Proof-of-Reserves (PoR) is not an audit

[zasad@]

https://pcaobus.org/resources/information-for-investors/investor-advisories/investor-advisory-exercise-caution-with-third-party-verification-proof-of-reserve-reports
March 8, 2023

"This document represents the views of the Public Company Accounting Oversight Board’s (PCAOB or “Board”) Office of the Investor Advocate staff and not necessarily those of the Board or other PCAOB staff. It is not a rule, policy, or statement of the Board.
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."

[bitmover]

"This document represents the views of the Public Company Accounting Oversight Board’s (PCAOB or “Board”) Office of the Investor Advocate staff and not necessarily those of the Board or other PCAOB staff. It is not a rule, policy, or statement of the Board.
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 problem is that Proof of Reserves by itself doesnt mean that the exchange is financially healthy.

We don't know how much other people have in their balances in the exchange.
We also don't know if the exchanges has any other debit with other companies.

Just singing and address with millions/billions of USDT/BTC or whatever doesn't mean anything.

[dansus021]

the present proof of reserve so we can think that our money is safe and we can have peace of mind. But I just checked not all but some of it only provide BTC ETH and USDT Mostly I mean there is always other coin right. And second yes they only show unaudited or at least they give hotwallet address

After I do some digging DefiLama provided a detailed list from the exchange hot wallet but I don't this is a complete list, and only a couple of exchange that provides Proof of Reserve and there is an exchange that does not gives proof of reserve at all. In my opinion PoR is not final and we still proceed with cautionwhen uses an exchange

[SFR10]

Considering that they released this warning a day after Binance released "this blog post", I think they're trying to imply that Binance's solution ^{[Merkle tree cryptography and zk-SNARKs]} isn't sufficient, so I'm wondering if someone with deep knowledge in the matter could provide a better solution...

[NeuroticFish]

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.

We knew this much since the exchanges came with the idea of publishing Proof of Reserves: this "proof" it's simply advertising. It's not an audit, it's not reliable and can be awfully deceiving. But again, we knew this much.. is that important that a certain company came up publicly to state the obvious? What am I missing?

[zasad@]

https://tax.thomsonreuters.com/news/fasb-proposes-accounting-rules-for-measuring-presenting-and-disclosing-crypto-assets/
FASB Proposes Accounting Rules for Measuring, Presenting and Disclosing Crypto Assets
“The disclosures are significant – the most important of which may be the requirement for details about significant crypto holdings,” KPMG LLP Partner Scott Muir said. “If, for example, I’m a company that holds significant amounts of Bitcoin, Ether, Litecoin I’m going to tell people for each one of those about the number of tokens of each I hold, their fair value and their cost basis,” he said.

The board proposed to require crypto assets that meet six specific conditions  be measured at fair value and changes in value recognized in each reporting period as profit or loss. Fair value represents the price that would be received if the company were to sell the crypto asset in an orderly transaction to a willing and knowledgeable buyer.

[DaveF]

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."

That sums it up as simply as possible.
I can show you now I have $100 in my wallet. If I owe $10000 that $100 is entirely meaningless.

I can TELL you I only owe $50, but without a real audit / accounting it's just what I am telling you.
<cough> FTX </cough>

Some places like Coinbase are a little better in the fact that since they publicly traded businesses they do have certain reports and audits that have to be done a certain way.
BUT, we also know that those things can also be 100% meaningless <cough> Enron </cough>

Wait for it......

NOT YOUR KEYS, NOT YOUR COINS.

-Dave

[zasad@]

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."

That sums it up as simply as possible.
I can show you now I have $100 in my wallet. If I owe $10000 that $100 is entirely meaningless.

I can TELL you I only owe $50, but without a real audit / accounting it's just what I am telling you.
<cough> FTX </cough>

Some places like Coinbase are a little better in the fact that since they publicly traded businesses they do have certain reports and audits that have to be done a certain way.
BUT, we also know that those things can also be 100% meaningless <cough> Enron </cough>

Wait for it......

NOT YOUR KEYS, NOT YOUR COINS.

-Dave

It is very difficult to develop a fair accounting model for highly volatile assets.
I understand the principles of accounting, and every period you need to evaluate assets in order to pay tax if there is a profit, or vice versa to declare losses. But the price of cryptocurrencies can change quickly and the accounting report after a few days may be inaccurate.

[avikz]

https://pcaobus.org/resources/information-for-investors/investor-advisories/investor-advisory-exercise-caution-with-third-party-verification-proof-of-reserve-reports
March 8, 2023

"This document represents the views of the Public Company Accounting Oversight Board’s (PCAOB or “Board”) Office of the Investor Advocate staff and not necessarily those of the Board or other PCAOB staff. It is not a rule, policy, or statement of the Board.
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."

Then what you are saying is that "Proof of reserve" doesn't make sense! It doesn't give any confidence to the users or investors that the company or the coin issuers are not solvent to meet liabilities. The basic requirement of an audit is to generate trust amongst the users/investors that a standard accounting practice is being followed and we can reply to that report.

If that is not the case, it is always good to use your own wallet for storing cryptos (not your keys, not your coins) and also it's good not to touch useless stablecoins who claim to keep 1:1 reserve for their issued coins. It's an ongoing challenge and will remain as it is for some time, it seems!

[zasad@]

https://pcaobus.org/resources/information-for-investors/investor-advisories/investor-advisory-exercise-caution-with-third-party-verification-proof-of-reserve-reports
March 8, 2023

"This document represents the views of the Public Company Accounting Oversight Board’s (PCAOB or “Board”) Office of the Investor Advocate staff and not necessarily those of the Board or other PCAOB staff. It is not a rule, policy, or statement of the Board.
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."

Then what you are saying is that "Proof of reserve" doesn't make sense! It doesn't give any confidence to the users or investors that the company or the coin issuers are not solvent to meet liabilities. The basic requirement of an audit is to generate trust amongst the users/investors that a standard accounting practice is being followed and we can reply to that report.

If that is not the case, it is always good to use your own wallet for storing cryptos (not your keys, not your coins) and also it's good not to touch useless stablecoins who claim to keep 1:1 reserve for their issued coins. It's an ongoing challenge and will remain as it is for some time, it seems!

My opinion is that any report makes sense, because the data is easier to check than to look for it from the very beginning. But there are always questions about the relevance of this data, so you need to double-check all the data for the current date. But we are talking about management accounting, the accounting report always comes out late. That is, the accounting report for 2022 will be published only after 2-4 months. There is a problem with the relevance of the data at the date of publication of the report.