Hester Pierce, commissioner of the United States Securities and Exchange (SEC), has raised concerns about the watchdog’s recent statement advising accounting firms against taking on non-audit work for crypto firms.
In a July 28 tweet, Pierce questioned the recent statement made by the SEC’s chief accountant Paul Munter, warning accounting firms against engaging in assurance work for crypto platforms outside the scope of a full financial audit.
Pierce suggested that Munter’s statement advising accounting firms to take an all-or-nothing approach, could result in crypto firms refraining from making sincere efforts due to fear.
“Why would we want to discourage good-faith efforts to provide more transparency?” Pierce stated in a tweet.
Crypto platforms & their accountants should be clear about what proof of reserves is and isn’t & customers should understand the limitations, but why would we want to discourage good-faith efforts to provide more transparency? https://t.co/fsuxUGPrrb
— Hester Peirce (@HesterPeirce) July 27, 2023
Munter stated that such practise might result in crypto firms selectively choosing only certain aspects of the business to show accounting firms and then presenting that information as a full audit to clients.
He believes that work beyond a full audit’s scope will lack transparency for investors, noting:
Certain crypto asset trading platforms, with others in the crypto industry, have marketed to investors their retention of third parties, sometimes accounting firms, to perform some sort of review of certain parts of their business, often presented as a purported “audit.”
According to Munter, if an accounting firm discovers that a client is making misleading statements about its non-audit work to the public, it should take a firm stance and consider making a “noisy withdrawal, disassociating itself from the client, including by way of its own public statements,” or report the firm to the SEC.
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Mike Shaub, an auditing and accounting ethics professor at Texas A & M university, commented on the statement in a July 29 tweet, stating that auditors are bound by confidentiality, which makes it difficult to make public statements like Munter suggested.
The recent trend has been to take credit as being cutting edge (e.g., specializing in SPACs or crypto or whatever) to raise the profile, then to be low profile when things go south. That may have triggered SEC interest as well. If the auditor is silent in these cases, beware. 2/2
— Mike Shaub (@mikeshaub) July 28, 2023
Shaub also highlighted the issue of some accounting firms aligning themselves with cryptocurrency expertise to boost their reputation but become unresponsive when problems surface.
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