Auditing Crypto Firms? SEC Chief Warns Accountants of Liabilities
• Paul Munter, the Chief Accountant of the US Securities and Exchange Commission (SEC), has issued a statement warning accounting firms of their liabilities when auditing crypto firms.
• Misleading statements can result in legal liability for both accounting firms and individual accountants.
• Accounting firms must take action to ensure that they remain independent from their clients, or risk being suspended from appearing before the SEC.
SEC Warns Accounting Firms of Liabilities When Auditing Crypto Firms
Paul Munter, chief accountant of the United States Securities and Exchange Commission (SEC), has released a statement warning accounting firms of their obligations to the agency when working with crypto firms. Allowing their finding to be misrepresented could have serious consequences, he said.
Crypto Firms Engage Accountants for Reviews
Crypto firms may engage accountants to “perform some sort of review of certain parts of their business, often presented as a purported ‘audit’” and falsely present the work as being comparable to a financial statement audit, Munter wrote. Doing so is not only misleading, but it can have legal liability.
Legal Obligations for Accounting Firms
Accounting firms have a legal obligation under the Securities Exchange Act of 1934 to look for illegal activities and report them to the SEC, Munter continued. “Material misstatement” by accountants or their clients could violate both the Securities Exchange Act and the Securities Act of 1933, resulting in censure or suspension of the firm. Those provisions can also be applied to individuals.
Best Practices for Accounting Firms
Munter advised accounting firms to consider these issues during client onboarding and to consider contractual prohibitions on certain language. In response to misleading statements, the position of the SEC Office of the Chief Accountant is: “As best practice, the accounting firm should consider making a noisy withdrawal, disassociating itself from the client, including by way of its own public statements, or, if that is not sufficient, informing the Commission.” The accounting firm’s independence is vital; even an appearance conflict could result in suspension from appearing before th SEC commission .
Consequences for Misleading Statements
The SEC does not have resources necessary scrutinize every financial statement made by an auditor; thus , any material misstatements will result in repercussions . Not only can this lead to censure or suspension , but may also affect individuals . It is important that all involved are aware that any misleading statements will likely lead serious consequences .