[HN Gopher] French accounting firm Mazars is pausing all its wor...
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French accounting firm Mazars is pausing all its work with crypto
firms
Author : firstSpeaker
Score : 118 points
Date : 2022-12-17 11:15 UTC (11 hours ago)
(HTM) web link (finance.yahoo.com)
(TXT) w3m dump (finance.yahoo.com)
| LatteLazy wrote:
| It's a pity. Proper audits would be a boon for honest crypto
| exchanges and it would be an opportunity for accountants to show
| they can actually add value after all the scandals of the last 30
| years...
| xg15 wrote:
| Well, no one is stopping them...
| quickthrowman wrote:
| > honest crypto exchanges
|
| I am reminded of Diogenes walking the streets of Corinth during
| the day with a lantern, looking for an honest man.
|
| The only one I would expect to be somewhat honest is coinbase,
| on account of the mandatory SEC filings and actual audits (vs
| attestations) but Enron, MCI, Tyco, and many other companies
| had the same oversight, so I'm still skeptical about coinbase
| being honest.
| ceejayoz wrote:
| > Proper audits would be a boon for honest crypto exchanges...
|
| Correct!
|
| Ask yourself if "audits are impossible" is the likely answer to
| their rarity.
| jmull wrote:
| Exactly. There's no such thing as a proper audit for crypto.
|
| Perhaps it could be invented, but no one has.
|
| I doubt the will to do it exists, since that would seem to be
| against the interests of all the big crypto players.
| ceejayoz wrote:
| > There's no such thing as a proper audit for crypto.
|
| No, this is absolutely the wrong take.
|
| Crypto isn't special. It can be audited, and nothing has to
| be invented. Coinbase has audit reports.
| mschuster91 wrote:
| What? In fact, crypto is the _easiest_ thing to audit -
| require the person that claims to own a wallet to sign a
| challenge you provide with the public key, and check if the
| signature matches with your challenge and the public key of
| the wallet and the wallet 's balance from the public
| blockchain matches the claim of the auditee. And you can
| completely automate this without having to involve a third
| party like a bank.
| ceejayoz wrote:
| The likely challenge for the shadier exchanges it the
| "ok, but what have you used these coins you demonstrably
| possess as collateral for?"
|
| Having $10B in crypto is easy to audit. Finding out $20B
| is owed is where it gets exciting, FTX-style.
| xg15 wrote:
| Not to mention, the risks tied to the coins itself. FTX
| was also fully backed, on paper. The problem was just
| that their reserves were in their own fantasy money,
| which lost all of its value the moment FTX got into
| trouble. (And how the real dollars that people had
| deposited somehow turned into fantasy money is the magic
| trick that brought SBF free lodging in the Bahamian jail)
|
| So an audit wouldn't just have to prove the assets are
| there on some chain, it would also have to verify the
| chain itself is actually suitable as a reserve.
| [deleted]
| coffeebeqn wrote:
| The crypto companies don't allow real audits. They just do
| "attestations" where the company can arrange things beforehand
| to look the way they want and doesn't allow the accountant to
| dig behind the presented numbers
| LatteLazy wrote:
| As soon as one does, others will have to follow. And right
| now, accounting companies don't do real audits either (hence
| Enron and WorldCom and dozens of other examples).
|
| This is an opportunity for both of them to up their games.
| neilv wrote:
| > _Mazars has since deleted all crypto reports from its website._
|
| Are those reports something an accounting firm is supposed to
| either stand behind or formally retract?
|
| Does removing the reports constitute a retraction, or is it
| normal when a business relationship ends, or is it improper?
| Bluecobra wrote:
| From what I gather, they could be on the hook during bankruptcy
| proceedings if they said everything was a-ok when it actually
| wasn't. Exiting the space should shield them from that.
| noja wrote:
| Why would it shield them from something they already did?
| exit wrote:
| if all relevant business transactions and arrangements are
| properly logged, what more is there to do than algorithmically
| digest these records and produce a result?
|
| i'm trying to understand what the necessary human element is in
| the operation of accounting firms.
|
| i imagine there are strategic aspects, i.e. how to categorize and
| structure future transactions?
| ceejayoz wrote:
| There's off-chain stuff happening. They use their holdings as
| collateral on riskier investments, like the commercial paper
| holdings Tether had. Humans have to untangle these, and
| sometimes that untangling reveals disaster.
| exit wrote:
| > There's off-chain stuff happening.
|
| sure, i'm asking about businesses in general and that's why i
| specified "properly logged"
| alexarnesen wrote:
| the first pass is usually an algorithmic digest. the human
| element is required to recognize a subset of all transactions
| as requiring further analysis. some transactions require
| special consideration in either tax or reporting contexts. if
| every accounting system were a relational database, and every
| entry had multiple foreign keys to every appropriate
| classification, we could virtually eliminate CPA's. as it
| stands each accounting system is bespoke and idiosyncratic.
| some of them record transactions on sheets of paper.
|
| source: dating a CPA
| exit wrote:
| > if every accounting system were a relational database, and
| every entry had multiple foreign keys to every appropriate
| classification, we could virtually eliminate CPA's.
|
| i'd like to hear it confirmed from additional sources but
| this is what i suspected.
|
| i also imagine those with the necessary skills to formalise
| these practices are (understandably) not eager to automate
| themselves out of the value capture loop.
| tootie wrote:
| Mazars is the same firm that disclaimed all their audits of the
| Trump Org the minute they were investigated. Their reputation is
| in tatters in an industry built on reputation.
| _fizz_buzz_ wrote:
| Doubt it. In 2008 lots of rating agencies made terrible
| judgment calls about the subprime crisis. We were upset and
| there was lots of talk about how this was so terrible for their
| reputation. A couple of weeks later everyone went back to
| business as usual.
|
| https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...
| mannykannot wrote:
| Its reputation for focusing utterly on just what it is being
| paid to do seems to be growing stronger every day.
| dereg wrote:
| Makes sense. There's no need to use this to read into the
| solvency of Binance. From Mazars' perspective, the small amount
| of fees they receive is not worth the destruction of the rest of
| their business.
|
| Arthur Andersen used to be one of the big accounting firms (the
| "big four" used to be the "big five" accounting firms) and their
| association with Enron and Worldcom destroyed their business.
| There's no need to force an error by performing these incredibly
| narrow-scope exercises when the whole world is looking.
| gumboza wrote:
| From experience working with Mazars, they are perfectly capable
| of destroying their business without the aid of crypto.
| jasonzemos wrote:
| This was the same firm that stood behind the now convicted
| Trump organization's financial statements.
| fullshark wrote:
| If these crypto firms (especially Binance) collapse I can't
| imagine surreptitiously deleting their audit reports in middle
| of the night will allow them to escape unscathed.
| CPLX wrote:
| > their association with Enron and Worldcom destroyed their
| business
|
| It wasn't so much the "association" as it was the massive
| criminal conspiracy they were convicted of.
| hn_throwaway_99 wrote:
| > the massive criminal conspiracy they were convicted of
|
| Not disagreeing with the sentiment, but the conviction was
| unanimously overturned by the Supreme Court.
|
| https://en.m.wikipedia.org/wiki/Arthur_Andersen_LLP_v._Unite.
| ..
| tiahura wrote:
| Another botched case by the liberal hero Andrew Weismann.
| yborg wrote:
| As noted in the Wiki article, it was overturned essentially
| on procedural grounds based on how the jury was instructed.
| The government could have retried the case with the higher
| burden of proving willful misconduct by Andersen but by
| that point the firm was already dead from reputational
| damage, so I suppose justice was served anyway.
| quags wrote:
| "During the fall of Enron, Arthur Andersen, Enron's
| accounting firm, instructed its employees to destroy
| documents relating to Enron after Andersen officials
| learned they would soon be investigated by the Securities
| and Exchange Commission."
|
| On that alone I'm surprised how it was unanimous on over
| turn for the Supreme Court. Obviously the documents did
| not show them in a good light.
| cldellow wrote:
| The role of appellate courts is generally not to judge
| the facts of the case, but to judge whether the law has
| been applied correctly.
|
| If you got convicted because the prosecutor and the trial
| judge didn't know what the law was, that's not right.
| That's what the Supreme Court decision here was about,
| not about whether or not Arthur Andersen had committed a
| crime.
|
| In many cases, having your verdict overturned doesn't
| preclude the prosecutor from trying the case again.
| [deleted]
| bogomipz wrote:
| It's worth noting that that this is the same accounting firm
| which earlier this year retracted 9 years of "statements of
| financial condition" that they had prepared for The Trump
| Organization.[1]. The Trump Organization was found guilty of
| financial fraud earlier this month.[2]. These same Mazar
| statements are also at the center of another ongoing fraud case
| being brought by an Attorney General.[3]
|
| [1] https://www.nytimes.com/2022/02/14/nyregion/mazars-trump-
| org...
|
| [2] https://www.nytimes.com/live/2022/12/06/nyregion/trump-
| organ...
|
| [3] https://www.nytimes.com/2022/09/21/nyregion/trump-fraud-
| laws...
| dang wrote:
| Related ongoing thread:
|
| _Binance outflows hit $6B as Mazars halts 'proof of reserves'
| work_ - https://news.ycombinator.com/item?id=34028921 - Dec 2022
| (218 comments)
| batmansmk wrote:
| Too little too late. Their work with Binance was non sensical.
| It's not a crypto issue, it's to emit such claims without
| actually a proper audit is ridiculous. Even with all the proper
| reserves and small prints, it's still a true lack of integrity to
| have even entertain the claim.
| belter wrote:
| Mazars was the audit firm for the Trump Organization until
| February...
| 21eleven wrote:
| It's ironic that crypto exchanges need to use accounting firms
| for audits when the whole point of a blockchain is to account for
| things.
| soulofmischief wrote:
| It's because internal exchange transactions are not on-chain.
| When you deposit crypto to a typical exchange, it sits in a hot
| wallet or gets moved to cold storage. Any further transactions
| you make on the platform, such as exchanging currency, just
| shift around balances on a regular database. Only when you
| withdraw does it show on the chain. This is not a crypto
| problem.
| di456 wrote:
| There's no technical reason why internal accounting systems
| didn't post to a Blockchain based ledger.
|
| However most companies don't build their own accounting
| systems, it's too much of a liability and good luck getting
| an auditor to sign off on financials from something
| homegrown.
|
| And I not even sure if a commercial off the shelf blockchain-
| based accounting system exists, does one?
| soulofmischief wrote:
| > There's no technical reason why internal accounting
| systems didn't post to a Blockchain based ledger.
|
| I agree. Using the main chain obviously costs network fees,
| which for the high amount of transactions involved in
| running an exchange is untenable. However, there's no
| reason an exchange couldn't use its own public blockchain
| to allow independent auditing.
|
| > And I not even sure if a commercial off the shelf
| blockchain-based accounting system exists, does one?
|
| Not to my knowledge, and I know some crypto projects would
| love to use a product like this. Could be worth doing some
| market research.
| imtringued wrote:
| There are Ethereum rollups which basically work like that.
| There is a 7 day window to post a fraud proof.
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(page generated 2022-12-17 23:02 UTC)