Mazars has found itself in the headlines again this year after confirming it’s pausing work for crypto clients, including Crypto.com, KuCoin, and Binance, the world’s largest crypto exchange.
The news rocking the cryptocurrency world comes after the accounting firm in February backed away from another high-profile client — former President Donald Trump.
On Friday, Mazars told Yahoo Finance that it “paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.”
Here’s what else to know about the accounting firm.
What is Mazars?
Mazars is an international professional service firm that provides various financial services, including audit (49%), tax (16%), and outsourcing (16%), according to the firm’s 2020/2021 transparency report.
It operates in 90 countries but the majority of its offices and professionals are located in the European region. Mazars has 12 offices in the U.S., including in California, New York, Texas, and Florida.
In 2021, Mazars reported a fee income of $2.22 billion ( €2.1 billion).
What services did Mazars provide to crypto firms?
Mazars issued proof-of-reserve reports (PoR) for cryptocurrency exchange clients. The purpose of PoR reports is to verify that there are enough assets held by exchanges to back customer balances.
“It’s something that has been mentioned more and more since the FTX collapse,” said Romain Dillet, senior writer at TechCrunch. “Basically it’s like saying, ‘here’s what I have in my wallet and here’s what my customers hold on my exchange.’”
Ultimately, the exchanges wanted to provide customers with assurance.
“If everybody tries to withdraw everything at the same time, exchanges with reserves that are higher than customer deposits will be able to process all withdrawal requests,” Dillet said.
For instance, Binance explained its PoR system after the FTX fallout on its site and showed a 101% Bitcoin reserve ratio. Crypto.com also posted its Mazars PoR report on its website with an option to verify customer funds.
However, the Mazars PoR report specifically noted that these are not financial audit engagements and the firm does not express an opinion or assurance conclusion.
The Mazars report on Binance’s BTC reserve is no longer available on the firm’s website. Mazars removed all proof-of-reserve reports for cryptocurrency exchanges, according to TechCrunch, and Mazars currently does not list “cryptocurrency” or “blockchain technology” as industries it serves on its website.
Why did Mazars pull back?
After issuing PoR reports for Cyrpto.com and KuCoin earlier this month, Mazars said it’s suspending these reports over concerns on how the reports are interpreted by the public., according to a statement it provided to Yahoo Finance.
“Proof of Reserves Reports are performed in accordance with Reporting Standards relevant to an Agreed Upon Procedures report,” according to the statement. “They do not constitute either an assurance or an audit opinion on subject matter. Instead, they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time.
What was Mazars’ relationship with Trump?
Earlier this year, Mazars cut ties with another notable client, former President Donald Trump and his family business.
Trump used Mazars as his longtime accounting firm, its services included issuing statements of financial condition for the former president. These statements included the valuations of Mr.Trump’s assets, including real estate properties. However, in a letter to the Trump Organization in February, William Kelley, Mazars U.S. general counsel, said Trump’s financial statements from June 30, 2011, to June 30, 2020, “should no longer be relied upon.”
The accounting firm also said they will no longer provide any services to Trump and his businesses.
What legal liability do accounting firms have?
Mazars, like every other accounting firm and its CPAs, is obligated to uphold standards such as good faith, due professional care, and public interest.
Firms have the legal responsibility to ensure financials are appropriately stated. Otherwise, clients, investors, or third parties who rely on their work can sue for negligence or fraud.
Accounting companies in the past had collapsed due to bad audits. Arthur Andersen, once a “Big 5”’ accounting firm along with PwC, KPMG, EY, and Deloitte, collapsed in 2002 due to its involvement in the Enron scandal.
Andersen turned a blind eye when Enron Corp. misreported financials to mislead investors. The leading audit partner failed to report issues to the company Board and tried to cover up the fraud amid an investigation by the Securities and Exchange Commission.
Mazars reminded the Trump Organization that “Mazars performed its work in accordance with professional standards” in its breakup letter in February. Mazars again reminded the public of its adherence to reporting standards as it suspends cryptocurrency-related work.
Mazars has not provided further information on its suspension decision to Yahoo Finance.
Rebecca is a reporter for Yahoo Finance.