Hester Peirce Counters SEC’s Crypto Alert, Uplifting Accountants

Key Points:

• Hester Peirce SEC commissioner expresses concerns over non-audit work for crypto firms.
• Crypto firms fear lack of transparency due to SEC statement discouraging non-audit work by accounting firms.
• Accounting firms urged to adopt all-or-nothing approach to engagements with crypto firms to prevent a lack of transparency for investors.

Hester Peirce, commissioner of the United States Securities and Exchange (SEC), has expressed her concerns over the watchdog’s recent statement advising accounting firms against taking on non-audit work for crypto firms.

Pierce believes that the statement might discourage sincere efforts by crypto firms due to fear, as they might refrain from providing transparency regarding proof of reserves.

While Pierce noted that crypto firms and accountants should ensure transparency regarding proof of reserves, specifying what is and isn’t acceptable, she questioned why accounting firms should be cautious of providing assurance work to crypto firms. She believes that discouraging good-faith efforts to provide transparency is not an ideal approach to regulate the crypto industry.

Munter suggested that accounting firms adopt an all-or-nothing approach to engagements with crypto firms, as partial engagements might result in crypto firms selectively choosing only certain aspects of the business to show accounting firms and then presenting that information as a full audit to clients. Munter believes that such an approach will lack transparency for investors.

According to Munter, if an accounting firm discovers that a client is making misleading statements about its non-audit work to the public, it should take a firm stance and consider making a “noisy withdrawal, disassociating itself from the client, including by way of its own public statements,” or report the firm to the SEC.

Mike Shaub, an auditing and accounting ethics professor at Texas A&M University, commented on the statement in a July 29 tweet.

He stated that auditors are bound by confidentiality, which makes it difficult to make public statements as Munter suggested. Shaub also highlighted the issue of some accounting firms aligning themselves with cryptocurrency expertise to boost their reputation but becoming unresponsive when problems surface. Overall, it is important to balance transparency and confidentiality while regulating the crypto industry.

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