The US Public Company Accounting Oversight Board PCAOB focuses on the audit of encrypted assets

On May 26, 2020, the Public Company Accounting Oversight Board (PCAOB) issued a document "Audit Involving Encrypted Assets: Information for Auditors and Audit Committees" for auditors and audit committees. Provide audit information that requires attention when involving encrypted assets (such as Bitcoin and other digital currencies), help identify and assess financial statements and encrypted assets that may have a risk of material misstatement, and implement appropriate audit plans and responses. The document is part of the PCAOB's strategic plan, which monitors the development and implementation of emerging technologies to analyze their impact on the quality of audit services.

Public Company Accounting Oversight Board Background

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The US Public Company Accounting Oversight Board (PCAOB) is a non-profit organization established by the 2002 Sarbanes-Oxley Act to supervise the audit work of listed companies and other issuers, providing accurate and independent Auditors report information, protect the interests of investors and promote the public interest. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Wall Street Reform and Consumer Protection Act), passed by the U.S. Congress in 2010, gave the PCAOB greater oversight powers to supervise brokers and brokers registered with the SEC. Dealer audits, including compliance reports filed under the federal securities laws, promote investor protection. All PCAOB rules and standards must be approved by the U.S. Securities and Exchange Commission (SEC).

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Contents of the document: Information that auditors should focus on

The PCAOB noted a recent start to recording and disclosing cryptocurrencies, such as bitcoin, in the financial statements of companies, broker-dealers, and other issuers. In examining audits of some smaller issuers, the PCAOB found that transactions involving crypto assets were material to financial statements.

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According to the standards and quality control system, PCAOB reminds auditors to pay attention to the quality control system at the enterprise level and the planning and risk assessment at the audit participation level.

In terms of quality control systems at the firm level, note whether the firm has policies and procedures in place to decide whether to accept or continue a client relationship, and whether it implements specific engagements for that client to provide reasonable assurance: for example, an audit involving cryptoassets may perform Certain specialized skills and knowledge are required, and participation in the execution of quality reviews requires an appropriate level of knowledge and competencies related to cryptoassets. In addition, is due consideration given to the risks posed by the provision of professional services in specific circumstances, such as the fact that crypto assets held by clients are often pseudonymous (i.e. an alphanumeric code that hides the true identity of the account holder), auditors may be more It is difficult to identify whether the parties involved in transactions related to encrypted assets are involved in fraud or other illegal activities.

In terms of planning for audit participation, pay attention to whether the company’s audit team has professional skills and knowledge. For example, the participating team may need to be knowledgeable in cryptography, distributed ledger technology, valuation and laws and regulations (including KYC and anti-money laundering AML terms) Possess specialized skills or knowledge; in addition, cryptoassets whose underlying transactions are conducted through different business models or technologies may require different skills, knowledge and resources (including specialized audit software) to identify, assess and respond to the risk of material misstatement; and finally , participating teams may require specialized skills or knowledge in applying existing legal and regulatory frameworks to cryptoassets. The U.S. Securities and Exchange Commission (SEC) staff provides information and guidance on digital assets on its website.

With regard to risk assessment at the audit engagement level, auditors should identify and assess the risk of material misstatement, including assessing the type of potential misstatement, assessing the likelihood and severity of the misstatement, and identifying possible sources of potential misstatement. Auditors should understand the issuer and its operating environment, including obtaining and analyzing relevant information on the issuer's transactions involving encrypted assets. For example, the type of potential misrepresentation associated with cryptoasset balances may depend on whether the cryptoasset is stored in the issuer’s own digital wallet or by a third party; the likelihood and severity of potential misrepresentation associated with transactions involving cryptoassets The extent may depend on the type of cryptoasset, number of customers, transaction volume, and the nature of recordkeeping (for example, whether customer transactions are recorded off-chain); identifying possible sources of potential misrepresentation related to verification fees may involve consideration of the issuer's Verify the structure of the operation, including any participation by third parties involved in and incorporating the device.

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