The Public Company Accounting Oversight Board (PCAOB) issued a statement reminding investors not to place undue reliance on Proof of Reserves reports (PoR) that are not within its oversight authority. Such reports do not guarantee that client assets will be adequately protected as of the date of the report or in the future.

The PCAOB’s Role

The Public Company Accounting Oversight Board (PCAOB) is an unofficial, non-profit organization authorized by the Sabine Act and is responsible for supervising the audits of listed companies and other issuers to protect the interests of investors. The Sabine Act prohibits unregistered accounting firms from issuing audit reports on U.S. public companies or playing an important role in the process.

Note: The Sarbanes-Oxley Act is a regulation enacted by the U.S. Congress in response to corporate and securities regulatory issues exposed by financial fraud incidents such as Enron and WorldCom. This act regulates the U.S. Securities Act of 1933. The Securities Exchange Act of 1934 has been significantly revised, and many new provisions have been made in corporate governance, accounting professional supervision, securities market supervision and other aspects.

Reserve certification reporting engagement is not an audit

The PCAOB noted in the report that they have recently observed some service providers, including audit firms registered with the PCAOB, issuing proof of reserve reports to certain cryptocurrency institutions (e.g., cryptocurrency exchanges, stablecoin issuers). Cryptocurrency institutions seek to use these reports to reassure customers and answer questions about, for example, the type of reserve holdings, or the security and availability of customers’ digital assets, and their ability to respond to emergencies in the event of a run. situation.

Investors should note that a reserve certification report is not an audit and, therefore, the related report does not provide any meaningful assurance to investors or the public.

Generally speaking, these proof of reserve reports are intended to provide asset verification for an asset type at a specific time, but have a number of significant limitations because of their implementation procedures. For example, the procedures adopted may not reflect the crypto institution’s liabilities, rights and obligations of digital asset holders; or whether the crypto entity is simply borrowing assets in the moment to make it appear that it has sufficient collateral or excess reserves. Furthermore, Proof of Reserve reporting does not guarantee the effectiveness of internal controls or the governance of a cryptographic institution.

Additionally, there is a lack of uniformity among service providers performing reserve certification reporting operations. For example, some reserve certification reporting engagements are performed by accounting firms, while others are performed by non-accounting assurance providers. The crypto agency’s management also has the discretion to decide whether to disclose the results of the reserve certification report, including the scope and format of the information provided.

Reserve certification reporting engagements, whether with reasonable assurance, limited assurance, or no assurance (agreed-to procedures), are not subject to PCAOB auditing standards and engagements are not subject to PCAOB inspections.

Agreed-upon procedures are procedures that a cryptographic institution's management determines to be followed by third parties when conducting business. In this case, the Reserve Certification Report only provides factual findings as to the outcome of the procedures performed and does not address the adequacy of the procedures. These types of reserve certification reports do not express an opinion on the adequacy of reserves, the financial stability of a crypto institution, or the validity of management’s statements.

Likewise, even evidence-of-reserve reporting operations that provide limited or reasonable assurance are not subject to uniform standards. Therefore, the manner in which the engagement is implemented will have different results depending on the different criteria selected by management and the reserve certification reporting service provider.

This article Reserve certification report is not an audit, PCAOB reminds investors not to rely too much on it appeared first on Chain News ABMedia.