The U.S. Securities and Exchange Commission (SEC) issued a stern warning to accounting firms on July 27, outlining the potential risks and liabilities of serving clients in the rapidly evolving crypto industry.

Paul Munter, Chief Accountant to the SEC, said that many crypto companies have wrongly stated that certain non-audit work is equivalent to an audit.

Munter wrote in his statement:

“… Clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false.”

He explained that accounting firms could be held responsible for their own statements and any incorrect statements made by their clients.

Munter said there are a “variety of facts and circumstances” under which auditing firms could be liable for violating antifraud provisions of securities regulation. He warned that such violations could cause the accounting firm and its members to be censured, reprimanded, or even suspended from appearing or practicing before the SEC.

Munter added that Office of the Chief Accountant (OCA) staff believe that accounting firms should make a “noisy withdrawal,” meaning breaking ties with dishonest crypto clients by making a public statement or informing the SEC.

He also suggested that auditing firms consider risks before taking on crypto clients, take precautions with existing clients that move into cryptocurrency, and set rules for how clients can describe their relationship with the auditor.

Crypto firms have trouble finding auditors

The warning is notable as certain accounting firms broke ties with the crypto sector in late 2022. Armanino and Mazars reportedly dropped crypto companies as clients in December. The Guardian also reported that Binance was unable to secure audits from the “Big Four” accounting firms, though some of those firms provide such services.

Those service denials were seemingly motivated by the then-recent failure of FTX. It is unclear what developments, if any, prompted the SEC’s latest warning.

More recent reports suggest that the problem remains. A Bloomberg survey from May suggested many crypto firms are unable to find major audit firms willing to serve them.