Mazars Group has halted work with crypto firms across the globe, including Crypto.com, KuCoin and Binance, the largest crypto exchange. The global accounting firm in an email said that it was suspending its work because markets haven’t been reassured by reports on assets held in reserve that it had already published, and that the firm was concerned about media scrutiny, according to Bloomberg, which broke the story early this morning.
A spokesperson for Binance told Bloomberg that the pause is temporary. “Unfortunately, this means that we will not be able to work with Mazars for the moment.” The Wall Street Journal reported that Binance customers withdrew $6 billion between Monday and Wednesday of this week.
A Mazars spokesperson said in a statement that the firm has “paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.” The reports have been removed from the Mazars website.
The reports are different from full audits, in that they show only assets, not liabilities, and serve as a “snapshot in time,” Bloomberg reported. The move comes at a time when investors are demanding more transparency following the collapse of crypto exchange FTX and the arrest in the Bahamas of former CEO Sam Bankman-Fried on wire fraud and other allegations.
New FTX CEO John Ray told Bloomberg that FTX had previously engaged auditing services by San Ramon, Calif.-based IPA 100 firm Armanino LLP and New York-based IPA 100 firm Prager Metis. Ray said that FTX had not yet examined Armanino’s recent audit of the firm’s books. “We do have to look through the books and records and look at the audits themselves and see how comprehensive they were to see if the audit would have picked up anything that we see. Certainly we’re going to look at the related party disclosures that are in those audits, whether there’s any footnotes or exceptions.”
Accounting leaders have expressed skepticism that the proof-of-reserves reports would inspire confidence. For example, Hal Schroeder, a former Financial Accounting Standards Board member, said that without information on internal controls, the reports don’t mean much. “We don’t know how good Binance’s systems are to liquidate assets to cover any margin loans,” he was quoted as saying in the Journal. “And we know in the U.S., even with all the good systems, banks have occasionally been caught off-guard. In light of what we’ve seen in the Bahamas (referring to the FTX implosion), I don’t want to conclude that all the systems are that good.”
“The FTX collapse, and now watching their former auditors pull out of their crypto practices, highlights the lack of confidence that has existed for historical crypto accounting practices,” said Aaron Jacob, who leads enterprise resource planning for TaxBit, in a statement. The light is shining on accounting, he said, to restore lost trust. “The importance of robust accounting solutions tailored to the digital asset space has never been higher.”
Big 4 firms have thus far refused to conduct proof of reserve reports for private crypto companies.