The SEC claims that if an exchange presents its reserve report certification as an audit, its accountants could be held liable.
Paul Munter, chief counsel for accounting and auditing at the U.S. Securities and Exchange Commission (SEC), issued a warning on Thursday to crypto accounting firms whose work is being improperly marketed as a substitute for “audits.”
The statement, titled “Potential Pitfalls of So-Called Crypto ‘Assurance’ Work,” claims that clients of such firms often advertise their work as being “equivalent” to financial statement audits.
“Such advice is misguided,” he asserted. “Non-audit arrangements are neither as rigorous nor as comprehensive as financial statement audits and may not provide any reasonable assurance to investors.”
The advisory cited a March report from the Public Company Accounting Oversight Board (PCAOB), which warned investors about accounting firms providing proof of reserves (PoR) reports for cryptocurrency exchanges.
PoR is a blockchain-based accounting method that some exchanges have used to verify the amount of crypto assets they have on hand. The PCAOB warned that such reports are “not audits” because they do not take into account factors such as the liabilities of cryptocurrency companies.
Monte’s statement added that accountants providing services to cryptocurrency companies could be held liable under securities laws if they mislead investors about the nature of their work.
If an accounting firm discovers that its client has made misleading statements, the Office of the Chief Accountant (OCA) recommends "quitting loudly and distancing yourself from the client, including through your own public statements."
A similar withdrawal occurred with Mazars Group in December 2022, when the firm distanced itself from all crypto firms shortly after the Binance PoR report was released.