SEC Issues Warning To Crypto Firms Using Proof Of Reserves ‘Audits’

According to the SEC, exchanges’ accountants could be held accountable if they misrepresent their proof of reserve reports as audits.

Paul Munter, the main accounting and auditing advisor to the Securities and Exchange Commission (SEC), issued a warning to cryptocurrency accounting firms on Thursday whose work is improperly promoted as an alternative to “audits.”

According to the statement, which was titled “The Potential Pitfalls of Purported Crypto “Assurance” Work,” clients of these organisations frequently advertise their work as being “parity” with an audit of financial statements.

“Such suggestions are false,” he asserted. “Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.”

The advisor cited a PCAOB report from March that alerted investors to the risk of accounting companies producing Proof of Reserves (PoR) reports for cryptocurrency exchanges.

Some exchanges have employed PoR, a blockchain-based accounting technique, to confirm the quantity of cryptocurrencies they now hold. Such reports, the PCAOB said, “are not audits,” as they fail to take into consideration a crypto firm’s liabilities among other things.

According to Munter’s remark, accountants working for cryptocurrency companies who deceive investors about the nature of the latter’s employment may be held accountable under securities regulations.

The Office of the Chief Accountant (OCA) advised a “noisy withdrawal, distancing itself from the client, including by way of its own public statements,” if accounting firms discover that their clients make false assertions.

When Mazars Group withdrew from all cryptocurrency companies in December 2022, shortly after publishing a PoR report on Binance, it was a similar departure.