SEC Commissioner Hester Peirce says SEC’s warning to accounting firms could discourage “good-faith efforts” towards transparency.

Paul Munter, the Chief Accountant at SEC, cautioned that crypto platforms are likely to misrepresent non-audit work as full audit.

SEC Commissioner Hester Peirce has criticized a recent statement by the US Securities and Exchange Commission (SEC) directed towards accounting firms engaged in proof of reserves “audits” and other accounting related work.

SEC’s take on crypto “audit” reports

In particular, Peirce took issue with the warning published on July 27 by Paul Munter, the Chief Accountant in the SEC’s Office of the Chief Accountant (OCA). Munter had cautioned that accounting firms working with cryptocurrency should be wary of the “potential pitfalls’ related to the assurance work these firms undertake for crypto companies – particularly crypto trading platforms.

According to OCA, it is possible for crypto firms to take the non-audit work presented by accounting providers and offer it to customers and the public as audits. The SEC’s chief accountant noted:

“Certain crypto asset trading platforms, with others in the crypto industry, have marketed to investors their retention of third parties, sometimes accounting firms, to perform some sort of review of certain parts of their business, often presented as a purported “audit.””

Munter noted that suggestions to the effect that “non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit,” were false.

According to Munter, any accounting firm that finds itself at odds with their crypto client over misrepresentations related to non-audit work, has to make this known to the public. They can also report this to the SEC, he added.

Peirce acknowledges the need for crypto exchanges and accounting partners must strive for clarity and transparency when it comes to their proof of reserves reports. 

However, she is not supportive of the warning by the OCA. Discouraging this cooperation could mean mainstream accounting and audit firms keep off crypto – likely to the detriment of consumers.

“Crypto platforms [and] 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?” she argued.