Hester Pierce strikes back against SEC crypto warning to accountants

Hester Pierce, commissioner of the United States Securities and Exchange (SEC), has raised concerns about the watchdog’s warning to accounting firms regarding non-audit work for crypto clients and the need to make a loud disassociate from them if problems come to light.

In a July 28 tweet, Pierce questioned the recent statement made by the SEC’s chief accountant, Paul Munter, warning accounting firms against engaging in work for crypto platforms unless it involves a complete financial audit.

While Munter stated that such practise might result in crypto firms selectively choosing only certain aspects of the business to show accounting firms and presenting it as a full audit to clients, Pierce suggested that this approach to improve transparency might actually lead to hindering sincere efforts from crypto platforms.

“Why would we want to discourage good-faith efforts to provide more transparency?” Pierce stated.

Crypto platforms & their accountants should be clear about what proof of reserves is and isn’t & customers should understand the limitations, but why would we want to discourage good-faith efforts to provide more transparency? https://t.co/fsuxUGPrrb

— Hester Peirce (@HesterPeirce) July 27, 2023

However, Munter believes that work beyond a full audit’s scope will lack transparency for investors.

“Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors” Munter stated

According to Munter, if an accounting firm discovers that a client is making misleading statements about its non-audit work to the public, it should take a firm stance and treat it seriously. He noted:

“As best practise, 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.”

Mike Shaub, an auditing and accounting ethics professor at Texas A & M university, commented on the statement in a July 29 tweet, stating that auditors are bound by confidentiality, which makes it difficult to make public statements like Munter suggested.

Shaub also highlighted the issue of some accounting firms aligning themselves with cryptocurrency expertise to boost their reputation but become unresponsive when problems surface.

The recent trend has been to take credit as being cutting edge (e.g., specializing in SPACs or crypto or whatever) to raise the profile, then to be low profile when things go south. That may have triggered SEC interest as well. If the auditor is silent in these cases, beware. 2/2

— Mike Shaub (@mikeshaub) July 28, 2023