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Two senators from the United States focused their questions on the performance of accounting firms active in the crypto space at a higher power: the Accounting Supervisory Board of Public Corporations (BCABP). Failure to uncover allegations of criminality and poor record-keeping at FTX has negatively impacted the image of the pcaob and the accounting profession, senators said.
In a letter addressed to PCAOB chair Erica Williams and dated Jan. 25, Democratic Senators Elizabeth Warren and Ron Wyden argue that former FTX CEO Sam Bankman-fried has done passage checks through major accounting firms armanino and prager metis. The current CEO of the FTX, John Ray, told a bankruptcy court that he was "very concerned about the information on these audited financial statements".
In addition, senators question the impartiality of corporations, claiming that they acted like cheerleaders in the crypto industry.
Just sent from @SenWarren to @PCAOB_News: "We write regarding recent turmoil in the cryptocurrency industry following the collapse of
crypto platform FTX in Nov 2022 and the role that auditors may have played in misleading the public..." https://t.co/erbblBns9K pic.twitter.com/nDjenQ9awW
— blockchain tipsheet (@blockchaintpsht) January 26, 2023
Warren and Wyden refer to Williams' statement that CBATP companies are only required to comply with the Commission's standards when verifying a public issuer or broker under our jurisdiction, for no other customers," and highlight the CBATP rules that appear to contradict Williams' statement.
Senators are also critical of evidence of concern reports. They write:
“In reality, The reserve validation reviews are well below the actual checks, Due to the fact that the Reserve Evidence Reports do not meet established standards, are not under the supervision of the CCPA, and do not demonstrate that listed assets are in fact owned by clients."
In the 12 questions asked in the letter, it becomes clear why they are discussing a process that is explicitly not subject to PAWAC monitoring. The first question they ask is:
“What risks do investors face when crypto firms – whether publicly traded or private – attempt to pass off proof-of-reserve examinations as ‘audits’ and what is the PCAOB doing to mitigate these risks?”
Warren and Wyden go on to seek confirmation that the PCAOB has taken all appropriate actions in relation to crypto industry auditors. They also ask whether Williams will "undertake to use your inspection power to publicly assess and account for auditors who have provided services for any crypto company acting as an agent, even if the company was not registered in its own right with the SEC."
Finally, senators are asking questions about the standards that auditors must meet when auditing organizations that hold crypto assets or stocks in crypto companies. They say they're looking for a response by February. 8.
Related: Senate Finance Committee Chair probes 'lack of safeguards' in crypto tax incentives
Warren is among the loudest critics in the crypto industry. Wyden, the Chairman of the Senate Finance Committee, has a more nuanced track record when it comes to cryptography. He partnered with “crypto senator” Cynthia Lummis in 2021 to propose a “fix” to the crypto reporting requirements in the bipartisan infrastructure bill. He also wrote letters to Binance, Coinbase, Bitfinex, Gemini, Kraken and KUCOIN in November to ask about their consumer protections.
Pcaob is a not-for-profit corporation established by the United States federal government under the Sarbane Oxley Act of 2002. The SEC indicated in December that it too would be keeping a closer eye on auditors.
