A visible reserve balance can look reassuring while leaving important questions unanswered. In a March 8, 2023 advisory, the PCAOB’s Office of the Investor Advocate warned that proof-of-reserves engagements are not audits and fall outside PCAOB oversight. The dated advisory remains a useful starting point for understanding the limits of a crypto reserve report. PCAOB Office of the Investor Advocate: Proof-of-reserve reports advisory
Follow the evidence
Trace how the event could reach markets, then inspect a competing explanation.
Compare explanations
Switch lenses to see what each account explains—and what remains uncertain.
WFN analysis: imagine a service reports assets worth 100 units. If claims against it total 80 units, that figure has a different meaning than if claims total 130. These invented values illustrate why an asset number without a matched liability measure cannot establish coverage. The appropriate comparison also requires consistent valuation dates and a clear description of which obligations are included. Ownership adds another question. A service might be able to demonstrate control of an address without explaining whether another party has a claim on the assets. Technical visibility and legal entitlement are different forms of evidence. A due-diligence process should identify what each document actually establishes before combining them into a conclusion about customer protection. Time is equally important. A precisely verified balance on one date cannot by itself describe the following week’s withdrawals, transfers or new obligations. Repeated observations may reveal changes, but their frequency does not automatically expand the scope of the underlying procedure. A daily narrow report remains narrow unless additional matters are examined.
WFN analysis: imagine a service reports assets worth 100 units. If claims against it total 80 units, that figure has a different meaning than if claims total 130. These invented values illustrate why an asset number without a matched liability measure cannot establish coverage. The appropriate comparison also requires consistent valuation dates and a clear description of which obligations are included. Ownership adds another question. A service might be able to demonstrate control of an address without explaining whether another party has a claim on the assets. Technical visibility and legal entitlement are different forms of evidence. A due-diligence process should identify what each document actually establishes before combining them into a conclusion about customer protection. Time is equally important. A precisely verified balance on one date cannot by itself describe the following week’s withdrawals, transfers or new obligations. Repeated observations may reveal changes, but their frequency does not automatically expand the scope of the underlying procedure. A daily narrow report remains narrow unless additional matters are examined.
Ask who issued the report, what was tested, which assets and liabilities were covered and what date the procedures address. Read any qualifications, excluded entities and restrictions on use. A dashboard badge or an accounting firm’s name is not a substitute for the full engagement description, including the standard under which the work was performed. Reserve evidence can form part of a broader assessment when its limits are kept visible. It should be read alongside the relevant financial information, custody terms and customer rights rather than promoted as a universal solvency certificate. This article offers a document-reading framework; it does not rank exchanges or assert that a particular business is insolvent on the basis of an incomplete snapshot.
Read the engagement, not only the headline balance
The advisory explains that a report may verify specified assets at a particular point in time without addressing the entity’s liabilities, customers’ rights or whether assets were borrowed. It also warns that a snapshot does not establish whether those assets remain available afterwards. These are limitations of the evidence described, rather than a finding against every named provider. PCAOB Office of the Investor Advocate: Proof-of-reserve reports advisory
For agreed-upon procedures, the advisory says management determines the procedures and the report sets out factual findings from them, without a representation that the procedures are sufficient. The document reflects the views of the Office of the Investor Advocate staff; it is not itself a Board rule, policy or statement. PCAOB Office of the Investor Advocate: Proof-of-reserve reports advisory
A hypothetical balance sheet shows the missing comparison
WFN analysis: imagine a service reports assets worth 100 units. If claims against it total 80 units, that figure has a different meaning than if claims total 130. These invented values illustrate why an asset number without a matched liability measure cannot establish coverage. The appropriate comparison also requires consistent valuation dates and a clear description of which obligations are included.
Ownership adds another question. A service might be able to demonstrate control of an address without explaining whether another party has a claim on the assets. Technical visibility and legal entitlement are different forms of evidence. A due-diligence process should identify what each document actually establishes before combining them into a conclusion about customer protection.
Time is equally important. A precisely verified balance on one date cannot by itself describe the following week’s withdrawals, transfers or new obligations. Repeated observations may reveal changes, but their frequency does not automatically expand the scope of the underlying procedure. A daily narrow report remains narrow unless additional matters are examined.
Match each assurance claim to supporting evidence
Ask who issued the report, what was tested, which assets and liabilities were covered and what date the procedures address. Read any qualifications, excluded entities and restrictions on use. A dashboard badge or an accounting firm’s name is not a substitute for the full engagement description, including the standard under which the work was performed.
Reserve evidence can form part of a broader assessment when its limits are kept visible. It should be read alongside the relevant financial information, custody terms and customer rights rather than promoted as a universal solvency certificate. This article offers a document-reading framework; it does not rank exchanges or assert that a particular business is insolvent on the basis of an incomplete snapshot.