Beware Crypto Firms Using Proof of Reserves “Audits”, Warns SEC

Paul Munter – principal advisor to the Securities and Exchange Commission (SEC) on accounting and auditing matters – issued a warning on Thursday to crypto accounting firms whose work is inappropriately marketed as a substitute for “audits.”

  • The statement, titled “The Potential Pitfalls of Purported Crypto “Assurance” Work”, claimed that clients of such firms often promote their work as being at “parity” with a financial statement audit.
  • “Such suggestions are false,” he asserted. “Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.”

  • The advisor referenced a March report from the Public Company Accounting Oversight Board (PCAOB), which warned investors of accounting firms providing Proof of Reserves (PoR) reports for crypto exchanges.
  • PoR is a blockchain-based accounting method that some exchanges have used to verify the number of crypto assets they have on hand. The PCAOB warned that such reports “are not audits,” as they do not account for a crypto firm’s liabilities, among other factors.
  • Munter’s statement added that accountants servicing crypto firms that mislead investors about the nature of the former’s work could be found liable under securities laws.
  • If accounting firms find that their clients make misleading statements, the Office of the Chief Accountant (OCA) recommended a “noisy withdrawal, disassociating itself from the client, including by way of its own public statements.”
  • A similar withdrawal occurred with Mazars Group in December 2022, when the firm distanced itself from all crypto firms shortly after releasing a PoR report on Binance.
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