In comment letters, the AICPA, the Center for Audit Quality (CAQ), and Big Four firms said that they support the Securities and Exchange Commission (SEC) Crypto Task Force’s efforts to provide regulatory clarity for crypto assets and offered assistance on financial reporting matters.
“Given our extensive experience over seven years working in the digital assets and blockchain space, we are well-positioned to assist the Crypto Task Force with its objective to bring greater clarity to digital assets, offering valuable perspectives and proposing solutions to the challenges they are addressing,” wrote Susan Coffey, the AICPA’s chief executive officer of public accounting.
In 2018 the AICPA launched the first annual Blockchain in Accounting Symposium. The association then formed a Digital Assets Working Group in 2019, which developed a practice aid, Accounting for and Auditing of Digital Assets – that is being continually updated.
“We believe that the guidance in the AICPA Digital Assets Guide fills an important need in a complicated area as US GAAP continues to develop with respect to crypto assets,” KPMG LLP wrote. “We encourage continued involvement of the Commission staff in future updates to the Guide.”
The letters come as the SEC on January 21, 2025, formed the task force, headed up by Commissioner Hester Peirce, to develop a comprehensive and clear regulatory framework for crypto assets in response to criticisms that the commission headed up by Gary Gensler regulated cryptos through enforcement rather than providing rules of the crypto road. The task force held a series of roundtables and is continuing to accept comment letters.
“The application of the current regulatory framework to crypto assets is unclear, with varying interpretations resulting in inconsistencies in how companies apply them and how regulators enforce them,” PricewaterhouseCoopers LLP wrote. “Universally, we have found that participants in the crypto marketplace seek transparency, clarity, and consistency.”
The CAQ, an affiliate of the AICPA representing accounting firms that audit public companies, said that the establishment of clear regulatory frameworks will enable a more consistent application of accounting and auditing requirements and help to avoid expectation gaps.
Recommendations
The letters also provided a number of recommendations for the task force to consider.
The AICPA, the CAQ, and the Big Four firms emphasized the importance of coordination with the Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB) to provide additional accounting and auditing guidance for cryptos.
“Coordination among regulators and standard setters (including globally) on issues that cross industries and established regulatory regimes will help avoid regulatory fragmentation that can hamper innovation, as well as reduce the risk of regulatory arbitrage,” Deloitte & Touche LLP wrote.
KPMG said that it does not believe the SEC needs to propose additional or specific crypto asset accounting requirements.
“We believe the FASB is best positioned for that task, observing that the FASB’s actions would address the needs of the large body of crypto asset entities that are not subject to the Commission’s rules and interpretations,” KPMG wrote.
The FASB issued a standard in 2023 for the accounting for and disclosure of crypto assets. And KPMG LLP said that the standard “represented a good first step by the FASB toward establishing crypto-specific US GAAP where logical and appropriate to do so.”
And the FASB could build upon its 2023 standard to develop specific guidance related to the derecognition of cryptos and the expansion of the scope to include certain types of crypto assets such as wrapped tokens, liquid staking tokens, and receipt tokens.
Ernst & Young LLP also wrote that the FASB is best positioned to establish accounting standards as issues emerge and are determined to be pervasive. However, the SEC has a role as it monitors crypto activities to help identify transactions that could warrant additional standard-setting and refer such cases to the FASB for a potential project.
In auditing, however, EY noted that the following auditing procedures associated with cryptos are generally well-established:
- Auditing crypto asset investments and transactions
- Agreeing balances and transactions to public blockchains.
- Verifying access to the private keys associated with public addresses.
- Evaluating process and controls.
- Evaluating process and controls at third-party custodians.
EY also pointed out the utility of non-audit attestations provided by accounting firms.
The Big Four firm explained that the information on public blockchains often presents only a partial view of an entity’s crypto activities, and non-audit attestations can help provide a more complete picture of those activities.
For example, EY said that institutional custodians maintain custody of an institutional customer’s private keys.
The public addresses and balances on those addresses are available on the public blockchain, but certain other information is not. The custodian’s internal records track its customers’ aggregate balances, which should be accounted for in any comparison between the amounts the custodian controls on the public blockchain and the total crypto assets owned by the custodian and its customers.
Today institutional custodians often issue SOC 1 Type 2 reports to provide their customers with information about the custodian’s internal controls that are relevant to the customers’ financial statement assertions and internal control over financial reporting, EY wrote.
SOC is Service Organization Control, and Type 2 report focuses on the design and operating effectiveness of controls over a period of time.
PwC agreed that assurance providers have the skills to scrutinize crypto holdings reflected in the financial statements.
Still further clarity will be beneficial, PwC said.
“The principles-based nature of the PCAOB’s auditing standards and guidance have allowed auditors of public companies to adapt traditional procedures to address crypto assets, but additional guidance would be helpful,” PwC wrote. “While the PCAOB has published inspection observations on how audit firms address crypto asset activity in their audits, further guidance and clarification from the PCAOB would help maintain consistency in application and execution as well as help align regulatory and stakeholder expectations and help to avoid expectation gaps.”
In the meantime, the Crowdfunding Professional Association (CfPA) criticized the requirements for an independent review or audit for larger offerings. Such a requirement “is nonsensical for a business with no operating history – we support tailoring the financial reporting requirements so that reviews and audits are only required for businesses with at least six months of operating history,” the group wrote.
“Similarly, the requirement of GAAP financials should be waived for early-stage and smaller businesses (including crowdfunding vehicles they use for their raises),” CfPA wrote. “This applies to post-raise reporting as well. For those issuers that choose to provide a higher level of reporting, this can be prominently disclosed so that potential investors know that they are receiving a more fully vetted financial report.”
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