Audit firms Armanino and Mazars are set to drop their crypto clients following controversies and community pushback.
Armanino, Mazars jump ship
Auditors Armanino and Mazars count several high-profile crypto companies among their collective clients, including Nexo, Gate, FTX, Kraken, Binance, and Crypto.com.
However, the efficacy of crypto audits has been called into question recently, primarily due to the collapse of FTX.
FTX filed for Chapter 11 bankruptcy on Nov. 11 amid a flurry of controversy, including allegations of fraud and misuse of customers’ funds. In a bankruptcy filing last month, newly appointed CEO John Ray commented that he had substantial concerns with the company’s financial records:
“[There was] such a complete failure of corporate controls and such a complete absence of trustworthy financial information.“
Prager Metis CPAs sign off on FTX Trading LLC’s financial statements for 2020 and 2021. At the same time, Armanino signed off on FTX U.S.’s financial statements for the same period.
In a lawsuit filed last month, Prager Metis CPAs and Amanino were accused of being “willfully blind” to the “racketeering” at the disgraced exchange.
Although Armanino has not commented on the situation, sources claim the firm has decided to cease working with crypto clients, according to Forbes.
Similarly, per Bloomberg, Binance’s auditors, Mazars, have also decided to put a hold on working with crypto clients.
Following the FTX collapse, crypto platforms rushed to provide Proof of Reserves (PoR) to calm investors’ fears of insolvency. In Binance/Mazars’ case, critics said PoR is flawed and does not give the same scrutiny as a full audit.
Binance suffered a run this week, which saw cumulative outflows peak at approximately $7.5 billion. Binance CEO Chanpeng Zhao said it was a “good idea to “stress test withdrawals.”
Crypto accounting standards unclear
Arca CIO Jeff Dorman pointed out that “auditors are still learning” when it comes to crypto audits, and, in any case, it is difficult to prove access for every token listed as an asset.
“Per audit issues above, in a “guilty til proven innocent” environment, it’s virtually impossible for Binance (or any exchange) to actually prove innocence in a timely fashion.
No matter what they do, it won’t be enough in naysayers’ eyes.“
What’s more, Dorman’s point touches on the lack of clear guidance from accounting standards on treating digital assets.
While that alone is no excuse for being “wilfully blind,” it still highlights the deficiencies of applying legacy safeguards in their current form on digital assets.
Meanwhile, per BTC_Archive, Mazars has removed access to its PoR assessments.