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Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, Feb. 13, 2018.DADO RUVIC/Reuters

Cryptocurrency companies are scrambling to get sign-offs on their financial statements after some auditors have backed away from the sector.

Accounting firms are shying away due to heightened scrutiny by the board that regulates Canadian auditors, according to the heads of several publicly traded blockchain companies. If the companies are unable to secure audits in time and fail to file financial statements with securities regulators, they could have trading halts imposed on them or find themselves delisted from stock exchanges, leaving investors in the lurch.

The focus on cryptocurrency audits comes at a time when the collapse of Canada’s largest cryptocurrency exchange, QuadrigaCX, has sparked calls for greater regulatory oversight of the nascent industry. Quadriga was granted creditor protection earlier this year after the company announced it had lost $180-million worth of virtual currency following the death of its chief executive Gerald Cotten.

Blockchain is the technology that underpins cryptocurrencies such as bitcoin. Bitcoin was invented a decade ago and the companies in the sector have only been public for a few years.

In recent months, a number of public cryptocurrency companies – including Hut 8 Mining, Vogogo Inc. and DMG Blockchain Solutions Inc. – have had to search for new auditors after Calgary-based MNP LLP stepped down. One of those companies, Toronto-based cryptominer Hut 8, says it reached out to 15 different accounting firms, but all of them declined.

“We were surprised," Hut 8 CEO Andrew Kiguel said. "We have a large market cap, we have a stellar board of directors and we have institutional investors.”

Another company, Vancouver-based DMG, has been subject to a trading halt since Jan. 29, as MNP’s resignation came on the eve of its filing deadline.

Both Hut 8 and DMG have found new auditors: DMG has hired Manning Elliott LLP and Hut 8 will be audited by Dale Matheson Carr-Hilton LaBonte LLP; neither of the accounting firms responded to requests for comment. But the CEOs of these cryptocurrency companies caution that others could be affected. MNP also did not respond to a request for comment.

“DMG believes that there may be other [TSX Venture Exchange and Canadian Securities Exchange]-listed companies that will find themselves in a similar position that DMG was in, and investors will suffer if the audit firms aren’t willing or able to perform these audits,” DMG’s CEO Dan Reitzik said in an e-mail.

Canada has found itself at the centre of the issue because of its large number of public cryptocurrency companies, many of which have taken advantage of the ability to go public through a reverse takeover says Taryn Abate, director of audit and assurance at CPA Canada.

“We have more public [cryptocurrency] companies than any other jurisdiction in the world," said Ms. Abate. “It’s a very unique situation.”

Canadian stock markets are home to 18 public companies in the cryptocurrency space, representing two-thirds of the 27 public cryptocurrency companies that use International Financial Reporting Standards. The numbers, in a report by the International Accounting Standards Board, do not include the United States, which does not use IFRS.

The Canadian Public Accountability Board (CPAB), which regulates Canadian auditors, says it has been looking closely over the past year at audits in the cryptocurrency sector, given how new the industry is. The board inspected the audits of three blockchain companies and discovered “significant" issues that require remediation in all of them.

The board also published a guidance document last December, outlining its expectations for audits of companies that own cryptoassets. The document highlighted a number of issues that auditors should be considering, including verifying that a cryptocurrency company really owns the assets that it says it does. That could involve requesting that the company’s management transfer a specified amount of cryptocurrency between various virtual currency “wallets” it controls, then inspecting the public blockchain ledger to ensure that the transaction occurred.

“There are some who say any regulation in this industry is stifling, but I’d rebut it with investors have lost many millions of dollars, and many of those investors are now saying there should be extra protection," said Carol Paradine, the CEO of the Canadian Public Accountability Board.

The situation has had an impact on private companies as well, as those looking to raise capital require audited financial statements to show investors.

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One privately owned company – Toronto-based cryptocurrency trading platform Bitbuy – says it contacted multiple accounting firms in Canada regarding its 2018 financial audit shortly after the CPAB report’s release.

“We were advised by all that the nature of our business was deemed too risky for them to be engaged to conduct financial audits,” Dean Skurka, vice-president of finance and compliance at Bitbuy, said in an e-mail. “Certain firms cited concerns regarding their reputation.”

Meanwhile, CPA Canada, CPAB, the Canadian Auditing and Assurance Standards Board and a number of audit firms and provincial practice inspectors have struck up a working group to seek consensus on what should be required in auditing a cryptocurrency or blockchain company.

“We don’t want to stifle innovation by saying ‘You can’t do these things,’ but there is a huge risk to the public interest if this isn’t taken seriously,” Ms. Abate said.

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