Accounting firms could face accountability for clients’ misleading statements on audits and transparency.
The SEC issues a strong warning to accounting firms on July 27, highlighting the potential risks and liabilities associated with serving clients in the rapidly evolving crypto industry.
Paul Munter, Chief Accountant to the SEC, points out that some crypto companies have inaccurately portrayed certain non-audit work as equivalent to an audit, which is misleading.
Accounting firms may be held responsible for their own statements and any misleading statements made by their crypto clients.
Under specific circumstances, auditing firms could be liable for violating antifraud provisions of securities regulation, leading to potential censure, reprimand, or suspension from appearing or practicing before the SEC.
Munter encourages accounting firms to consider a “noisy withdrawal” by publicly breaking ties with dishonest crypto clients or informing the SEC.
Auditing firms should assess risks before accepting crypto clients, take precautions with existing clients moving into cryptocurrency, and establish clear rules for clients regarding how they can describe their relationship with the auditor.
Crypto Firms Struggle to Find Auditors
The SEC’s warning is significant, especially considering certain accounting firms’ actions in late 2022. Armanino and Mazars reportedly terminated their relationships with crypto companies in December.
The Guardian reported that Binance struggled to secure audits from the “Big Four” accounting firms, despite some of these firms offering such services.
These firms’ refusals were likely influenced by the FTX failure that occurred around that time. However, the specific reasons behind the SEC’s recent warning remain unclear.
Recent reports indicate that the issue persists, with a Bloomberg survey from May revealing that many crypto firms still face challenges in finding major audit firms willing to serve them.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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