The Public Company Accounting Oversight Board (PCAOB) issued a recommendation on Wednesday warning investors not to place too much trust in the purported "proof of reserve" reports being provided by some cryptocurrency firms. The warning follows the withdrawal of this restricted kind of assurance by various auditing firms as a result of the failure of notable bitcoin businesses like FTX.
The United States Securities and Exchange Commission's watchdog, the PCAOB, has said that reports that use reserve holdings as evidence that a company is protected from financial runs do not provide "meaningful confidence." The board made it clear in its statement that these reports are not audits and do not adhere to any particular standards.
According to the PCAOB, such proof of reserves is only a snapshot that doesn't reveal anything about the liabilities of the crypto entity, the rights and obligations of holders of digital assets, or whether the assets have been borrowed by the crypto firm to give the impression that they have enough collateral. The board also emphasized that these data don't demonstrate if internal controls or corporate governance are effective.
Digital asset companies in the United States typically rely on proof-of-reserve reports since extensive audits, which are typical in conventional finance, are not performed on these companies. For instance, on such claims, Crypto.com's statistics from December demonstrating that client assets were fully backed one-to-one and Kraken's assertion that it had $19 billion in Bitcoin and Ether were based.
In its statement, the PCAOB argued:
"Proof of reserve reports are inherently limited, and customers should exercise extreme caution when relying on them to conclude that there are sufficient assets to meet customer liabilities."
Such reports have also been used by a number of international platforms, including Binance. The company has increased the number of cryptocurrencies in its Proof-of-Reserves (PoR) system by 11, increasing the total to 24. Popular choices among these tokens include Dogecoin, Curve DAO Token, and 1inch, among others.
However, the community does not feel that PoR alone is sufficient; one user claimed that PoR was not "sufficient" and added that the company needed an audit.