In a recent update, a commissioner at the United States Securities and Exchange (SEC), Hester Pierce, criticized a report by the market regulators urging the accounting firms, especially auditors, to avoid non-audit work for crypto firms. Referring to a statement issued by the chief accountant at SEC, Paul Munter, on improving transparency in financial reporting, Pierce observed that the proposed regulatory approach would compromise sincere efforts.
Hester Pierce Condemns SEC Regulatory Approach
In a Twitter statement, Pierce expressed concern about why the market regulators wanted to discourage good-faith efforts. On July 28, Munter penned a report outlining the risk financial firms working for crypto firms will face in projects that don’t involve complete audits.
In his statement, Munter stated that any project for crypto firms that will not include a complete audit would limit investor transparency.
He argued that some crypto firms might fail to disclose vital information to accounting firms. The executive reteriated that some crypto firms might breach the finance laws by failing to disclose all the relevant business information for auditing.
Munter explained the difference between a non-audit report and a financial statement. He mentioned that financial statements are more rigorous and comprehensive than non-audit reporting.
The executive encouraged the accounting firms to take potential actions against crypto firms presenting falsified information on their non-audit project to the public. Munter advises accounting firms to cut ties with such crypto firms. This can be done through public announcements or reporting to market regulators.
SEC Urges Accountants to Report Suspectible Accounting Practices
Citing the Securities Exchanges Act of 1934, Munter stated that accounting firms have the legal authority to report to the SEC unlawful activity conducted by crypto firms. He added that any misleading information presented by accountants or crypto firms is punishable by securities laws and could lead to the suspension of the operations.
In his intriguing report, Munter urged accounting firms to consider the above factors when onboarding clients.
In his concluding remarks, Munter encouraged accounting firms to operate independently. He confessed that the SEC has inadequate resources to examine all the financial reports submitted. The executive mentioned that, at times, the SEC depends on the accountants to ensure compliance with federal law.
Previously Munter had issued a “staff accounting bulletin 121” report outlining the need for third-party disclosures.
Features of Good Auditing Practices
Responding to Pierce’s tweet, an auditing and accounting scholar at Texas A&M University, Mike Shaub, described the traits of a good auditor. Guided by the best accounting practices, Shaub mentioned that an auditor should maintain confidentiality.
He added that the accounting principles discourage auditors from making public announcements, as proposed by Munter.
In his tweet, Shaub condemned accounting firms purporting to be experts on digital assets matters for failing to support crypto firms when needed.