Auditor of failed US exchange FTX says he supports his work for Sam Bankman-Fried and is proud to have provided services to a cryptocurrency industry in need improve trust and transparency, but it would drop its practice of digital assets by the end of next month.
In the first interview with an executive at accounting firm Armanino since the collapse of FTX last month, chief operating officer Chris Carlberg said “market conditions” had changed and he would stop providing audit of financial statements and the so-called proof of reserve reports for the crypto industry.
Armanino, based in California, gave a healthy bill of health to the 2020 and 2021 financial statements of FTX US, a branch of the Bankman-Fried crypto empire that offered transactions to US residents. FTX US collapsed into bankruptcy along with FTX’s largest international exchange business last month.
Carlberg said Armanino “has never had a client relationship” with Alameda Research, Bankman-Fried’s crypto hedge fund or FTX’s largest international exchange, where the former billionaire is accused of defrauding clients billions of dollars.
“We definitely support the work of FTX US,” Carlberg said. “A few industry voices said we should have done a better job of auditing internal controls, but we were never engaged in auditing internal controls. This is what happens with public companies. This is not required by US private company auditing standards.
FTX court filings described a sprawling group of businesses where accounting was often chaotic and internal controls were weak or non-existent. John Ray III, the expert hired to manage companies in the event of bankruptcy, said previous financial statements should not be relied upon.
Industry standards only require that private company auditors understand a company’s internal controls and plan their audit work accordingly. “The team engaged in the standards-required analysis around this topic,” Carlberg said, “and, again, we are pleased with the work we have done around this area.”
Armanino and FTX’s international operations auditor, Prager Metis, are facing a trial of FTX customers alleging “that they were reckless or willfully blind”. Carlberg declined to comment on the lawsuit.
Armanino is one of the top 20 accounting firms in the United States with revenue of about $500 million last year, according to Accounting Today, and more than 200 partners. It has also become a leading provider of Proof of Reserve Reports for crypto businesses, a controversial product that is supposed to attest to the safety of client funds, but falls short of a full audit of financial statements of the type provided. by Armanino at FTX US.
Regulators have questioned the value of the product, which provides only limited insight into the true financial health of a crypto business. Mazars, another accounting firm, said last week that it stop providing such reportsand pulled work he had done for crypto exchange Binance from his website.
Armanino’s nine-person team that produces proof of reserve reports will leave the company and create a new entity to take over existing customers, with the separation to be completed by the end of next month.
“Any professional services firm needs to adapt and reevaluate, given the big changes that have taken place in the crypto market over the past couple of months,” Carlberg said.
The digital asset practice accounts for less than 1% of company revenue, but has drawn unwanted attention since FTX’s collapse, including the reappearance of posts from its Twitter account cheering Bankman-Fried’s appearances before Congress. American.
“Our partners and our firm are proud of the work we’ve done in this space,” Carlberg said. “There is a need for additional trust and transparency.”
But he echoed Mazars in warning of the risk that proof of reserves certificates are misunderstood by investors. “There is still a fairly large gap in understanding of what an audit or offering of reserve evidence provides to the recipients of these reports. Hopefully that gap in understanding will change over time, but it is a gap quite important today,” he said.
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