Increasing scrutiny is being directed toward auditors’ crypto work on cryptocurrency exchanges by the SEC. There have been concerns raised by regulators about cryptocurrency companies’ overstatement of narrow audit reports provided by auditing firms.
Resistance Against Progresses
As a result of the growing concern that investors may be getting a false sense of reassurance from the reports that the audit firms prepare for cryptocurrency companies, the Securities and Exchange Commission is increasing the scrutiny of the firms responsible for preparing those reports.
One audit firm has discontinued crypto client work due to this event. Also, it is no secret that cryptocurrency companies are eager to get the approval of an auditor so that their skittish clients can be put at ease.
As one of the largest cryptocurrency exchanges in the world, Binance has this month presented a document they described as “audited proof of reserves.” A spokesman for Binance said the document was independently examined by auditing firm Mazars. Despite the lack of financial information in the report, Mazars did not express an opinion.
It is alleged in the report that some proof of reserves fail to disclose even the approximate number of reserves to be held. According to a report issued by Mazars in South Africa this month, the number of assets and liabilities stated in this report are not disclosed for confidentiality reasons.
The same Mazars partner in South Africa signs off on both the Crypto.com report and the Binance report.
SEC claims because crypto companies are commonly lacking effective internal controls, which was one of the factors that led to FTX’s blowup, there is a greater risk of errors being made in their financial statements. In the opinion of industry insiders, that is one of the reasons why the biggest audit firms, which have the means to be very selective about their clients, have largely stayed away from these disputes.
As it relates to the crypto industry, we must recognize that the SEC and the WSJ report are showing that regulators, as well as traditional financial institutions, are still trying their best to limit it. It is true that crypto exchanges were the first to disclose info about their reserves, but regulators are now trying to warn users about this practice.
There have been several attempts made by regulators to curb the growth of the industry, but they have been unsuccessful. As a result, exchanges did not suffer a great deal from the outcome, and neither did other companies. There is no doubt that the decentralized nature of this industry will lead to users being protected in the best way possible.