By the time Neptune Digital Assets finally filed its financial statements for 2022, it was late March. They were three months late—and the company’s stock had been halted since early January.

For years, audits of crypto companies had been facing regulatory scrutiny in Canada. But Dustin Zinger, investor relations manager at Vancouver-based Neptune, said the November collapse of crypto giant FTX brought the issue further under the microscope. After the Bahamas-based platform imploded, regulators and legal experts started asking questions about how its auditor missed alleged fraud and mismanagement of customer assets—and why it didn’t raise more alarm that FTX’s sister trading firm Alameda had never been audited at all.

For public companies, filing audited financial statements on time is vital and non-negotiable—and for crypto firms, it is also extraordinarily difficult. There’s a shortage of qualified staff, standards are unclear, and increased scrutiny from the Canadian Public Accountability Board (CPAB), which regulates auditing firms, has prompted some auditors to stop taking on crypto clients entirely, deciding the risks aren’t worth the rewards.

Neptune was on track to file its financial statements on schedule in late December, Zinger said, but amid the renewed scrutiny, its auditor, RSM Canada—which the company hired after its previous auditor quit the sector entirely—determined Neptune also needed to re-do its financial statements for the previous year after finding an error in how it accounted for digital assets held on third-party platforms. Regulators halted trading of the company’s stock on the TSX Venture Exchange from early January to early April because of the delay. 

Zinger said the ordeal was incredibly stressful for the company’s shareholders—although they’re a lot happier now that the stock has gone up by about 50 per cent since resuming trading. “It’s dealing with those emotions, and hopefully settling everyone down,” he said. 

Neptune’s auditing challenges aren’t unique. The Logic’s analysis of filings from 29 public crypto companies between the financial years 2018 and 2022—including all those listed on the TSX and TSX-V, as well as a selection of companies listed on other Canadian exchanges—reveals their audits have been a revolving door. There were 21 auditor changes among those companies from the 2019 fiscal year to the present. The auditor resigned in at least 10 of those cases, according to disclosures from the companies.

Finding and keeping qualified auditors “has been a long-standing issue in this industry,” said Dean Skurka, president and interim CEO of Vancouver-based crypto company WonderFi, which owns the cryptocurrency-trading platforms Bitbuy and Coinberry. “You’d like to think that with the regulatory environment evolving and the industry maturing, that there would be additional comfort at this point in time.”

Auditors Manning Elliott, MNP, Davidson & Company and DMCL have all decreased their presence in the crypto industry, The Logic’s analysis found. Manning Elliott’s deliberate departure from the crypto sector left a particularly big hole, with the firm auditing six of the crypto companies The Logic analyzed in 2019 and zero by 2022.

MNP, Manning Elliott and Davidson & Company did not respond to requests for comment. In an email, DMCL director of marketing and client communications Krissy Schmidt pointed to “the additional regulations imposed by CPAB” as a reason for decreasing its presence in the crypto industry.

In 2019—the same year those audit firms started dropping crypto clients—CPAB sounded the alarm on the quality of crypto auditing. It released a report revealing seven out of eight audits it inspected in the sector had serious deficiencies. 

Crypto audits continue to have problems, CPAB has found. In a March 2022 report, the regulator found serious deficiencies in all seven files it probed from audit firms that aren’t subject to annual inspections, calling that level “unacceptably high.”

Jeremy Justin, CPAB’s chief risk officer, said the regulator targets the riskiest files for inspection, making it hard to draw definitive conclusions about the crypto sector as a whole. However, he said there are some “common areas of deficiency or concern,” including staff that don’t understand the crypto industry well and a tendency to rely on third-party information without independently verifying it.

The issue is vital for properly functioning public markets, he said. “High-quality audits are really important to make sure that information is reliable and can be relied upon by investors.”

Justin said he couldn’t comment on whether CPAB’s scrutiny of the sector is driving some auditors away. 

While some auditing firms decide crypto isn’t worth the headache, others are swooping in. Montreal-based accounting firm Raymond Chabot Grant Thornton has steadily increased its presence in the crypto industry over the past few years, building technical expertise to compete with the marketing muscle of the Big Four accounting firms. “What distinguishes us from others is our auditors with good backgrounds in accounting, auditing and blockchain,” said partner Louis Roy, who founded the company’s digital practice in 2017.

Roy concedes crypto audits aren’t easy even for his firm. Crypto accounting standards are unclear, and various regulators define cryptocurrencies differently. “You should be comfortable in an uncomfortable environment because eight times out of 10 we don’t have the answers,” said Roy. “We may have a gray zone in the accounting standards and the regulation is not clear.”