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Why Accounting Firms Drop Crypto Projects From Their Portfolios

Author

John Asher

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Reading time

3 mins
Last update

Author

John Asher

Tags

Category

Breaking

Reading time

3 mins
Last update

Author

John Asher

Tags

Reading time

3 mins
Last update

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After analysts and other market participants criticized accounting firms’ reports, some of the firms are facing scrutiny over their clients’ financial health and the validity of the information they provide. Here’s why accounting firms are dropping crypto projects from their portfolios.

Mazars: Due To Concerns About How Reports Are Understood By The Public

Mazars, an international audit firm operating in over 90 countries and territories worldwide, has suspended services for cryptocurrency firms including crypto exchanges. The audit firm has worked with cryptocurrency exchanges, including Binance, KuCoin, and Crypto.com.

Mazars Group explained that it had paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns about how these reports are understood by the public as mentioned in their statement.

The auditing firm earlier reported Proof of Reserves for Binance, which showed that its Bitcoin reserves were fully collateralized. According to an announcement on Mazars’s website on December 7, the firm deemed this to be 101% collateralized and Binance possessed control over 575,742.42 BTC of its customers. However, the report is no longer available on the firm’s website and the Mazars Veritas which is dedicated to crypto audits is now offline.

In addition, Mazars prepared a report that concluded that Kucoin’s BTC, ETH, USDT, and USDC reserves are sufficiently overcollateralized. Moreover, Mazar’s report found that Crypto.com’s reserves were fully backed on a 1-to-1 basis. 

Armanino: Faced Pressure From Its Non-Crypto Clients After Being Named In A Class-Action Lawsuit

The accounting and consulting firm Armanino has reportedly ended its crypto auditing services. The California-based auditor has been embroiled in controversies and faced scrutiny as Armanino reportedly performed FTX 2020 and 2021 audits and did not find any concerns or problems with the failed crypto exchange. Kraken and Gate.io, as well as lenders Ledn and Nexo, are among Armanino customers.

John Ray, the new CEO of FTX, said in a bankruptcy court declaration that the company’s previous audits should not be trusted. Last month, a class-action lawsuit was filed against Armanino and the accounting firm has faced pressure from its non-crypto clients. Former FTX CEO Sam Bankman-Fried, Prager Matis, as well as FTX insiders Caroline Ellison and Gary Wang have also been named in a class-action lawsuit.

Call For Audit For Transparency And Assurance

Following the collapse of FTX, customers and investors have been seeking greater transparency and assurance about crypto exchanges. Confirming and building confidence that the cryptocurrency is collateralized, on the blockchain, and under the exchange’s control.

Crypto.com stated that it would continue to employ reputable auditors in 2023 and beyond as it seeks to increase transparency across the crypto industry. While KuCoin remarked that they would be open to working with any leading and reputable auditor.

In an interview with CNBC’s “Squawk Box,” Binance CEO Changpeng Zhao said that the exchange is working with auditing firms. He did not name the firms, but he said, “interestingly, many audit firms are kind of scared to work with crypto businesses.”

The news has caused Bitcoin and other cryptocurrencies to fall sharply, with Bitcoin falling below $16,800. The price of Bitcoin is $16,699.69 at the time of writing, down 1.42% in the past week.