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Some Auditors May Reexamine Their Crypto Clients in Wake of FTX Collapse

By:
S.J. Steinhardt
Published Date:
Nov 28, 2022

Some auditing firms are reevaluating their work in the wake of the spectacular collapse of FTX, and those reevaluations will cost their clients, the Financial Times (FT) reported.

Several U.S. firms told the FT that they elevated some or all of their crypto-related clients to the status of high risk. That status could lead to more thorough audits, higher bills or resignation of the auditors completely.

FTX’s bankruptcy filings cast light on what John Ray III, the company's new chief executive, called “such a complete failure of corporate controls and such a complete absence of trustworthy financial information,” the likes of which he had never seen. Yet the exchange’s two relatively small audit firms each issued an unqualified audit opinion, one for FTX’s international operations and the other for its U.S. exchange business.

An unnamed partner at an unnamed firm that audits crypto business told the FT that it is "checking in with our clients, and we have had some where we have had to adjust risk ratings. ... [I]f we are going to continue and finish up the audit, we have to ask if we have all the procedures we need, or new resources we need to bring to bear.”

“We aren’t in the business of working for people that might fail,” the partner said about taking on new crypto clients. “When a company fails there is a lot of work: you are going to get subpoenaed, deposed, people are going to want to look at your work papers to see if you missed anything. It’s involved.”

Two weeks before the FTX collapse, Ernst & Young dropped Texas bitcoin miner Core Scientific, saying in a regulatory finding that it found insufficient record-keeping and poor internal controls. But the Big Four maintain that they have more resources than the smaller firms for crypto clients.

Others prefer to steer clear of the industry.

“We haven’t done [audit] work around cryptocurrency,” EisnerAmper Chief Executive Charly Weinstein told the FT. “Out of an abundance of caution."