According to a recent warning from the US Public Company Accounting Oversight Board (PCAOB), crypto proof-of-reserve (POR) audits have limitations, and the board believes investors should exercise caution when dealing with companies that use POR audits.
PCAOB Calls for Investor Caution and Due Diligence When Using Proof of Reserve Reports
The US accounting watchdog recently issued a advisory warning about auditors using Proof of Reserve (POR) techniques to audit specific crypto companies, such as exchanges and stablecoin issuers. The Public Company Accounting Oversight Board (PCAOB) stated that it is aware of certain PCAOB-registered audit firms issuing POR reports for these types of companies. The PCAOB expressed concern that investors “may place undue reliance on POR reports.”
The reports are not within the PCAOB’s oversight authority, and the watchdog does not consider them audits, nor does it believe that the POR reports offer any meaningful assurance. The PCAOB insists that these alleged audits are intended to provide verification of crypto assets, but they are limited and some reports do not address the responsibilities of the crypto entity. The PCAOB’s warning explains that some PORs may create the impression of sufficient or excess reserves held by the company, but provide no assurance as to whether the assets were used or loaned. The PCAOB statement adds:
Despite any representation to the contrary, POR Reports are not equivalent to or more rigorous than an audit, and are not performed in accordance with PCAOB auditing standards. In addition, there is a lack of uniformity with respect to service providers making POR commitments.
The PCAOB’s warning is not the only criticism of certain POR processes. In December 2022, a US Securities and Exchange Commission (SEC) official advised investors to be wary of POR reports. That same month, cryptanalyst Martin Hiesboeck told Bitcoin.com News that POR is “incomplete” at best and can be “misleading and misleading.” The US accounting firm agrees, concluding its warning by stating that investors should exercise significant due diligence when using POR reports.
The PCAOB’s advisory notice insists: “Proof of reserve reports are inherently limited and customers must exercise great care in relying on them to conclude that there are sufficient assets to meet customer obligations.”
What do you think about the use of proof of reserve audits in the cryptocurrency industry? Do you think they provide enough security for investors or are they too limited to trust? Share your thoughts on this topic in the comments section below.
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