Paul Munter, U.S. Securities and Exchange Commission chief accountant, released a statement July 27, warning accounting firms against doing "non-audit" work for cryptocurrency exchanges. SEC Commissioner Hester Peirce questioned why the SEC's Office of the Chief Accountant would discourage accountants from working with crypto companies to provide more information to potential customers and investors.
"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?" Peirce wrote in a July 27 Twitter post.
In his statement, Munter said that in light of recent "scandal and insolvency" in the crypto realm, crypto exchanges have been putting more emphasis on the reviews that third parties, such as accounting firms, perform for them. He claimed crypto companies sometimes present those reviews as audits, but he believes "non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors."
Munter warned accounting firms could be held legally liable if a crypto exchange client misrepresents the scope or procedure of the review that has taken place and argued crypto companies could present only a portion of their business for review, according to his statement.
"Accounting firms should consider such risks and responsibilities during its client acceptance procedures," Munter said in his statement, noting accounting firms have "a vital gatekeeper role" to play and said they must maintain "the public's confidence."
"This includes ensuring that the accountants’ names or services are not being used to convey a false sense of legitimacy or to mislead investors," Munter added, according to his statement.
In her Twitter post responding to the statement, Peirce agreed that, while crypto exchanges and their accounting firms should ensure that customers understand what proof of reserves is, she disagreed with Munter's argument against accountants performing non-audit work for crypto companies.
A Binance Academy post explains that proof of reserves (PoR) is a transparent method of enabling auditors to verify that crypto exchanges "are holding their clients’ funds in full. Custodial businesses in cryptocurrency use PoR audits to prove to depositors and the public that their deposits match their balances."
"These audits are conducted by independent third parties to eliminate the possibility of reserve data being falsified," the post said.
