The US SEC-backed watchdog warns investors to tread with caution when relying on Proof-of-Reserves reports from crypto exchanges.
The PCAOB, backed by the U.S. Securities and Exchange Commission , pointed out that investors should not “place undue reliance” on PoR reports, which are not within the board’s oversight authority. The advisory wrote:
“Importantly, investors should note that PoR engagements are not audits and, consequently, the related reports do not provide any meaningful assurance to investors or the public.” In addition, the board also argued that PoR reports don’t provide assurances on the state of the assets after issuing the report. According to the PCAOB, PoRs don’t reflect if the assets were used, lent or became unavailable to customers after the report’s publication. The board also said that PoR reports do not assure the effectiveness of the crypto entity’s internal controls or governance.
The board noted that PoR reports are not conducted in accordance with the PCAOB auditing standards. Furthermore, the board highlighted a lack of uniformity among service providers of PoR reports. “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,” the advisory added.
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