Hester Pierce strikes back against SEC crypto warning to accountants

Hester Pierce, commissioner of the United States Securities and Exchange argued that full transparency should not come at the cost of compromising good-faith efforts.

Hester Pierce, commissioner of the United States Securities and Exchange (SEC), has raised concerns about the watchdog’s recent statement advising accounting firms against taking on non-audit work for crypto firms.

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 assurance work for crypto platforms outside the scope of a full financial audit. 

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 in a tweet.

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

Munter stated that such practise might result in crypto firms selectively choosing only certain aspects of the business to show accounting firms and then presenting that information as a full audit to clients. He 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.”

Related: SEC appeal could amplify Ripple win, says Ripple Labs legal chief

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.

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

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

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