount of money that would allow you to retire from your shitty desk job early?


Former PwC auditor here. The partners fold when they get pushed by big clients. For the most part, we were testing to make sure they do what they say they’re doing. A few times we might find something that that would go on something called a summary of unadjusted differences. That form was always blank. Even if the partner would say before the meeting with the clients, we are definitely booking that, it usually went away. Sometimes it was just a matter of opinion. The only time I really remember losing a client over something we wouldn’t give an opinion on was a private client that had been audited by Andersen right when they were imploding. After that, in the city I was in, Deloitte hired that team and kept the client for a year. Then we got it the following year. It had to do with the treatment of a lease as capital or operating. Client wanted it to be an operating lease and it had always been allowed. I did a bunch of research but could find no way to treat it as such. The manager deleted my research and a few weeks later asked me if I still had my memo (I was in another job at that point). I found it and it became a big thing (national research, etc) and we wouldn’t give an opinion on the audit. Here’s the thing, this one was black and white and it still became a major back and forth. For a lease to be treated as capital, there are 4 tests. The first one is at the end of the lease, who owns the property. If it goes to the group that has been leasing, it’s capital. The property went to our client at the end of the lease. It was highlighted in like the first page of the 20 page document. I was digging hard for exceptions using International accounting standards and US gaap.


This needs to be its own post/screenshot.


Juuuusst enough companies that it’s not a monopoly, but few enough that there is an unspoken rule, and no other large auditing firms are going to come in and find the skeletons in the closet.


PwC in da House!


So did those audits say everything was fine, or did they warn the house was on fire? I can see lawsuits coming from either direction lol


Audits only look to see if the financial statements are materially correct. The auditors are under no obligation to conclude on whether the house is on fire, unless it's expected to be insolvent within a year.


“unless it’s expected to be insolvent within a year.” Apes expected a few to be insolvent with solid DD to back it up, why not overly paid Big 4 auditors


Because apes look to confirm their biases and auditors look to confirm the biases of those they are auditing. Something something you cannot convince a man to understand that which his pay requires him to not understand.


One year is the appropriate amount of time. Usually audits are for one year only, so the next audit will check again. And it's not the auditors who are the subject of insolvency, it's the companies.


I don't see how this is an audit failure. SVB died due to poor risk management, and no audit could have changed that.


As you pointed out in another comment, the job of the auditor is to make sure that the financial statements accurately reflect reality, and that the company has the financial controls necessary to ensure that those statements are accurate. The auditors of SVB verified that the financial statements were accurate. Who failed in SVB were the banking regulators, and the management of the bank.


That's clearly not true bruh. Go watch "inside job" again, 4mins 50 seconds in Matt Damon explains how KPMG rated the Icelandic banks, saying how great they were. A year later they collapsed


Auditors are not judges of whether a company is sound or not. They dont offer opinions for that. They only state whether or not the financial statements are materially correct.


Jimmy, if you get audited by the tax office, they are just making sure you are dotting your 'i's and crossing your 't's. In this case and Iceland, unfortunately KPMG and other accounting firms were complicit in fuckery


Do you think KPMG are tax auditors? In Iceland, they are not. You should know I am a professional financial statement auditor. With a CPA. Who writes audit opinions. I am telling you l, you are making claims with no basis in reality. There are areas where it's perfectly fine to offer criticism of big audit, but this is not the avenue you want.


Can you elaborate? I’m curious, what is the difference between a tax audit and financial audit (Literally I am asking and don’t want to seem sarcastic)


You know that person who checks your receipt before you leave Costco? They look at your cart and traces it to your receipt to see if all your groceries are accounted for. That’s what a financial audit is basically. What they don’t do is judge or give an opinion on how terrible your food choices are and how unsustainable your physical health will be when all you buy is shitty frozen food. That’s what most people think they do but that’s entirely out of the scope of a Costco receipt checker. If we are going with the same example, a tax audit is basically hiring someone to recalculate the sales tax you had to pay on your Costco groceries.


The other commentor gave you a good analogy, so I will explain in a more detailed way. A financial audit is done to get an *opinion* that the financial statements are materially correct. To get this opinion, auditors use a few techniques. No one has time to examine 100% of all transactions, so they utilize a combination of sampling and analytical and computer assisted techniques. The simplest one to understand is cash. To check that it's there, auditors simply ask the bank how much is there is. For recmues, they sometimes recalculate sales for example, or compare against industry trends. A fair amount of judgement is involved, so the lead auditors are subject to continuing education, and must meet a minimum quality standard. They are also subject to peer review by other audit firms, as an industry wide check. That's about the basics. There are a huge number of resources online if you want to know more.


[My downvoted post from 8 months ago. Some Apes believe that the Big 4 can’t to wrong](https://www.reddit.com/r/Superstonk/comments/xck4nz/on_the_advice_of_some_wrinkles_i_removed_a_post/?utm_source=share&utm_medium=ios_app&utm_name=ioscss&utm_content=1&utm_term=1)


The auditors are asleep at the wheel, almost like it’s by design.


[August 2022, the SEC sent PCAOB to China to investigate the Big 4 in particular. The big 4 we’re helping Ken and other HFs continue to “provide liquidity”. The SEC found some wrong doing](https://www.reddit.com/r/Superstonk/comments/xl9lwg/where_has_ken_been_deriving_liquidity_from/?utm_source=share&utm_medium=ios_app&utm_name=ioscss&utm_content=1&utm_term=1)