Reserve Attestation vs Audit

A reserve attestation is a point-in-time statement, prepared by an outside accountant, that the assets a custodian claims to hold on a stated date match what that accountant was able to see. It is not a full audit, and the gap between the two is the gap between a photograph and an inspection. A reserve attestation answers one narrow question — did the reported balances exist at the cut-off — and leaves most of the questions a depositor actually cares about untouched.

That distinction gets flattened in marketing. A firm publishes such a report, the word “verified” appears in a blog post, and readers absorb it as assurance about solvency and controls at once. Knowing where the scope ends is the cheapest due diligence available to anyone leaving a balance with a third party.

• Attestation is narrower than audit by design. It reports on specified procedures and a specified date, not on the entity as a going concern.
• The date is the weak point. A snapshot taken at a chosen moment says nothing about the balance sheet a week later, or about what happened between the cut-off and publication.
• Assets are easier to verify than liabilities. Most reports cover custody balances; fewer cover the complete liability side, including off-chain and affiliate obligations.
• Read the scope letter before the headline number. Exclusions, assumptions and the standard applied decide whether the report means anything for your position.

What a reserve attestation actually covers

The report typically covers custody assets held for customers at one moment, reconciled against a schedule of customer obligations supplied by the entity itself. The accountant tests that the assets exist and that the schedule agrees to internal records. What the accountant does not normally do is form an opinion on whether the business is solvent, well governed, or honest about the obligations it did not put on the schedule.

The reporting date problem

Attestations are dated. The report describes a cut-off, usually a period-end chosen by the entity, with procedures run on or shortly after that date. Between cut-off and publication balances move, sometimes because one large counterparty withdrew. A report can be accurate and stale at once, and the document will not tell you which.

Agreed-upon procedures and the scope letter

Many attestations are performed under an agreed-upon procedures engagement, which means the accountant performs only the procedures the engaging party specified and expresses no opinion at all. The output is a factual findings report, not an assurance conclusion. The scope letter is therefore the most informative page in the package: it names the assets in scope, the assertions tested, the materiality applied and everything carved out.

Carve-outs matter more than the headline ratio. Common exclusions are affiliate-held assets, pledged collateral, related-party tokens and balances the accountant could not independently price. Each one shrinks the population the number describes.

What a full audit adds

A full audit adds an opinion on financial statements as a whole, which means liabilities, revenue, related-party dealings and internal controls all enter the scope. That is a different product with a different cost, a different timeline and, importantly, a different liability exposure for the accountant.

Controls testing

An audit examines whether the processes that produce the numbers work: key management, withdrawal authorisation, reconciliation cadence, segregation of customer and corporate funds. Attestation samples balances; audits test the machinery that generates them. Controls decide whether today’s balance survives next month’s ordinary operational mistake.

Liability verification

The hardest part is confirming what the entity owes. Customer liabilities sit in internal ledgers the accountant can read but cannot confirm with the customers themselves. A report covering assets in full and liabilities partially shows a healthy ratio even when the true obligation is larger — a scope limitation, disclosed in language most readers skip.

Reserve attestation versus audit: a scope comparison

The two products differ on almost every axis that affects a depositor, not just on rigour.

A monthly reporting cycle is genuinely useful: frequent, cheap, and good at catching gross discrepancies early. It is not a substitute for an annual audit.

The useful question is never “is there an attestation” but “what did the accountant agree to look at, and what did the engagement letter let them leave out”.

A worked example of the coverage gap

Suppose a custodian publishes a report showing 1,200 in assets against 1,150 in customer token liabilities. Reported coverage is 1,200 ÷ 1,150 = 104.3%, which reads as a comfortable surplus of 4.3%.

Now read the notes. Of the 1,200, some 180 consists of a token issued by an affiliated entity, valued at par because no independent price was available, and the schedule of liabilities excludes 140 owed to customers of a separate affiliate that pools liquidity with the parent. Adjust the numerator by removing the affiliate token and the denominator by adding the omitted obligation: (1,200 − 180) ÷ (1,150 + 140) = 1,020 ÷ 1,290 = 79.1%. The same document now describes a 20.9% shortfall.

Neither figure is a lie. The first is the arithmetic the report invites; the second is the arithmetic the scope letter permits. That distance is why coverage ratios across venues are not comparable unless the scopes match.

How to read a reserve attestation report

Read in this order; most reports resolve within ten minutes.

1. Find the standard applied. Agreed-upon procedures, review and examination produce very different levels of assurance.
2. Find the cut-off date and the publication date. A long gap is a question, not a scandal, but it needs an answer.
3. List every exclusion in the scope section: affiliates, pledged assets, related-party tokens, unpriceable balances.
4. Check whether liabilities were tested against customer records or accepted from management’s schedule.
5. Recompute the ratio yourself after removing excluded assets, and note how far it moves.
6. Check whether the same accountant has produced consecutive reports, and whether the scope changed between them.
7. Ask what the venue discloses between reports — real-time reserve pages are useful only if their methodology is stated.

Compare venues on that basis, not on the marketing summary. Two can both advertise attestation while one covers a single affiliate and the other a consolidated group.