unless you're a shareholder (or investor) then you don't get to see the report [of a company].
That does not change the fact that the report was not published; it only gives an excuse for it.
However the sort of audit we are discussing here verifies the viability/solvency of the institution and I don't see too many banks publishing that kind of information. Where can I see that my bank can honour all deposits if the account holders choose to withdraw ?
Banks don't have to be solvent in that sense, unfortunately. However, they must keep a certain fraction in the central bank, and the government audits them (or should audit them) to make sure that they do.
Banks have extremely detailed internal accounting procedures, with multiple checks and records, to prevent their own staff from embezzling their money. They may cheat on the government in many other ways, but AFAIK not by doctoring their books.
I suggest for an exchange to be solvent A-X should be positive and so should B-Y.
Essentially all account holders should be able to withdraw 100% of their funds at any time in the currency the balance is held in.
That is certainly the safest policy. However an exchange could keep clients' EURs as USDs or treasury bons, for example, without
being technically insolvent. Of course there would be a risk of it
becoming insolvent if the currency rates change too fast in the wrong direction. If it did that with BTC x USD, that risk would be enormous; but that would not make it insolvent either.
To avoid those risks, clients should make sure that the company at least promises to keep their BTC as BTC, in the service contract. Which ones make such promise?
Any assets/liabilities (bank loans, investments, etc etc) relate to the profitability of the company and is a separate balance sheet.
No, a real audit must include
everything, otherwise it is worthless. If the exchange has just enough funds to cover the cilent balances, but also owes 100 million USD to a bank, then it is insolvent. The clients do not have priority over the bank, they are all creditors.
[ By moving the coins, Bitstamp ] proved they have access to the private keys of wallets totalling 194,933 BTC.
We have their word that this represents "A" and is the balance held to honour customer accounts.
Depending on how the auditing was done, they did not even prove that they have access to the private keys.
Here is how the fictitious Bitscamex-e echange, which sold all their coins to Graball Investments, still "proved" to the auditor that they owned them. (If half a billion dollars were at stake, I am sure much cleverer schemes could be set up.)
I would hope that they found X by adding up all the customer balances where the currency is BTC.
They would also need to account for trades sitting on the exchange of course but this should be trivial.
But who provided them with the client balances? Presumably the exchange has a single database of account balances, without the extensive checks and redundancies that banks have. It shouldn't be hard to "prune" such a database by leaving out inactive accounts with positive balance. How would the auditor check whether the database is complete?
The letter does not mention B and Y.
But they did.... well for USD at least so I admit there's no mention of the EUR balance but I think that's their primary Fiat balances covered.
"The report identified that Bitstamp held 100% of validated BTC balance and USD funds."
Read that sentence CAREFULLY and try figure out what it EXACTLY means; why they used those words, specifically, and why the words are in that order.
It may help to think what the auditor could say that he meant, if he were to be questioned in court after an eventual collapse of Bitstamp.
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