Beware Crypto Companies Utilizing Proof of Reserves “Audits”, Warns SEC

Paul Munter – principal advisor to the Securities and Change Fee (SEC) on accounting and auditing issues – issued a warning on Thursday to crypto accounting companies whose work is inappropriately marketed as an alternative choice to “audits.”

• The assertion, titled “The Potential Pitfalls of Purported Crypto “Assurance” Work”, claimed that purchasers of such companies usually promote their work as being at “parity” with a monetary assertion audit.

• “Such recommendations are false,” he asserted. “Non-audit preparations are neither as rigorous nor as complete as a monetary assertion audit, and will not present any affordable assurance to traders.”

• The advisor referenced a March report from the Public Firm Accounting Oversight Board (PCAOB), which warned traders of accounting companies offering Proof of Reserves (PoR) studies for crypto exchanges.
• PoR is a blockchain-based accounting technique that some exchanges have used to confirm the variety of crypto belongings they’ve readily available. The PCAOB warned that such studies “should not audits,” as they don’t account for a crypto agency’s liabilities, amongst different components.
• Munter’s assertion added that accountants servicing crypto companies that mislead traders in regards to the nature of the previous’s work might be discovered liable underneath securities legal guidelines.
• If accounting companies discover that their purchasers make deceptive statements, the Workplace of the Chief Accountant (OCA) really useful a “noisy withdrawal, disassociating itself from the consumer, together with by the use of its personal public statements.”
• An identical withdrawal occurred with Mazars Group in December 2022, when the agency distanced itself from all crypto companies shortly after releasing a PoR report on Binance.