On July 27, the chief accountant at the United States Securities and Exchange Commission (SEC), Paul Munter, issued a report outlining the responsibility of the accounting firms dealing with crypto projects to the agency. Citing the securities laws, the executive confessed that any misrepresentation of information on crypto audits could lead to the closure of the accounting firm.
Consequences of Misleading Crypto Audits
Munter admitted that crypto firms might be required to consult accounting firms to review some core businesses for audit purposes. However, the executive noted that crypto firms might fail to disclose vital information during the process. This will affect the accuracy and reliability of the final audit report due to false information.
Munter confessed that any illegal accounting practice would expose the accounting firm to legal liability. Referring to the Securities Exchange Act of 1934, Munter highlighted the legal obligation of accounting firms. He stated that accounting companies serving crypto clients have the legal power to identify and report illegal activity to the SEC.
Under the Securities Act of 1933, Munter noted that any falsified report presented by the accountants or clients could lead to suspension of the firm. He encouraged the public to report any unlawful activity conducted by accountants.
However, Munter advised accounting firms to take proactive measures when onboarding new clients to be on the right side of the law. He urged the accounting firms to be watchful on the contractual restriction on specific languages.
SEC Push for Best Accounting Practices
Beyond this, Munter affirmed that the Office of the Chief Accountant advocates for best accounting practices. He recommended that accounting firms to make “noisy withdrawals” by disassociating themselves from clients engaging in unlawful financial practices. The executive encourages the accounting firms to publicly announce or report the matter to the commission.
Munter underscored the need for accounting firms to operate independently. He stated that any violation of the securities laws posted on public announcements could lead to the suspension of the business.
Even though the SEC might lack adequate resources to review the financial statement, Munter restated the roles of accountants. He argued that the accountants should support the agency to ensure their clients comply with federal law.
Before this, Munter had formulated the “SEC Staff Accounting Bulletin 121 (SAB 121)” report outlining the accounting practices and crucial disclosures for companies that safeguard crypto investors. The SAB 121 report sparked criticism from US policymakers. In a separate post some of the lawmakers urged the SEC to withdraw the SAB 121 provision.
Irrespective of this, Munter referred to the Public Company Account Oversight Board (PCAOB) report that argued that proof of reserve statements is inherently limited. The report warns customers to be vigilant when relying on proof of reserve reports.
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