Crypto

Proof-of-Liabilities of crypto exchanges under lens: Distrust prevails for Mazars.

12/12/2022
Bitcoin Ethereum News
  • Mazars is an auditing firm that is a favorite for crypto exchange audits. 
  • However, its POR audits are questioned by investors. 
  • Mazars is known to pick up risky audits, which its peers quit. 

Since the FTX collapse and ongoing crypto winter, there has been strict scrutinization of all the cryptocurrency exchanges. Questions are being asked about the recent “non-audits’ of the crypto exchanges, along with their preferred accounting firm Mazars.

The biggest crypto exchange by volume recently released their Proof-of-Reserve(POR) and Proof-of-Liabilities(POL) reports on Wednesday according to which they are 101% collateralized. Conducted by accounting firms’ South African affiliates, but only a limited number of investors and users seem to be satisfied with the information provided. The level of transparency is also questionable. 

Mazars’ report only provides a part of the assets and liabilities of the biggest crypto exchange. As noted by Eden Au, research director at The Block. He further adds, 

“More information is needed to get a sense of the whole picture of the exchange’s solvency.”

Accounting professor at Baruch College, Douglas Carmichael, also the former chief auditor of the US Public Company Accounting Oversight Board, told the Wall Street Journal that he could not imagine that the audit answers all the questions. A common investor would have collateralization sufficiency. And the exchange’s finances or liquidity is not satisfactorily proven.

The report’s fine print clarifies that this shall not be considered as an audit.

While others boast an ironic view, a well-known Twitter account, “mngr,” went on to suggest that the biggest crypto exchange might be co-mingling the specific wallet addresses with the deposits on the exchange and might even be misleading. 

CEO of Kraken, Jesse Powel, also tweeted that its competitor’s, the largest crypto exchange by volume, reports were “obviously not a traditional Proof of Reserves.”

John Reed Stark, the former SEC enforcement chief, also claimed that the reports do not address the effectiveness of internal financial control, express some assessments, or provide an assured conclusion. It also does not assert the numbers. 

“I worked asSEC Enforcement for 18+ years. This is how I define a red flag.”

When crypto exchanges are to tell the world that their reserves are in order, the go-to Mazars for help; Crypto.com also released its POR reports on Friday with the help of Mazars. KuCoin also hired an accounting firm for a similar job.

Its popularity among the crypto exchanges is widely noted, and this, in turn, brought to light this lackluster review. In a 2022 report from the Financial Reporting Council (FRC) are to be believed, they said that Mazars is going too fast; they are picking up the high-risk audits, which their peers dropped for obvious reasons. They also do not have adequate controls, which is necessary for high-quality audits. 

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Source: https://www.thecoinrepublic.com/2022/12/12/proof-of-liabilities-of-crypto-exchanges-under-lens-distrust-prevails-for-mazars/