Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, City University of New York-Lehman
| February 9, 2023
Accounting professionals have been attempting to provide quality information and services ever since cryptoassets became a mainstream financial instrument and asset class, but this has been an ongoing struggle. Due to the lack of authoritative accounting and audit standards directly connected to blockchain and cryptoassets, accountants have been seeking to provide solutions such as proof-of-reserves, proof-of-solvency practices and other services attempting to bring some much-needed transparency and reportability to the crypto space.
With crypto still a new financial instrument, accounting practitioners need to be aware of delivery and expansion issues, such as the following:
The ease with which clients — individual and institutional alike — can now enter the crypto space can lead to extremely complicated tax and accounting requirements. There is also the very real possibility that 1) the client, 2) family members of the client or 3) individuals acting on behalf of the client have gotten exposure to crypto without any overt announcement or strategic shift. Drilling down, practitioners should be sure to ask the following questions:
- Who has access to funds or trading accounts at the client?
- What applications or accounts are connected to these accounts?
- Are records and/or documentation from trading or investing activity available for review?
Expanding the Potential Client Base
It's no secret that as younger generations enter the workplace, move into leadership positions and obtain economic clout, technological and other factors accompany them. Millennials and Gen-Z, representing the largest age cohorts since the Baby Boomers, 1) are rapidly integrating in the workforce, 2) are going to be the recipients of the largest wealth transfer in history and 3) are almost universally positive toward virtual payments and currency options. For accounting firms and virtually any other business, appealing to these potential future customers while improving convenience and options for current customers makes perfect sense. Some specific factors and questions that advisors should bring up include the following:
- What is the current payment mix for customers, and what is the cost profile of maintaining this payment structure?
- Can conversations around the possibility of payments be raised with the current customer mix?
- Would cost savings driven by crypto integration justify the expense of implementation?
Crypto Vendor Management
Crypto has had no shortage of issues, failures and bad actors, and all of these factors came to the front burner in a major way during 2022. From exchanges failing and fraudulent coin offerings to criminal activity leveraging cryptoassets, clients of all kinds are likely to ask significant questions. CPAs are well positioned to provide objective and reasonable advice in this area. Since practitioners are well versed in vetting and reviewing vendors in other areas, there are factors and considerations that can be leveraged into the crypto space as well.
- What is the track of record of the vendor in question, and is there a public listing of existing clients?
- Who is on the management team of the vendor in question, and is there public information regarding their past ventures?
- Is there a way to test how crypto vendors, for payments or otherwise, will interoperate with existing technology tools?
Cryptoassets are here to stay; that much is widely agreed upon by developers, investors and policymakers alike. Firms and practitioners must be up to date on changes in accounting and regulatory treatment to best advise both current and future clients.