The use of crypto assets presents unique audit risks to public companies and broker-dealers and requires an appropriate risk assessment and audit response by audit firms, according to staff report from the US’ Public Company Accounting Oversight Board (PCAOB).
Since 2017, PCAOB inspectors have been reviewing audits of public companies where transactions or holdings associated with crypto assets were material to the financial statements. In its 2023 inspections, the PCAOB is continuing to prioritise risks related to material digital assets.
As detailed in the report, Inspection Observations Related to Public Company Audits Involving Crypto Assets, PCAOB inspections have identified common audit deficiencies related to crypto assets in the auditor’s procedures for the following areas:
- Fraud and significant unusual transactions
- Ownership of crypto assets
- Relevance and reliability of information used as audit evidence
- Revenue recognition in crypto asset transfer
- Arrangements with mining pool operators
In addition to inspection observations, the staff report discusses good practices that some audit firms have implemented and that may enhance audit quality. These good practices include the following:
- Consultations – Engagement teams at some firms are encouraged to consult with the members of the firm’s professional practice group and/or subject-matter specialists related to crypto assets.
- Subject-matter specialists – Certain firms have established centralised groups related to distributed ledger technology (e.g., cryptography, blockchain technology).
- Technology-based tools – To support public company audits involving crypto assets, some firms have developed proprietary, technology-based tools.
Earlier this month, the PCAOB issued for public comment a proposal that would amend PCAOB auditing standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations, including fraud.
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