- The SEC’s Chief Accountant warns accounting firms about potential liabilities in auditing crypto firms.
- Commissioner Peirce questions the move, advocating for more transparency in the crypto sector.
- The warning has stirred controversy about crypto auditors.
After a series of condemning statements and lawsuits, US regulators are toughening their stance on crypto even further. The U.S. Securities and Exchange Commission (SEC) has warned accounting firms that do crypto audits. According to the SEC’s Chief Accountant, accounting firms could face potential liabilities for these audits.
This move, however, has not gone unchallenged. Commissioner Hester Peirce, known for her pro-crypto stance, has questioned the SEC’s approach, advocating for more transparency in the rapidly evolving crypto sector.
SEC’s Warning to Crypto Auditors
In a significant move, Paul Munter, the Chief Accountant of the U.S. Securities and Exchange Commission (SEC), issued a stern warning to accounting firms working with crypto asset clients on Thursday, July 27.
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Munter’s message was clear: accounting firms need to tread carefully. He cautioned that any misleading statements about the nature and scope of their work could land them in hot water. If these misrepresentations are significant enough, they could be seen as violations of federal securities laws, opening the door to potential legal consequences for the accounting firms involved.
But Munter didn’t stop there. He also stressed the importance of maintaining auditor independence, a key principle in the accounting profession. This advice is particularly relevant for new players in the market who may not have a long track record. Accounting firms must meet the independence requirements before taking on an audit engagement.
At the heart of Munter’s statement is a reminder of accounting firms’ crucial role in the financial ecosystem. They are the gatekeepers, the ones investors rely on for accurate information. As such, they are responsible for upholding public trust and confidence in their profession.
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Still, not all agreed with his take, and the warning stirred controversy in the crypto space. Moreover, the warning even attracted dissenting opinions from inside the SEC.
Commissioner Peirce’s Response to SEC’s Statement
In response to the SEC’s statement, Commissioner Hester Peirce, known for her pro-crypto stance, expressed concerns about the warning, saying that it could discourage transparency in the space.
Peirce emphasized that crypto platforms and their accountants should be clear about what proof of reserves is and is not. However, she questioned the SEC’s approach, asking, “Why would we want to discourage good-faith efforts to provide more transparency?”
Crypto Auditors Under Scrutiny
The warning from the SEC is a continuation of the agency’s stance on crypto audits. On December 2022, the SEC announced that it was stepping up its scrutiny over audits conducted by crypto companies. This move was triggered by the departure of Binance’s auditor, Mazars, from the crypto sector.
At the time, Chief Accountant Paul Munter warned investors to be wary of crypto audits or proof of reserves. According to Munter, these reports do not provide investors with information to assess whether crypto firms can cover their liabilities.
On the Flipside
- The crypto industry has been under increased scrutiny from regulators worldwide due to fraud, money laundering, and investor protection concerns.
- The transparency of cryptocurrencies and blockchain benefits both regulators and companies. Thanks to its permanent, decentralized record, it could simplify the auditing process.
Why This Matters
The dissent among the SEC highlights the ongoing regulatory uncertainty for the crypto industry in the United States.
Read more about crypto audits and why they are controversial:
SEC Increases Scrutiny of Crypto Audits After Binance Auditor Leaves Industry
Read more about Coinbase’s plans to take crypto payments mainstream:
Coinbase CEO Ambitious Plan for Instant and Free Crypto Payments: Is it Viable?
