FTX Collapse Puts Its Auditors in the Spotlight

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The collapse of FTX has thrown a spotlight on two US accounting firms that the cryptocurrency exchange said had audited its books.

FTX claimed its 2021 financial results were audited by Armanino, one of the country’s 20 largest accounting firms, and Prager Metis, which makes itself the first accounting exercise to open headquarters in Metaverse.

Both companies specializing in digital assets are among many in the US in the race to win business from a growing number of cryptocurrency companies, even though accounting rules for digital assets are often unclear and businesses remain in their infancy.

FTX founder Sam Bankman-Fried audited its financial results last year to mark a milestone, but the accounts were not made public and the names of the auditors were not revealed until Friday, the eve of the bankruptcy .

Forbes magazine said FTX provided it with “a bunch of information about its operations, including most companies it did business with, when it had its last audits and details on its regulatory licenses” earlier this year when publication. Preparing the ranking of cryptocurrency exchanges. (FTX eventually finished fifth.)

The magazine revealed Thursday, “In particular FTX’s advisors and business partners were accountants Prager Matisse CPA, LLC and the New Jersey office of Armanino, LLP, of San Ramon, CA, which has established FTX and FTX.US for fiscal year 2021. But audited.”

Neither accounting firm responded to messages seeking comment about the scope of their work for FTX, or when they last issued the audit opinion.

FTX was brought down by a run on customer deposits at its international exchange, which led to revelations about complex relationships between the exchange and other entities in Bankman-Fried’s crypto empire. His trading firm Alameda Research is owed FTX $10bn this week, according to people familiar with the finances.

Bankman-Fried attributed the collapse to incorrect accounting of the exchange’s liquidity and leverage.

FTX’s financial audit claims have left many questions unanswered, said Jeffrey Johannes, a former PwC partner who teaches auditing at the University of Texas at Austin, especially in light of revelations about the complexity of its organizational structure.

“If any type of assurance was given by an accounting firm, what type of assurance was it, how comprehensive was it, and how many entities were covered?” Johannes said. “Especially if there are intercompany transactions, it will be difficult to audit.”

Prager Metis, which has more than 100 partners and 600 employees in 24 offices around the world, says its clients include private and public companies in industries ranging from hospitality to manufacturing.

A report in August by the Public Company Accounting Oversight Board, the regulator of the US audit profession, said its inspectors found deficiencies in all four public company audits conducted by Prager Metis, which they observed. The firm told PCAOB that it is working to fix the issues.

The group has a digital asset practice that it says provides services to crypto exchanges, issuing non-fungible tokens and crypto hedge funds, among other clients. It has also sought to advise businesses setting up operations in the immersive virtual world known as the metaverse.

“There is a tremendous need for financial expertise and resources in the evolving digital world,” Chief Executive Glenn Friedman said in January, when Prager Metis opened its “headquarters” on the Metaverse platform Decentraland. The firm was present at a concert on stage this weekend. Sponsoring.

In a now-deleted June website post that featured Prager Metis and FTX staff at a Yankees baseball game, the firm said it was “proud to support FTX US” and “looking forward to our next adventure together.” was”.

According to Accounting Today, Armanino also has thrust into work for digital asset and cryptocurrency businesses, making it one of the fastest growing US accounting firms, with $458 million in revenue in the last fiscal year.

The firm has been heavily marketing technology that allows cryptocurrency exchanges and other businesses to demonstrate that digital assets are secure with real-time verification for customers. An Armanino Twitter account was promoting the product on Tuesday as the FTX revelations captivated the industry.

Last December, the same account tweeted in response to Bankman-Fried’s testimony before the House of Representatives Financial Services Committee after the FTX founder called on lawmakers to standardize crypto regulation and promote innovation.

“Working on behalf of all of us today,” the account wrote.