Auditors Spurn Crypto After FTX, Misleading Reserve Estimates

In the rush to reassure customers and the markets, crypto exchanges like Kraken and Binance Holdings Ltd. in 2022 touted auditor-provided tests of their reserves testing to show customer deposits were safe.

But those reports—point-in time snapshots of reserves that don’t reflect fund volatility or outstanding obligations—failed to reassure jittery customers and regulators, including Securities and Exchange Commission Chair Gary Gensler. Instead of offering a lifeline to crypto firms, the practice of vetting collateral triggered renewed scrutiny from regulators and provided fresh ammunition for auditor critics.

Risk-adverse auditors are now rethinking their relationship with crypto players after the risks of ...