this kind of thing is not completely straight forward to catch. if they are able to lie about their liabilities then they can be truthful about their assets and

this kind of thing is not completely straight forward to catch. if they are able to lie about their liabilities then they can be truthful about their assets and it is difficult to catch the lie about the liabilities. if I'm an external auditor and you tell me you have some assets then that is something I can try to verify myself or ask you for more evidence. if you tell me you only have a liabilities of $X but the value is actually $X+Y then this is much harder to find. in the case of FTX its probably easy to. shave customer liabilities without it showing up. probably, this is because they didn't have proper segmentation of client funds. if you have an external entity holding the assets in trust then you need to be doing very dodgy stuff in the company to be hiding customer liabilities. for example even in with a trust account setup you could have part of customer funds being diverted into secret accounts and they don't show up in the liabilities. as an external auditor you can ask to see systems and a paper trail but you are just seeing what people want you to see and if there is a conspiracy to lie then you are fucked. the best you can do is try to get some industry estimates and see if they match or compare to external statistics (like revenue, etc) and hope they have been reported truthfully. my guess in the case of FTX there probably were red flags like lack of proper segregation and these weren't reported by the external auditor.