FTX’s collapse puts its listeners in the spotlight

The collapse of FTX has brought to light two US accounting firms that the cryptocurrency exchange said it used to audit its books.

FTX said its 2021 financial results were audited by Armanino, one of the country’s top 20 accounting firms by revenue, and Prager Metis, which bills itself as the first accounting firm to open a headquarters social in the metaverse.

The two companies are among several in the United States to have touted their expertise in digital assets in a race to win business from the growing number of crypto companies, even as accounting rules for digital assets are often unclear and unclear. businesses are still in their infancy.

Last year, FTX founder Sam Bankman-Fried made auditing his financial results a milestone, but the accounts weren’t made public and the names of the auditors were only revealed. on the eve of its bankruptcy on Friday.

Forbes magazine said FTX provided it with “a wealth of information about its operations, including most of the companies it does business with, the date of its last audits and details of its regulatory licenses” earlier this year. when the publication was preparing a cryptocurrency ranking. Exchanges. (FTX was ultimately ranked fifth.)

“FTX’s advisors and business partners included the New Jersey office of accountant Prager Metis CPAs, LLC and San Ramon, CA’s Armanino, LLP, who performed audits on FTX and FTX.US for the fiscal year. 2021,” the magazine revealed on Thursday.

None of the accounting firms responded to messages seeking comment on the scope of their work for FTX, or when they last issued an audit opinion.

FTX was taken down by a rush on customer deposits at its international exchange, which followed revelations about the exchange’s complicated relationship with other entities in Bankman-Fried’s crypto empire. His trading company Alameda Research owed FTX $10 billion this week, according to people familiar with his finances.

Bankman-Fried blamed the stock market’s flawed liquidity and leverage accounting for the collapse.

FTX’s claims that the financial statements were audited left many questions unanswered, said Jeffrey Johanns, a former PwC partner who teaches auditing at the University of Texas at Austin, particularly in light of the revelations about the complexity of its organizational structure.

“If there was any form of insurance by an accounting firm, what type of insurance was it, what was its scope and how many entities were covered?” says Johanns. “Especially if there are business-to-business transactions, it would 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 released in August by the Public Company Accounting Oversight Board, regulator of the auditing profession in the United States, said its inspectors had found deficiencies in the four audits of public companies carried out by Prager Metis that they had examined. The company told the PCAOB that it is working to resolve the issues.

The group has a digital asset practice which it says provides services to crypto exchanges, non-fungible token issuers and crypto hedge funds, among other clients. He also sought to offer guidance to businesses moving into the immersive virtual worlds known as the metaverse.

“There is a huge need for expertise and financial resources in the evolving digital world,” chief executive Glenn Friedman said in January, when Prager Metis opened a “head office” on metaverse platform Decentraland. The firm is sponsoring an event at a music festival on the platform this weekend.

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

Armanino has also worked extensively for digital asset and cryptocurrency businesses, helping it become one of the fastest growing US accounting firms, with $458 million in revenue in its last fiscal year. , according to Accounting Today.

The company has heavily commercialized technology that allows cryptocurrency exchanges and other businesses to demonstrate that digital assets are safe, with real-time verification for customers. An Armanino Twitter account was promoting the product on Tuesday as FTX’s outcome captivated the industry.

Last December, the same account tweeted approvingly in response to Bankman-Fried’s testimony before the House of Representatives Financial Services Committee, when the FTX founder pushed lawmakers to standardize crypto regulation and foster cryptocurrency. innovation.

“Working on our behalf today,” the account wrote.

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