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 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.
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.
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, Munter continued, and even the appearance of a mutual interest or conflict of interest in its public statements could be enough to have the firm suspended from “the privilege of appearing or practicing before the Commission.”
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The SEC does not have the resources to scrutinize every financial statement, and it “relies heavily on accountants to assure corporate compliance with federal securities law requirements,” Munter wrote. In 2022, his office issued the SEC’s Staff Accounting Bulletin 121, which also concerned third-party disclosures and was widely criticized as regulation by enforcement.