Paul Munter, the principal advisor to the Securities and Exchange Commission (SEC) on accounting and auditing matters, has issued a warning to crypto accounting firms. Munter cautions against these firms marketing their work as a substitute for audits. He emphasizes that non-audit arrangements are not as rigorous or comprehensive as financial statement audits and may not provide reasonable assurance to investors.
Munter’s statement refers to a report from the Public Company Accounting Oversight Board (PCAOB) in March, which warned investors about accounting firms providing Proof of Reserves (PoR) reports for crypto exchanges. PoR is a blockchain-based accounting method used by some exchanges to verify their crypto assets. The PCAOB highlighted that these reports are not audits as they do not consider a crypto firm’s liabilities and other factors.
The SEC advisor also states that accountants who mislead investors about the nature of their work could be held liable under securities laws. In cases where accounting firms find their clients making misleading statements, the Office of the Chief Accountant (OCA) recommends a “noisy withdrawal” by disassociating themselves from the client publicly.
This warning follows a similar incident involving Mazars Group in December 2022. The firm distanced itself from all crypto firms after releasing a PoR report on Binance. Munter’s statement serves as a reminder to crypto firms that using Proof of Reserves “audits” may mislead investors and that these arrangements are not equivalent to financial statement audits.
It is crucial for investors and market participants to understand the limitations of non-audit arrangements and seek proper financial statement audits for reliable assurance. The SEC continues to monitor and address potential pitfalls in the crypto industry to protect investors and maintain market integrity.
