Crypto Firms: SEC Warns Accounting Firms of Risks & Liabilities
• The SEC issued a warning to accounting firms about serving crypto clients, outlining the potential risks and liabilities.
• Accounting firms can be held accountable for any client’s misleading statements regarding audits and transparency.
• Paul Munter, Chief Accountant to the SEC, stated that many crypto companies have wrongly suggested that non-audit work is equivalent to an audit.
SEC Cautions Accounting Firms Against Accommodating Non-Compliant Crypto Clients
The U.S. Securities and Exchange Commission (SEC) has cautioned accounting firms against accommodating non-compliant crypto clients in a stern warning issued on July 27th. Paul Munter, Chief Accountant to the SEC, underscored the potential risks and liabilities of serving clients in the rapidly evolving crypto industry and warned against “clients’ marketing and terminology” that misleadingly suggests that alternative, non-audit arrangements are at parity with or more “precise” than a financial statement audit. According to Munter, accounting firms can be held responsible for their own statements as well as any incorrect statements made by their clients.
Potential Risks Involved With Serving Crypto Clients
Munter highlighted a variety of facts and circumstances under which auditors may be held accountable for their client’s false or misleading statements concerning financial condition or performance — such as when an auditor provides services related to issuing public reports on behalf of its client or when it provides services related to preparing financial information used in offering documents or regulatory filings. He also noted that if auditors fail to obtain sufficient appropriate evidence regarding particular assertions made by their clients within these documents they could face legal consequences from both investors as well as governmental agencies such as the SEC itself.
Auditing Services May Not Be At Parity With A Financial Statement Audit
Munter further clarified that while certain non-audit services may assist management in producing quality financial reporting, they do not provide assurance over whether those reports are free from material misstatement — something only achievable through an actual financial statement audit conducted according to Generally Accepted Auditing Standards (GAAS). As such, he concluded his statement with a reminder for accounting firms: “When providing services related to offering documents or other public reports…accounting firms should ensure that they understand the nature of those services and how they differ from an audit conducted in accordance with GAAS.“
Crypto Is ‚Rife With Fraud; Rife With Hucksters‘ Says Gensler
Despite good faith actors operating within the crypto space, Gary Gensler — President Biden’s pick for chairman of the SEC — recently declared during his confirmation hearing before Congress that “there is no question [crypto] is rife with fraud; rife with hucksters.“ Gensler went on to explain his desire for meaningful regulations like know-your-customer (KYC) protocols and anti-money laundering requirements which could help reduce some of this criminal activity within cryptocurrency markets.
