According to experts, a report by Mazars can’t bring investors confidence about Binance’s finances for a number of reasons.
The results of the audit of Binance’s reserves, presented by Mazars, contained only three numbers. It wasn’t an audit document and didn’t address the quality of internal controls over financial reporting. The report also included a notation “do not express an opinion or an assurance conclusion,” indicating that Mazars didn’t vouch for the numbers. John Reed Stark, Senior Lecturer at Duke University School of Law and Former Head of the SEC’s Office of Internet Enforcement, stressed this point.
“Binance, which is private, isn’t required to produce audited financial statements, and it hasn’t released anything that would provide a comprehensive overview of its financial condition or liquidity,” said Douglas Carmichael, Professor of Accountancy at Baruch College in New York and Former Chief Auditor of the Public Company Accounting Oversight Board of the United States. The Wall Street Journal cited him as saying.
The paper’s reporters cite several other oddities that appeared in the Mazars’ audit report:
- lack of information on asset liquidation algorithms to cover margin loans;
- no data on total assets or total liabilities;
- lack of details about Binance’s corporate structure.
The latter point is particularly relevant because the released audit report was sent to Binance Capital Management Co. Ltd, registered in the British Virgin Islands. It’s unclear whether the assets reported by Mazars belong to that unit. Moreover, Chief Strategy Officer Patrick Hillmann couldn’t name Binance’s parent organization as the company had been undergoing corporate reorganization for almost two years. He clarified, however, that the report didn’t affect the assets and liabilities of Binance.US.
Experts also noted confusion in different methods of calculating Binance’s BTC reserves. According to one methodology, the exchange’s reserves provide 97% of liabilities, while the other says 101%. That said, Mazars’ report doesn’t mean much without any information about the quality of Binance’s internal controls, an examination of the system for keeping accurate ledgers, and other records. This was reported by Harold Schroeder, Former Member of the Financial Accounting Standards Board and Investment Manager who teaches accounting at Rutgers University.
In a comment to The Wall Street Journal, Mazars said the work was performed using “agreed-upon procedures” requested by Binance. They refused to give any assessment of the appropriateness of those procedures.
Notably, Mazars also invited Crypto.com and KuCoin for the audit. Recall that the community’s request for Proof-of-Reserve by major crypto exchanges arose amid FTX’s liquidity crisis. But the existing methods of such an audit also caused harsh criticism in the community and accusations that large exchanges mislead users with its help.
