As scandals and insolvency in the crypto industry unfold, firms, including accounting firm(s) retained by crypto companies, have gained the attention of the Securities and Exchange Commission. In a statement, Paul Munter, SEC’s Chief Accountant, issued guidelines and warnings to accounting firms, highlighting the presentation of purported “audits” by certain crypto asset trading platforms.
The top official’s statement serves as a direct call to accounting professionals and those new to non-audit service work for clients involved in crypto assets. He highlights how certain crypto asset trading platforms, among others in the industry, have promoted the retention of third parties, including accounting firms, to conduct reviews of specific aspects of their business. These reviews are often presented as “audits,” but the official asserts that they are misleading.
Paul Munter goes even further by stating that these non-audit arrangements, which are perceived to be as accurate or more precise than financial statement audits, are false representations. In his statement, he emphasizes that non-audit works lack the rigor and comprehensiveness of financial statement audits and may not offer reasonable assurance to investors.
Accounting firms that work with crypto asset companies must carefully consider the scope of work, its statements, and the procedures followed. Any misstatement could lead to legal liability for the accounting firm.
In addition, providing assistance to an entity in violation of the Securities Act, Exchange Act, or any regulatory acts will be treated as if the assistance was given “knowingly or recklessly.”
However, if an accounting firm discovers that a client has been misinterpreting its services in a way that could result in potential liability for anti-fraud violations, the firm should promptly withdraw by issuing a statement or informing the Commission.
In view of this, accounting firms should consider adding responsibility as a client acceptance procedure, while new entrants with no history of misinterpretations should do the same. Additionally, the accounting firm should consider prohibiting clients’ public description of the non-audit work done. Limitations and misleading references to “audit,” “GAAS,” “PCAOB standards,” and “PCAOB inspections” should be added to the client acceptance letter.
According to the statement, accounting firms found violating could face censure or suspension. Its accountants could also be denied the privilege of appearing or practicing before the Commission as an accountant.
Accounting firms play a vital role, where clients and the investing public rely upon them to act as trusted third parties. Thus, the statement is directed towards ensuring that accounting firms and accountants live up to their standards and are not being used by clients to mislead investors.
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