‘Correctly’ Was Wrong: Circle’s Accountant Tweaks Fine Print of USDC Attestation

Grant Thornton has switched from calling the $52.3 billion stablecoin’s reserve accounts “correctly stated” to the more equivocal “fairly stated.” Here’s why that matters.

AccessTimeIconMar 24, 2022 at 2:37 p.m. UTC
Updated May 11, 2023 at 4:34 p.m. UTC
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A one-word change in Circle’s attestation reports for the USDC stablecoin may be more significant than it first appears, according to accounting experts who spoke to CoinDesk.

As early as its first publicly available attestation, for October 2018 but issued the following month, Circle’s independent accountants, Grant Thornton LLP, wrote that the reserve accounts were “correctly stated” as of midnight at the end of the previous month. These accounts hold the real-world U.S. dollars backing USDC, a token that runs on the Ethereum blockchain and almost always trades for close to $1.

CoinDesk discovered a change with the most recent report, for the month of January 2022, when Grant Thornton began using the phrase “fairly stated” rather than “correctly stated.”

The term “correctly stated” appeared three times in each of the 25 monthly reports signed by the accounting firm from October 2018 through December of last year. It was also found in each “Reserve Account Report” signed by Circle’s chief financial officer, Naeem Ishaq, that was attached to Grant Thornton’s reports from April 2019 to July 2019 and in December 2019.

From the January 2020 to the April 2021 report, Circle’s vice president of accounting and finance, Timothy Singh, used the term a few times as well. With the May 2021 report (signed in July 2021), Singh dropped “correctly stated,” even while Grant Thornton continued to use the term.

The episode shows that investors holding stablecoins are putting a lot of trust in the issuer, even when it provides an attestation from a global accounting firm – because the accountant isn't supposed to swear on it.

According to a spokesperson for Circle (which is getting ready to go public at a $9 billion valuation), the tweak was made in preparation for an upcoming change to accounting standards.

“Grant Thornton updated the report language with their adoption of SSAE 21, which is effective June 15, 2022. Prior and current attestation reports comply with the applicable professional standards," the Circle spokesperson said.

Statements on Standards for Attestation Engagements (SSAEs) are issued by the Association of International Certified Professional Accountants (AICPA). SSAE 21 covers “direct examination engagements.”

Meanwhile, Grant Thornton spokesperson Jon Rucket said, “as a matter of policy, we cannot share client work products with third parties,” and told CoinDesk to reach out to Circle directly.

Stablecoins serve as critical plumbing for the $1.9 trillion global cryptocurrency market. Traders use these synthetic dollars to quickly transfer value in and out of exchanges to capitalize on arbitrage opportunities. USDC is the second-largest stablecoin, with $52.3 billion outstanding, behind Tether’s USDT, which has $80.8 billion.

Because USDC’s value is based on a promise to redeem them at any time for greenbacks, investors rely on the monthly reserve attestations from Grant Thornton for reassurance that Circle is good for the money.

As such, any change in the fine print merits scrutiny.

Why the change matters

So, what’s the big deal with an adverb?

One thing that seems to perplex the accounting mavens CoinDesk contacted was why the term “correctly stated” was even used to begin with. That’s because the term isn’t something usually found in attestations.

An attestation is done by a certified public accountant (CPA), who is hired to issue a report on the examination, review or performance of a set of agreed-upon procedures. For a stablecoin, that could include collecting reports that the issuer provides the accountant showing the collateral matches the market value of the stablecoins circulating on a specific date, but not necessarily verifying or providing an opinion on the information.

This differs from an audit, which is more thorough in that it analyzes and tests the transactions that make up balances on all financial statements over a period of time or at a point in time, and the CPA issues an opinion on whether the balances have been prepared according to standards and are free of material misstatement or error. Large stablecoin issuers such as Circle and Tether provide attestations, not audits.

“Most auditors and attestors do not use the word ‘correct,’ and it would only be used where a precise measurement is available,” said Michael Shaub, an accounting professor at Texas A&M University’s Mays Business School. “I assume crypto is an example of where precise measurement is possible. I am just guessing, but I assume GT [Grant Thornton] was not comfortable going forward with saying it was correct because it no longer matched Circle’s language, the party making the assertion.”

Other accounting professors, however, see the use of “correct” as an egregious error.

“I just have a hard time believing that GT knowingly released a report using the term ‘correctly stated’ while saying that the standards require that they plan and perform the examination to obtain reasonable assurance,” said Stephani Mason, assistant professor of accounting at DePaul University, in an email. “I have a hard time with it, not because GT could not make an error, but because the use of the term ‘correctly stated’ instead of ‘fairly stated’ is such a glaring thing that undergrad audit students would know better.”

Mason then went on to note that neither the previous standards nor the new ones cited by Circle’s spokesperson uses the word “correctly.” Each does talk about “reasonable assurance,” which the AICPA defines as “a high, but not absolute, level of assurance.” Those standards use the term “fairly stated,” not “correctly stated,” Mason noted.

Indeed, Grant Thornton said in the USDC attestations that it would try to obtain “reasonable assurance,” but only now is saying “fairly stated” rather than the less equivocal-sounding “correctly stated.”

“I don’t think there is a practical difference intended, but there is the potential to be held to a higher legal standard if you say something is correct rather than simply saying it is fair (as in not materially misstated),” said Texas A&M’s Shaub in an email. The AICPA’s “AT-C 205, which covers examinations (The report says, ‘We have examined . . . .’) never uses the word ‘correct’ as an option, only ‘fairly stated.’”

“I don’t think GT is going to get in trouble for saying ‘correct,’” Shaub added. “But I wouldn’t say it. Legally, I think it’s whether you can convince a jury there is a substantive difference, particularly since standards don’t forbid using the term ‘correct.’ But it’s hard to say they didn’t follow standards if the standards provide for language other than ‘fairly stated, based on the criteria,’ which they used in January 2022. I could argue that ‘in accordance with’ means ‘correct in accordance with.’ But I’m not an attorney to know if that’s a winning argument.”

The episode shows that investors holding stablecoins are putting a lot of trust in the issuer, even when it provides an attestation from a global accounting firm – because the accountant isn't supposed to swear on it.

“In the end, whatever happened it is not a good look for [Grant Thornton],” said Francine McKenna, a forensic accountant and incoming professor at the University of Pennsylvania’s Wharton School. “They either agreed to provide absolute assurance with the word ‘correctly’ – insane! – or allowed/found out Circle changed the word, or made the mistake themselves for two years. All the options are very bad.”


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Lawrence Lewitinn

Lawrence Lewitinn serves as the Director of Content for The Tie, a crypto data company, and co-hosts CoinDesk's flagship "First Mover" program.

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