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8 steps to be ready for Crypto Accounting Success.

Ask any crypto accountant or CFO about one of the biggest challenges they have when working with their clients or in-house teams, and you’ll probably hear a common theme of being able to aggregate all the data. The second challenge is unwinding the data into auditable financial statements.

TL;DR
For accountants and CFOs starting out in cryptocurrency and Web3, it means dealing with the challenge of deciphering intricate transactions in wallets and exchanges. Think of it as being a financial detective. Luckily there are tools, such as a sanity check, which can be a big help in discovering hidden financial details.


In startups, the accounting and finance teams tend to be hired later. After product, technical and marketing teams are well established.  

As part of the product development, these teams will often create:

  • Wallets for testing, 
  • Wallets for marketing, 
  • Wallets for paying vendors or AR/AP
  • Wallets for other purposes.  

And at the same time, founders may use their own wallets to fund operations. Or to transfer money from exchanges or make capital contributions.

Months after the enterprise starts, they hire the accounting team.

And aside from the challenges of getting the full list of the crypto wallets, the biggest challenge is often recreating the transactions and pulling them into auditable financials

It’s common for companies to think they only have 5-10 wallets. During the course of recreating the financials, the crypto accounting team finds many more used to conduct business.  When the accountants are done, they often discover an additional 30-50 different wallets which are part of the financial picture.

As the accountant of a crypto company, you unearth these records within lost wallets – transactions revealing intricate financial details, including related entities and previously unnoticed capital contributions. It’s imperative that you delve into these transactions, fully comprehend their legal agreements, and recognize their profound impact on the overall financial landscape.

Anna Masker, CFO – Kranz Consulting

Oftentimes these missing wallets house what we call “the sleeping giants“. These are transactions that add complexity to the overall financial picture. Including revealing additional related entities, loans, capital contributions or other complexity previously overlooked.

What the crypto Accounting team needs to do?

Accountants need to record transactions according to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). That’s why they need to dig into these transactions to understand the legal agreements and nature to get the full financial picture. 

Whether these transactions are inter-company transfers, or payments to or from founders or employees, it’s important not to oversimplify the impact that these have on your business.  With inter-related entities, a simple bill payment could violate a transfer pricing agreement and open up to legal ramifications. Similarly, a purchase of an NFT for an employee as a bonus can cause payroll tax issues. Or improperly recording an equity contribution can impact your cap table and distributions.

These types of transactions can significantly alter the complexity of the accounting. They need to be addressed by understanding the legal parameters to ensure compliance when recording these transactions

Sometimes what the legal agreements say should happen and, what actually come through via financial transactions, are disconnected. Leadership should dedicate sufficient time with accountants for a comprehensive understanding of complexities in bookkeeping. This aims to avoid negative legal or tax consequences.

Leveraging Tools for Financial Management

In addition to having a good accounting team to work through these issues, having tools like Cryptoworth can assist in finding these sleeping giants in the first place. Our sanity check tool, for instance, alerts accountants upon discovering associated wallet transactions across multiple chains. Cryptoworth’s software helps determine whether there are any inventory deviations detected or market price deviations detected in the ledger.

Making sure you have the right tools and teams in place to manage these complexities is important for tax and legal compliance as well as the accuracy of your financial situation. 

So, you’ve joined as the first crypto accounting member… What’s next?

In summary, joining a crypto project as the first finance hire involves addressing data aggregation challenges, reconciling complex crypto transactions, and navigating diverse wallet usage. Pay close attention to the following items:

  1. Data Aggregation: Identify and track various crypto wallets used for different purposes.
  2. Unwinding Data for Auditable Financial Statements: Ensure they align with accounting standards such as GAAP or IFRS.
  3. Prep yourself for a backlog of financial data and transactions to catch up on.
  4. Discovering Diverse Wallet Usage (and Additional Wallets): Be ready to start asking for more less used wallets for the financial reconciliation process.
  5. Be on the lookout for “Sleeping giants”: These transactions can reveal related entities, loans, capital contributions, or other previously overlooked complexities.
  6. Legal Agreement Review: It’s crucial to ensure compliance with tax and legal regulations in the territories reached by these regulations. 
  7. Discrepancies between Agreements and Transactions: Work close to leadership, they should collaborate closely with finance and accounting teams to bridge this gap and accurately reflect complexities in financial records.
  8. Automate reconciliation with Tools: Consider using specialized crypto accounting software like Cryptoworth. Our sanity check tool can assist you in identifying related wallet transactions, providing a starting point for uncovering hidden financial transactions.

Note: This blog article was co-authored by the Cryptoworth team and Anna Masker, CFO of Kranz Consulting.

Author

  • Ariel Eiberman

    Ariel Eiberman is the marketing lead at Cryptoworth, a leading crypto accounting software that helps web3 accountants speed up month-end closing. He has more than 6 years of experience in product marketing for software companies and a background of organizing olympic games and polyglot meetups in multiple cities.

Ariel Eiberman

Ariel Eiberman is the marketing lead at Cryptoworth, a leading crypto accounting software that helps web3 accountants speed up month-end closing. He has more than 6 years of experience in product marketing for software companies and a background of organizing olympic games and polyglot meetups in multiple cities.

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