SEC commissioner Hester Peirce calls watchdog’s public accounting warning into question

The United States Securities and Exchange Commission’s (SEC) Commissioner Hester Peirce questioned why the regulator wants to discourage good-faith efforts to provide more transparency for the cryptocurrency industry in a July 27 tweet.

Peirce was reacting to a statement from the SEC chief accountant, Paul Munter, who warned that accounting firms acting as performing “audit” duties for crypto firms risk censure or suspension if their findings are misrepresented.

While Peirce conceded that crypto firms and their accountants should be clear on proof of reserve, she argued that the regulator should not discourage good-faith efforts to provide more transparency to the crypto scene.

SEC’s warning to accounting firms

According to a July 27 statement, Munter stated that any accounting firm whose clients make “material misstatements” about its “audit” scope risks legal liabilities, and it could be implicated in the antifraud provisions of the federal securities laws.

Munter wrote:

“As accounting firms increasingly engage in this sort of non-audit work, their clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false. Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.”

Munter stated that an accounting firm that becomes aware that a client has made misleading statements about the nature of its non-audit work “should consider making a noisy withdrawal, disassociating itself from the client, including by way of its public statements, or, if that is not sufficient, informing the Commission.”

The regulator’s accountant further advised accounting firms to maintain independence to bolster the integrity of the financial reporting system.

Following FTX’s collapse last year, several crypto firms immediately introduced a proof-of-reserve scheme that showed evidence of their crypto holdings. However, the system soon generated much criticism after several auditors, including Mazars and Armanino, dropped their crypto clients after the efficacy of their reports was questioned.

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