PCAOB Staff Report: Auditors Must Respond to Unique Risks of Crypto Assets, Including Fraud

Today the PCAOB released a new staff report, "Inspection Observations Related to Public Company Audits Involving Crypto Assets(PDF)," based primarily on observations gathered during 2021 and 2022 inspections. The staff report says that 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.

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(PDF), the PCAOB is continuing to prioritize risks related to material digital assets.

As detailed in the staff report issued today, 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 centralized 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.

The Spotlight also presents reminders for auditors regarding execution of their responsibilities in areas such as client acceptance and retention evaluation, information technology infrastructure, consideration of fraud, and critical audit matters.

Visit the PCAOB’s Staff Publications page to find this resource and others that can help auditors, audit committees, investors, and preparers understand the PCAOB's activities and observations.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws.