According to a recent warning by the Public Company Accounting Oversight Board (PCAOB), crypto proof-of-reserve (POR) audits have limitations, and the Board believes that investors should use caution when dealing with companies using POR audits. should exercise caution when dealing with them.
PCAOB Calls for Investor Caution and Due Diligence When Using Reserve Certificates
The U.S. accounting watchdog recently issued aadvisory warningabout auditors using proof-of-reserve (POR) techniques to audit certain crypto companies, including exchanges and issuers of stable coins. The Public Company Accounting Oversight Board (PCAOB) stated that it is aware that certain PCAOB-registered auditing firms issue POR reports for these types of businesses, and the PCAOB expressed concern that investors “may unduly rely on POR reports.”
The reports are outside the scope of the PCAOB’s oversight authority, the watchdog does not consider them to be audits, and does not believe that the POR reports provide meaningful assurance The PCAOB claims that these purported audits provide verification of crypto assets, but the content The PCAOB’s warning explains that some PORs may give the impression of adequate or excessive reserves held by the entity, but provide no assurance as to whether the assets have been used or loaned. The PCAOB statement adds.
In addition, POR reports are not performed in accordance with PCAOB auditing standards and are not intended to be as rigorous as or more rigorous than an audit. Furthermore, there is no uniformity with respect to the service providers who perform POR work.
The PCAOB’s warning is not the only criticism of the specific POR process: in December 2022, U.S. Securities and Exchange Commission (SEC) officials advised investors to be wary of POR reports. That same month, crypto analyst Martin Hiesboeck told Bitcoin.com News that the POR was “incomplete” at best and could be “misleading and deceptive.” The U.S. accounting group agreed, concluding its advisory warning by stating that investors should perform significant due diligence if POR reports are used.
The PCAOB’s advisory notice asserts that “certificates of deposit are inherently limited in nature and customers should exercise extreme caution when relying on them to conclude that they have sufficient assets to meet their liabilities.”
What are your thoughts on the use of proof-of-reserve audits in the crypto industry? Do you think they provide sufficient assurance to investors or are they too limited to be trusted? Share your thoughts on this topic in the comments section below.
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