Hester Pierce strikes back against SEC crypto warning to accounting firms

Commissioner Hester Pierce of the United States Securities and Exchange Commission (SEC) has raised concerns about the agency’s recent statement advising accounting firms against taking on non-audit work for crypto firms.

In a July 28 tweet, Pierce challenged the recent statement by the SEC’s chief accountant Paul Munter, proposing that accounting firms adopt an all-or-nothing approach in their dealings with crypto firms. Pierce believes this might cause crypto firms to shy away from making good-faith efforts to be transparent.

Crypto platforms & 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? https://t.co/fsuxUGPrrb

— Hester Peirce (@HesterPeirce) July 27, 2023

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.

“Why would we want to discourage good-faith efforts to provide more transparency?” Pierce asked in a tweet.

Munter argued that 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.

He believes that work beyond a full audit’s scope will lack transparency for investors, stating:

“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.“

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 consider making a “noisy withdrawal, disassociating itself from the client” by making a public statement or reporting the crypto firm to the SEC.

Mike Shaub, an auditing and accounting ethics professor at Texas A&M University, responded to the statement in a July 29 tweet, mentioning that auditors are obligated by confidentiality, making it challenging to make public statements like Munter suggested.

The recent trend has been to take credit as being cutting edge (e.g., specializing in SPACs or crypto or whatever) to raise the profile, then to be low profile when things go south. That may have triggered SEC interest as well. If the auditor is silent in these cases, beware. 2/2

— Mike Shaub (@mikeshaub) July 28, 2023

Shaub also highlighted the issue of some accounting firms aligning themselves with cryptocurrency expertise to boost their reputation but becoming unresponsive when problems arise.

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