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Comment by woodruffw | Hacker News Reader

From TFA:

> The reserve report, released Wednesday, is a five-page letter from a partner at the South African affiliate of the global accounting firm Mazars. It contained three numbers. The letter wasn’t an audit report, didn’t address the effectiveness of the company’s internal financial-reporting controls, and said Mazars did “not express an opinion or an assurance conclusion,” meaning it wasn’t vouching for the numbers.

> Mazars said it performed its work using “agreed-upon procedures” requested by Binance and that “we make no representation regarding the appropriateness” of the procedures.

This sounds like a Binance paid for a brand name on an empty report, while providers of said brand name (Mazars) are doing everything in their power to distance themselves from factual claims about Binance's solvency. Am I missing something here?

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Former auditor here:

1. That is standard wording for the report of "agreed upon procedures". This is not an audit it just means they only did a certain set of procedures rather than an audit.

2. Audits aren't really able to detect all fraud, especially if the management is sophisticated. But if the fraud results in obvious material discrepancies then the audit would catch it and the auditor would resign (unless they are corrupt in which case you end up with Enron where a Big 5 auditor was complicit, so now we have the Big 4).

3. In the Binance case, the obvious weird thing is they only did these very limited agreed upon procedures on 'Bitcoin', but other crypto currencies they claim to hold were not verified at the same time. Also their other liabilities are not verified.

(As some examples: they could have some non-BTC liabilities to offset the Bitcoin or CZ moved some personal bitcoin to wallets or converted some other holdings, all sorts of possibilities. Would be hard to hide from a full audit but in this case very easy to hide. )

Don't forget the big four signed off on evergrande and other Chinese real estate and it seems like there will be no consequences (we can't have the big zero)

Has there been an accounting fraud with Evergrande? Being overleveraged isn’t fraud.

It's fraud when you tell investors incorrect things in prospectuses, for example. These things are required to be signed off by auditors to participate in us stock exchanges

What specific statements were incorrect in the Evergrande prospectus?

>>But if the fraud results in obvious material discrepancies then the audit would catch it and the auditor would resign

Explains "no auditor wants to work with us" line used by Tether among other crypto projects.

Curious did you switch from auditing to something else?

> Am I missing something here?

Nope. I can produce a similar report for 60x+ my net worth. Bank account snapshots, wire in wire out. Leveraged assets, debt ignored. This is all marketing aimed at the financially illiterate.

Nope. That's pretty much the gist of the whole shenanigan. As a former CRO, it's not unheard of but quite uncommon to do this. Because normally it has the opposite effect. It should have been only audited financials. But the Big 4 have failed us spectacularly in recent years.

Isn’t it telling that this work wasn’t done by the “big four?”

Given that the Big Four like money and are ostensibly the biggest and oldest and with the best reputation. Any perceived shaky but actually strong firm would come out gangbusters with “Old Accounting firm stakes its reputation that we aren’t full of shit.”

After the death/execution/seppuku of Anderson after Enron, the remaining four seem extra conservative these days so they would likely only take on a job if it was reputable. Even if it means hundreds of millions of dollars in fees.

This is an example where old fuddy duddy finance should help me as a consumer.

Mazars isn’t a fly by night operation. They are old and big, just not in the big 4.

Traditional finance views Mazars audits (which this isn’t) the same as a big 4 audit.

I’m aware of Mazars and their position. I didn’t say they are fly by night, I said they aren’t as reputable or established as the big 4.

My point stands that if you want to assuage doubts, you don’t hire the #11 [0] (or #21 if just looking at US revenue [1]) firm to do it. This would be simple to get PWC or someone. But a firm that big isn’t willing to touch this kind of operation.

[0] https://big4accountingfirms.org/the-top-accounting-firms-in-... [1] https://www.accountingtoday.com/the-2021-top-100-firms-data

Mazars is 5th in Europe, 24 400 employees and it makes ~2 bilions in turnover.

this above comment is not bringing much value to the discussion I think.

They aren’t top 10 globally or even in the US.

They aren’t a tiny firm, but they aren’t even in the same league as the big companies. Mazars has $2B in revenue and the smallest of the big4, KPMG, has $32B.

They aren’t competitors and Mazars doesn’t even compete for work.

Here’s a list of all major US banks and their auditors [0]. Mazars doesn’t audit a single one and 90% are big4.

In my comment, I wanted to point out that Binance is not doing what a reputable financial firm would do, hire a major accounting firm and have them audit. Hiring a regional firm means they likely went down the list until they finally found an auditor willing to make any statement.

It looks silly to anyone who understands auditing.

My point was also that major audit firms risk dissolution if they are convicted like Anderson was. So there’s no way that a firm is going to risk their $30B+ audit book in exchange for a few million in fees.

Mazars doesn’t have as big a book to risk. And their customers aren’t major exchange listed firms that would have to fire them if they were convicted of fraud.

[0] https://ibanknet.com/scripts/callreports/filist.aspx?type=au...

KPMG does more advisory and tax than audit; Mazars the other way around. Still much bigger, but it's not apples/apples. Mazars clients are mostly European; they're BNP Paribas' auditor.

I think it's a very reasonable observation. An audit from PWC is materially different to an audit from a local accounting firm with less of a reputation at stake. The parent happens to be in error about which category Mazar's falls into (since they're probably the largest accounting firm outside the big four), but people are going to make reasonable but ignorant comments sometimes. I myself thought the exact same thing and only didn't say it because I happened to google Mazars out of curiosity.

Ever since the Trump stuff, I don't think Mazar's gets alot of trust anymore:

https://www.nytimes.com/2022/02/14/nyregion/mazars-trump-org...

Fair point but I am pretty sure so many accounting firms messed up quite often. Without slowing their business much.

I remember this one for example that was probably missed by most people. https://www.bbc.com/news/business-58671915

Trump was a loaded client and any firm doing business with any politicians should be extra-careful

These scandals can have an impact on the business, but it's true that it's not always that bad and companies can continue to be bad actors:

https://www.nytimes.com/2022/09/30/world/africa/mckinsey-cor... https://www.investopedia.com/terms/a/anderseneffect.asp

Also, same firm that Trump worked with. I see a potential pattern here.

Yes.

Agreed upon procedures is a standard non audit report done with a particular target use case in mind.

They can be very valuable or complete garbage. It depends on its design and purpose. The disclosures you quote are standard and would form part of any agreed upon procedures engagement. There is no nefariousness at play.

However, the better questions are:

1- Does this report result in meaningful assurance and if so, why 2- Why isn't here any audit report

If I squint, I can understand the value of a non-audit-audit in some circumstances. But I don't understand the value of it in this circumstance, except for the value in obscuring one's finances behind a "serious" auditor's letterhead.

Put another way: the context is anxious investors. Is this intended to assuage them, or is it intended to dupe them?

Not necessarily. It might simply be because they wanted to publish something now and not in a couple of months.

That’s Tether’s old line. News articles about “just a few more months” date back at least five years.

https://www.pymnts.com/cryptocurrency/2022/tether-audit-prom...

"We want to get this not-an-audit out the door now, instead of waiting for a few months" has been their line for years.

> There is no nefariousness at play.

By Mazars.

How can that claim be made?

By carefully reading their statement and to realize that they have very explicitly not said that they are assuming responsibility for these figures in their role as CAs but that this is merely Binance's opinion expressed on Mazar's letterhead.

> Merely Binance's opinion expressed on Mazar's letterhead.

This alone is at least a gray area, ethically, and not necessarily in just this case.

In this particular case, it has made it possible for Binance’s chief strategy officer, Patrick Hillmann, to say things which he subsequently described as “parroting others’ descriptions of this as an independent audit.” Mazar's response so far: "No comment."

That's pretty much it

They're asking the auditors to tell how many sweets you have in a box, but you can only shake the box and listen to what sound it makes. And not actually do any form of due diligence

Chocolate covered turds look like sweets until it’s too late.

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