More Robert Kutner
But given the chronically dubious claims about cryptocurrencies and fake shows made by Sam Bankman-Fried and others, there was good reason to be suspicious. However, it turns out that these so-called independent audits are no more reliable than encryption.
The Public Company Accounting Oversight Board (PCAOB) has publicly warned that audit evidence is highly unaudited and unreliable. the warning says:
The Office of the Investor Advocate (PCAOB) is issuing this notice because investors and others may improperly rely on PoR reports that are outside the PCAOB's regulatory authority. Most importantly, investors should note that PoR correlations are not audits and therefore the reports do not provide meaningful assurance to investors or the public.
This raises the broader issue of self-regulation, which conflicts with the definition of conflict of interest. The reason our audience is regulated by regulators like the Securities and Exchange Commission (SEC) is because their promoters and recruiters cannot be trusted to be honest.
Before the creation of the PCAOB under the Sarbanes-Oxley Act of 2002, the accounting profession was trusted to certify the accuracy of a company's books. Oversight of accountants is delegated to their professional body, the American Institute of Certified Public Accountants, a classic case of keeping a chicken coop.
In the Enron scandal of 2001 (repeated by others such as WorldCom and Tyco International), independent auditors were said to have worked with management to manipulate the company's books. As Enron collapsed in a sea of corruption, the scandal brought down its accountants, the venerable firm Arthur Andersen, which was later found guilty of obstruction of justice. In the wake of Enron, the Sarbanes-Oxley Act tightened accounting standards and established the PCAOB as the oversight body for the accounting profession.
Meanwhile, the cryptocurrency spiral crash continues to repeat itself. First, it turned out that the cryptocurrency was not directly involved in the collapse of Silicon Valley Bank (SVB) last Friday. But then it emerged that Circle, a crypto company that issues stablecoins, had deposited $3.3 billion of its reserves in a bank in Silicon Valley. The market cap of its stablecoin, called USDC, is denominated in US dollars and is rapidly falling below par.
A January PoR report suddenly rendered Grant Thornton Group's purported independent certification of the integrity of Circle's assets invalid. The volatility of other cryptocurrency startups in the valley prompted the banks surrounded by the senior vice president.
How often do we have to learn that the integrity of the financial sector can only depend on independent regulators?