Mazars Suspends Proof-of-Reserves Audit for Crypto Companies

Mazars Suspends Proof-of-Reserves Audit for Crypto Companies

Citing difficulty to work with multiple blockchains, accounting firm Mazars has announced that it will be suspending all Proof-of-Reserves activities for crypto companies. The company had been auditing the reserves of Binance, Crypto.com and KuCoin.

Global accounting firm Mazars has announced that it is suspending all proof-of-reserves work for cryptocurrency exchanges. This comes only a few weeks after the auditor published its reports for crypto firms including Binance, KuCoin and Crypto.com.

Since the fall of FTX, customers have been worried about the status of their funds deposited in crypto exchanges and whether they were backed by real assets as the companies claimed. In November, FTX, the crypto exchange owned by former billionaire Sam Bankman-Fried went into bankruptcy after reports revealed that the CEO and his partners misused $10 billion worth of customer assets for illegal activities, which led to financial constraints and insolvency. Bankman Fried, who was arrested in the Bahamas last week, faces life in prison in the United States if allegations of money laundering, securities fraud and wire fraud are proved.

The implosion of the once second largest crypto exchange created a new wave in the market as other platforms were looking at ways to prove their credibility and solvency to customers. Exchanges including Binance and Crypto.com consulted Mazars to audit their reserves and release a Proof-of-Reserve report which showed that they have enough funds in reserve to handle all customer withdrawals.

Mazars Suspends Proof-of-Reserves Audit for Crypto Companies

On December 7, Mazars released an audit on Binance’s Bitcoin holdings which said that as of November 22 at 23:59 UTC, the company held enough BTC and WBTC (Wrapped Bitcoin) to back all user balances on the exchange. However, there were limitations to this as Binance had only released its proof-of-reserves for Bitcoin, leaving out thousands of other cryptocurrencies supported by the platform. It was also hard to figure out whether customer assets were properly separated from the balance sheet of the world’s largest crypto exchange. As long as the company does not say with 100% certainty that it holds user assets in a cold storage with no market exposure, there will continue to be concerns on the status of the assets.

In a statement given to CNBC, Mazars said that it had to pause its activities relating to the “provision of Proof of Reserves Reports for entities in the crypto sector” due to concerns in the way such reports are understood by the public. The auditor added that its proof-of-reserves reports are “performed in accordance with Reporting Standards relevant to an Agreed Upon Procedures report”.

“They do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time,” said Mazars.

Mazars latest proof-of-reserves report for Binance is no longer available on its website. Similarly, on December 9, Crypto.com posted its proof-of-reserves report guaranteeing that it holds customer assets in 1:1 ratio with company reserves. The audit report published by Mazars can be verified by users on Crypto.com’s website. KuCoin also said that its proof-of-reserves report was completed by the accounting firm. All three companies are now on the lookout for accounting firms that are willing to work with them.

Meanwhile, the Big Four of the accounting world – Ernst&Young, PwC, Deloitte and KPMG – have not dropped their crypto clients. In an interview given to CNBC, Binance CEO Changpeng ‘CZ’ Zhao said that his company is working with accounting firms to continue the auditing process. Interestingly, CZ added that many accounting firms are not willing to work with crypto companies due to the difficulties involved with the process of auditing various blockchains.  

At the time of writing, BNB is trading at $248.02 – up 0.2% in the last 24 hours. Mazars’ announcement had negatively impacted the price of Binance’s native token.

Also Read UK House Prices to Fall 8% in 2023, Predicts Halifax

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