Understanding Financial Audits in Cryptocurrency Companies
August 2024
How do you audit crypto? It starts with understanding how to report on it. When it comes to cryptocurrency, there are many unknowns around accounting, audit and assurance. With a lack of universal guidance, crypto assets can easily be over or understated, making risks much higher. Adding to the complexity is the fact that most taxpayers are unaware of the potential tax consequences of crypto.
So, what can accountants do to prepare for crypto audits?
- Understand crypto technology.
It’s important to note that crypto transactions on the blockchain are not anonymous, the record is public. Blockchain technology enables accountants and auditors to access crypto information in real time—without having to wait for clients to provide data on their transactions.
- Manage crypto compliance
Capital gains and losses are the principal compliance impact for crypto clients, which means crypto events must be accurately accounted for.
Taxpayers who hold cryptocurrency wallets are the most challenging for accountants and auditors because on-chain wallets are not designed for tax reporting. The main hurdle in this regard is to manage crypto data across multiple wallets, exchanges and transactions to calculate income, gifts, gains and losses.
Understanding Financial Audits in Cryptocurrency Companies
Financial audits for cryptocurrency companies have several unique features compared to traditional audits. This is due to the nature of digital assets and the underlying blockchain technology. Here are some important points to understand in a cryptocurrency company's financial audit:
- Verify Reserves (Proof of Reserves):
• Verify that the company actually has the amount of crypto assets it claims.
• Involves reconciling crypto wallets, private keys, and ownership records.
• Ensure safe storage of cryptographic assets.
- Crypto Asset Valuation:
• Determine the fair value of crypto assets owned by the company.
• Consider factors such as market volatility, liquidity, and the utility of crypto assets.
• Use appropriate valuation methods, such as historical pricing models, cash flow analysis, or market comparison analysis.
- Blockchain Transactions:
• Track and analyze blockchain transactions related to corporate wallets and accounts.
• Verify the validity and compliance of transactions with applicable regulations.
• Identify potential risks of fraud or money laundering.
- Cybersecurity:
• Assess the cybersecurity risks the company faces and the effectiveness of its security controls.
• Ensure the protection of cryptographic assets from unauthorized access, hacking, or theft.
• Test the company's readiness to deal with cyber security incidents.
- Regulatory Compliance:
• Ensure company compliance with applicable regulations related to cryptocurrency, such as anti-money laundering (AML) and Know Your Customer (KYC).
• Assess compliance risks and design effective compliance programs.
• Document company compliance processes and procedures.
Audit firms conducting financial audits of cryptocurrency companies must have relevant expertise and experience in blockchain technology, crypto assets, and related regulations. Auditors must also follow applicable audit standards and consider guidelines issued by professional organizations such as the AICPA (American Institute of Certified Public Accountants) and PCAOB (Public Company Accounting Oversight Board).
KAP Handoko Tomo is part of Moores Rowland Indonesia, which has trusted experience in managing financial audits for cryptocurrency-based companies. Here's how KAP Achsin Handoko Tomo could potentially assist cryptocurrency companies:
- General Audit Expertise Applicable to Crypto:
• Financial Statement Audit: KAP Achsin Handoko Tomo's experience in traditional financial audits can be a foundation for understanding the core financial health of a cryptocurrency company.
• Internal Controls Assessment: Their expertise in evaluating internal controls can be applied to assess the security procedures safeguarding a crypto company's digital assets.
• Compliance: Understanding regulations is crucial, and KAP Achsin Handoko Tomo's knowledge of Indonesian financial regulations can be a starting point for ensuring compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) rules that may apply to crypto businesses.
- Addressing cryptocurrency specifics (if they have relevant experience):
?• Proof of Reserves Audit: Verifying a crypto company's claimed holdings requires specialized techniques. If KAP Achsin Handoko Tomo has experience with blockchain technology, they could potentially help reconcile crypto wallets, private keys, and ownership records.
• Crypto Asset Valuation: Crypto assets are highly volatile. KAP Achsin Handoko Tomo, if experienced in cryptocurrency audits, might employ valuation methods like historical price models, cash flow analysis, or market comparisons to determine the fair value of a company's crypto holdings.
• Blockchain Transaction Analysis: Auditors need to trace and analyze blockchain transactions. KAP Achsin Handoko Tomo, with relevant experience, could potentially track transactions associated with the company's wallets and accounts, verifying their legitimacy and adherence to regulations.
Kindly contact KAP Achsin Handoko Tomo directly and inquire about our experience auditing cryptocurrency companies and the specific services we offer in this domain. By combining KAP Achsin Handoko Tomo's general audit expertise with additional specialists if needed, a cryptocurrency company can potentially secure a comprehensive and secure financial audit.
Discover how we can assist you in auditing cryptocurrency: contact Moores Rowland Indonesia directly at contact-Jakarta@moores-rowland.com or contact-Bali@moores-rowland.com.
**By: Stefani W. Anggraeni — Marketing Communications Manager & Social Media Specialist
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