Cryptocurrency Firms Struggle to Engage Auditors
In January 2019, Canada’s largest cryptocurrency exchange, QuadrigaCX, announced that it had lost $180 million of virtual currency, prompting calls for tighter regulatory oversight of the industry.
Canada is home to 18 publicly listed cryptocurrency companies, more than any other jurisdiction in the world. This puts Canada at the heart of the issue, and has also put the Canadian Public Accountability Board (‘CPAB‘) on notice. The CPAB, which regulates auditors, has confirmed that it has been reviewing how existing Canadian audit standards apply to the cryptocurrency industry. Canada, like Australia, subscribes to the International Financial Reporting Standards.
The CPAB inspected the audits of three blockchain companies and uncovered significant issues in all of them. This resulted in the release of a guidance document for auditors, outlining the particular areas that auditors need to consider, including taking steps to verify ownership of cryptocurrency assets through inspecting the public blockchain ledger.
The increased scrutiny has lead to a number of smaller and less-experienced accounting firms turning down requests to conduct financial audits, citing the inherent risk in the cryptocurrency industry and the potential of a poor quality audit tarnishing firm reputation. This has made it difficult for some firms to engage auditors.
However, the leading audit firms have viewed this as an opportunity. They have employed blockchain experts in order to create specialised audit teams, as they have recognised that businesses will continue to use the underlying blockchain technology for a range of purposes, even after the initial hype dies down.
In Australia, the Australian Securities and Investment Commission should think about additional regulatory guidance for auditors so that the issues identified in Canada do not occur here.
This post features contributions from Andrew Fay.