The Public Company Accounting Oversight Board (PCAOB), a watchdog that oversees audits of public companies in the United States, recently issued an advisory that warned investors about proof-of-reserves (PoR) reports issued by auditing firms.
The PCAOB, which is backed by the U.S. Securities and Exchange Commission (SEC), pointed out that investors should not “place undue reliance” on PoR reports which are not within the board’s oversight authority. The advisory wrote:
“Importantly, investors should note that PoR engagements are not audits and, consequently, the related reports do not provide any meaningful assurance to investors or the public.”
In addition, the board also argued that PoR reports don’t provide assurances on the state of the assets after issuing the report. According to the PCAOB, PoRs don’t reflect if the assets were used, lent, or became unavailable to customers after the report’s publication. Apart from this, the board also said that PoR reports do not provide assurance in terms of the effectiveness of internal controls or governance of the crypto entity.
The board also noted that PoR reports are not conducted in accordance with the PCAOB auditing standards. Furthermore, the board highlighted that there’s a lack of uniformity with service providers that make PoR.
“Proof of reserve reports are inherently limited, and customers should exercise extreme caution when relying on them to conclude that there are sufficient assets to meet customer liabilities,” the advisory added.
Related: Nic Carter dives into proof-of-reserves, ranks exchange attestations
The warning came after many crypto exchanges jumped into the trend of providing PoR reports in an attempt to assure investors of their financial status after the FTX debacle. On Jan. 19, crypto exchange OKX declared $7.5 billion in liquid assets within its PoR report. On Feb. 23, exchange MEXC Global also released its PoR after 45 days of testing.
More recently, crypto exchange Binance also added 11 tokens to its PoR report, claiming a total of $63 billion in its reserves on March 7.
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