This article uses the KPMG–SVB litigation as a case study to explore how audit firms evaluate going concern risks. While the case is specific, the lessons are broadly applicable to any audit firm assessing an audit client in volatile industries, such as banking, technology, and emerging markets. Rather than offering a broad critique of audit failure, this article focuses on a specific and testable audit judgment: whether the going concern standard, as applied, adequately captured the rapid and unprecedented risks that led to Silicon Valley Bank’s (SVB) sudden failure.
Drawing on recent court rulings, this article analyzes three potential litigation outcomes and their implications for audit practice, professional skepticism, and auditor independence. It also considers the rare opportunity that a public trial could provide to uncover internal audit evidence, offering insights into audit quality and transparency in an era of financial disruption.
Accounting professionals, auditors, educators, and legal practitioners all require certain essential skills to effectively practice in complex audit engagements, including professional skepticism, judgment under uncertainty, and ethical decision-making. Such professionals should reflect upon whether current auditing standards remain fit for purpose in an era of rapidly evolving systemic risks. Regulatory oversight plays a role in identifying and mitigating risks. Auditors retain their professional duty to assess and disclose concern risks rigorously, however, regardless of regulatory gaps.
The Audit on Trial
On June 13, 2025, Judge Noël Wise of the Northern District of California issued a pivotal ruling in the SVB Financial Group securities litigation, denying KPMG’s motion to dismiss alongside other defendants. More than a procedural milestone, this decision opened the door to a discovery phase that could illuminate how one of the largest bank failures in recent memory went unflagged in its most recent audit.
At the heart of the case lies a troubling question: What good is an audit if it cannot foresee, or at least disclose, signs of imminent failure? While the KPMG–SVB circumstances are unique, the same question could confront any audit firm engaged with an audit client whose financial condition can deteriorate rapidly. Just thirteen days before SVB collapsed on March 10, 2023, its external auditor issued an unqualified audit opinion with no going concern warning (SVB Financial Group 2022 Form 10-K; FDIC, “Failed Bank Information for Silicon Valley Bank,” Santa Clara, CA, https://tinyurl.com/yhxtujhk).
While prior commentary has examined the financial and risk factors that contributed to SVB’s collapse—including the role of held-to-maturity accounting and SVB’s vulnerability to a confidence-driven run—this article explores a dimension that remains underexamined: the legal and ethical implications for the auditors.
Building on those foundational insights, the spotlight has turned to the upcoming discovery process in securities litigation against KPMG, examining what a public trial may reveal about the limits of current audit standards and how effectively they are applied, the rigor of going concern assessments, and the profession’s responsibility to act in the public interest, even when disclosure may carry destabilizing consequences.
This article does not aim to indict the audit profession wholesale. Rather, it zeroes in on a specific audit judgment—the going concern assessment—as the most concrete and testable point of failure in the SVB case. If the audit followed all applicable standards and still missed a collapse just days away, then this author questions whether those standards are no longer fit for the purpose. Alternatively, the problem may lie not in the standards themselves, but in how auditors apply them.
KPMG’s handling of the SVB audit raises questions about the exercise of critical thinking and professional skepticism—a skill essential for effective judgment in practice. The case underscores that even experienced auditors can struggle to challenge management assumptions rigorously, highlighting a continuing area for professional development across the profession.
A New Window of Discovery
Although Judge Wise’s decision allows the case to proceed, there remains a high likelihood that the litigation will settle—as many auditor-related cases do—before trial. Settlements often keep the most revealing aspects of audit decision-making sealed from public view. That is why this moment presents a rare window: an opportunity to explore what could be uncovered through a full public trial, and what may remain forever hidden if litigation ends prematurely. The author believes it is important to offer a glimpse into the insights a trial could generate—insights the profession may desperately need.
Trial and Error: What a Public Case Could Reveal
To understand the stakes, we must imagine what a full trial could uncover. As discovery proceeds, both sides are expected to reveal details about KPMG’s audit of SVB. These details could either affirm or undermine confidence in current audit standards. While discovery itself is conducted privately, a public trial would require that evidence be presented openly and scrutinized under cross-examination. This process offers a rare opportunity for clarity.
Plaintiffs might argue that KPMG observed warning signs and failed to act. Internal communications or audit documentation might indicate concerns about liquidity, depositor behavior, or management’s assumptions about stability. They could claim that KPMG withheld a going concern warning out of fear it would erode the company’s stock price, trigger panic, or even damage confidence in the financial system.
KPMG, in turn, will likely assert that its audit followed all applicable PCAOB auditing standards. The audit firm may emphasize that it exercised professional skepticism and adequately tested management’s plans. These are arguments any firm might make when defending its work in the face of client failure, highlighting that even sound standards require vigilant application to protect stakeholders effectively.
More broadly, this case illustrates how auditors in volatile industries must apply similar principles, regardless of client type or regulatory framework. They may also caution that hindsight bias influences judgment over a well-executed audit conducted under the knowledge available at the time.
If the trial record reveals that going concern risks were identified but intentionally withheld to avoid market impact, it would pose a profound ethical challenge: Can withholding critical risk disclosures ever be justified, or does it betray the public trust auditors are meant to uphold? It is worth noting that trials rely upon the collection, analysis, and presentation of documentary and testimonial evidence. If this case proceeds to trial, memos, emails, audit workpapers, and depositions may either support or contradict both sides’ positions. Only through this process can a clear factual record emerge—one that informs both accountability and professional reform. While the specifics belong to the KPMG–SVB case, the underlying dynamics are not unique. Auditors across industries, particularly those overseeing fragile or fast moving clients, could face similar scrutiny regarding their judgments, disclosures, and independence.
Four Possible Legal Outcomes and Lessons for Auditors
KPMG’s defense prevails—standards followed, but failure missed. If the court finds that KPMG complied with professional standards, the firm may be vindicated legally. Such an outcome could be deeply unsettling from a public interest standpoint, however. If an audit that meets all standards can still fail to flag a bank collapse mere days away, then the sufficiency of those standards—especially the going concern requirement—deserves serious scrutiny. This outcome would sharpen, not dissolve, this author’s core concern: If compliance with current standards produces silence in the face of impending failure, then it is the standards—particularly those around going concern—that require urgent reconsideration.
Plaintiffs prevail—lapses in professional skepticism. If the court concludes that KPMG’s audit failed due to lapses in judgment or insufficient skepticism, the issue becomes one of execution, rather than standard setting. This would follow a familiar pattern in audit litigation, where overreliance on management or misjudged assumptions lead to overlooked red flags. The professional fallout would likely focus on KPMG’s internal practices and quality controls—possibly confined to the specific engagement team or supervisory structure involved—rather than suggesting broader systemic issues within the firm or the profession.
Plaintiffs prevail—disclosure was intentionally withheld. The most ethically consequential outcome is one where KPMG is shown to have identified the going concern risk but consciously chose not to disclose it. If such a decision was driven by fears of creating panic or harming the client, it would challenge auditor independence and transparency. Although this discretion could be described by some as well-intentioned, it still conflicts with auditors’ duty to report significant risks and maintain public trust. This dilemma is not limited to KPMG or banking—it represents a profession-wide ethical test that any audit firm may confront when an audit client’s stability is fragile and market consequences loom.
KPMG’s defense prevails—standards prove insufficient for modern risks. If the court concludes that the KPMG auditors applied standards appropriately, but SVB’s failure still occurred, the implication may lie not in execution, but in the standards themselves. The “substantial doubt” threshold and related guidance may be insufficiently sensitive to rapid, systemic risks, leaving auditors unable to issue timely warnings even when they exercise due care and professional skepticism. This outcome would highlight a systemic issue: The framework for applying going concern standards may need reassessment to ensure it meaningfully protects investors and the public in volatile financial environments. Unlike the first outcome, where the execution of standards is under review, here the adequacy of the standards themselves is called into question.
The high threshold for “substantial doubt” may discourage auditors from raising early warnings, effectively prioritizing the preservation of confidence over the disclosure of risk.
Understanding the Going Concern Obligation
Under PCAOB Auditing Standard (AS) 2415, auditors of public companies must assess whether there is “substantial doubt” about an entity’s ability to continue as a going concern for a reasonable period—typically within 12 months from the date of the financial statements. If such doubt exists, and management’s plans are insufficient to alleviate it, the auditor must include an explanatory paragraph in the audit report.
While these requirements apply specifically to public company audits, the underlying principles—assessing risk, applying professional skepticism, and critically evaluating management assertions—are instructive across all audit engagements. The SVB case shows that even experienced auditors can miss key warning signs.
Auditors also have the option of reporting going concern assessments as Critical Audit Matters (CAM) under PCAOB AS 3101. While not required, such reporting could provide investors and creditors with valuable insight into the audit’s focus, the link between risks and financial statement accounts, and how those risks influenced the auditor’s judgment. If KPMG had used this approach, stakeholders might have gained greater transparency into both procedures performed and reasoning applied, highlighting an ongoing challenge for professional practice.
The standard does not ask auditors to predict unforeseeable crises, but it does require evaluation of known risks and application of professional skepticism when testing management’s assertions. Management, under ASC 205-40, is responsible for conducting its own going concern evaluation when issuing financial statements, including whether substantial doubt exists about continued operations for at least one year. Auditors must then independently assess management’s evaluation and disclosures, including a determination of whether a going concern warning is warranted.
The 12-month horizon is intentionally short, signaling that the bar for raising going concern should not be prohibitively high. That is what makes the SVB case so striking: a major bank collapsed less than two weeks after receiving a clean audit opinion with no going concern warning. This outcome raises pressing questions about whether the standard is being applied with sufficient rigor, or whether it is fundamentally misaligned with today’s financial realities.
When Standards Fail While Being Followed: The Case for Rethinking Going Concern
The SVB case prompts a deeper concern: Even if KPMG followed AS 2415 to the letter, is the standard itself fit for today’s volatile environment? PCAOB standards rely heavily on auditors’ assessment of management’s plans and quantitative metrics like liquidity and capital ratios. In a financial system where a social media rumor can trigger a bank run within hours, current measures may not be sufficient.
Auditors in other industries face similar challenges when assessing companies with fragile capital structures or customer bases, making the lessons broadly relevant. The high threshold for “substantial doubt” may discourage auditors from raising early warnings, effectively prioritizing the preservation of confidence over the disclosure of risk.
Even robust standards are only as effective as their application. Insufficient skepticism or deference to management can undermine their protective purpose. But as SVB illustrates, the threshold itself may also be too blunt an instrument for capturing fast-moving systemic risks. While regulatory supervision also failed to anticipate the collapse, auditors maintained an independent responsibility to evaluate liquidity, interest rate exposure, and depositor concentration in accordance with PCAOB standards.
The Red Flags at SVB
At its 2022 year-end, SVB exhibited several red flags that should have prompted heightened going concern scrutiny (SVB Financial Group 2022 Form 10-K; Telis Demos, “What Happened with Silicon Valley Bank?” Wall Street Journal, March 2023, https://www.wsj.com/articles/silicon-valley-bank-svb-financial-what-is-happening-299e9b65):
- Loss of more than $25 billion in deposits
- Unrealized losses exceeding $15 billion in held-to-maturity (HTM) securities
- Over 90% of deposits uninsured, leaving it highly vulnerable to a confidence-driven run on the bank
- Liquidity that appeared strong on paper, but required selling HTM securities at steep losses to meet depositor demands
Although SVB technically satisfied regulatory ratios, its stability was fragile. These red flags illustrate a broader challenge: accounting compliance does not always reflect economic reality. The HTM losses, if realized, would have nearly wiped out SVB’s equity, raising the core question of whether auditors sufficiently evaluated these risks and, if so, why they were not disclosed. Compliance with standards alone cannot substitute for independent judgment in such volatile circumstances.
Fear vs. Duty: A Profession at an Ethical Crossroads
Consider the following plausible—though hypothetical—scenario: KPMG’s audit team may have discussed going concern risks internally but opted not to disclose them, fearing that doing so could accelerate SVB’s collapse. While tied to one firm and client, this underlying dilemma could confront any audit firm weighing disclosure risks against a client’s stability.
Such a decision would raise profound ethical questions. Auditors are not risk managers or public relations strategists; their duty is to faithfully report risk, not manage its fallout. Suppressing disclosure out of fear may seem prudent, but it compromises independence and erodes public trust in audit assurance.
If evidence—such as internal communications, deleted audit documentation, or evidence of client pressure left unchallenged—of such a decision were to emerge at trial, it could suggest that discretion was prioritized over transparency. That would not simply be a technical lapse, but a failure of professional duty, one that would undermine the very foundation of public confidence in auditing.
The SVB collapse and its audit aftermath raise critical lessons for the profession, suggesting several possible directions for reform:
- Reassess the “substantial doubt” threshold: Is it too high to serve its purpose in today’s fast-moving financial markets?
- Improve transparency around judgments: Should more disclosure be required, even when risks fall short of the formal threshold?
- Encourage professional courage: Auditors must be supported and expected to act decisively when risk indicators appear, even if doing so may be uncomfortable.
- Challenge deference to management assumptions: Independent rigor is essential, particularly when liquidity plans hinge on market confidence or uncertain depositor behavior.
- Leverage CAM reporting: Explicitly identifying a going concern assessment as a critical audit matter (CAM) could enhance transparency and reinforce professional courage in volatile settings.
Ultimately, independence means little without the willingness to act on it.
A Cautionary Tale in the Making
Investors do not expect auditors to foresee every crisis. But they do expect them to sound the alarm when risk is clearly present. If the SVB audit team saw the danger and chose not to speak, the failure was not merely technical, but ethical.
As litigation unfolds, the profession should be less concerned with legal outcomes and more focused on what the case reveals about assurance, independence, and accountability in an era of rapid disruption. The KPMG–SVB case may be unique, but its lessons are universal: auditors must exercise independent judgment and professional skepticism in order to identify and communicate significant risks, especially for volatile clients.
These insights extend beyond individual behavior into potential structural reforms under the PCAOB’s guidance, with both practical and educational implications. While regulatory supervision may have gaps, auditors must still uphold their duty to assess and disclose risks rigorously, applying independent judgment and skepticism even when oversight is limited. Whether the case proceeds to trial, or is quietly settled, will determine whether the public gains rare insight into audit practice, or whether the profession’s black box remains tightly closed.
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