Home » Getting Audit-Ready in 2024 Bull Market: Panel Discussion

Getting Audit-Ready in 2024 Bull Market: Panel Discussion

Explore essential strategies for audit readiness in the evolving landscape of digital assets and cryptocurrencies. Gain insights from leading experts on best practices, regulatory developments, and tools to ensure compliance and accuracy in your audits.

Essential Audit-Readiness Strategies for Crypto Accountants and Finance Professionals

Crypto audits present unique challenges due to the decentralized nature and complex transactions of digital assets. To lay a solid foundation for successful audits, it’s crucial to understand these challenges and implement robust audit frameworks.

Preparing for audits in 2024 requires forward-thinking strategies that encompass both current practices and anticipated changes in the regulatory landscape. Internal controls are vital for ensuring the accuracy and completeness of financial records.

In a recent comprehensive panel, David Byrd, Partner at EY, and Richard Lance, Partner at Harris & Trotter, provided valuable strategies and insights to manage financial complexities and be better prepared even when there’s still no audit in the short term. 

Watch the full conversation to gain deeper insights into these challenges and learn practical solutions from industry experts.

Below are key highlights from their conversation

  1. Strategies for 2024 Audit Readiness
  2. Best Practices for Maintaining Auditable Records
  3. Addressing Regulatory Developments
  4. Overcoming Data Accuracy Challenges
  5. First-Year vs. Ongoing Audits

Talk now to a Crypto Accounting Expert
Cryptoworth provides partners a growth opportunity for accounting firms, CPAs, and technology consultants. Let’s get in touch.

    TL;DR of Crypto Audit Essentials

    • Decentralization and complex transactions pose unique hurdles.
    • The foundation to be prepared is to understand digital assets and on-chain transactions at a technical level.
    • Strategies to become audit read are:
      • Internal Controls: Crucial for accurate records.
      • Data accuracy with crypto accounting tools.
      • Reconciliation: Consistent reporting prevents errors.
      • Documentation: Record every transaction for a clear audit trail.
      • Regulatory Compliance: Stay informed and engage legal experts.
      • Have a plan to mitigate risks: Transparency and compliance matter.

    Understanding the Foundation of Crypto Audits

    David Byrd notes, “The foundation of a successful crypto audit lies in understanding the unique characteristics of digital assets and the underlying blockchain technology.”

    Richard adds, “There is no standard. So, you know it is a moving target. Within Europe, we are starting to see the likes of MiCA, which are trying to set the standardization there. But then the UK will have its different one. The US is starting to have theirs. So, it’s kind of, people will start putting it in there to see what other countries are doing and, really trying to play catch up, and see where it is going.”

    Best Practices for Maintaining Auditable Records

    Maintaining auditable records is critical for compliance and transparency. Regular reconciliation of transactions and periodic reporting are essential to maintain accurate records.

    Consistency in reconciliation and timely reporting can prevent discrepancies and ensure smoother audits,” said Richard from Harris & Trotter. “Documenting every transaction and its underlying rationale is crucial. This practice not only aids in audits but also provides a clear audit trail.

    Richard Lance advised, “Some top tips like get your wallet hygiene in place put your structures in place Put your reporting structures in place and these aren’t big things that they need to implement But with those couple of if you’re starting it from day one Maintaining it. It’s not going to be 100 perfect, but in two years time I’m not going to have to come back and redo a whole historic restoration and start by Putting that into your culture and, putting it from day one, no matter how small you are and with the hope that you will grow and then you grow with those you know, those good habits.”

    Well, you know, the auditor’s biggest issue is how do we go get that data? We know it’s there, but how do you go get it?

    Richard Lance, CA

    Addressing Regulatory Developments

    The regulatory environment for digital assets is continually evolving. Staying ahead of these changes is crucial for compliance and audit readiness. Keeping up with regulatory updates is essential for staying compliant.

    David Byrd recommended, “Keep a close watch on regulatory updates and adapt your audit processes accordingly. Engaging with legal experts can provide valuable insights into compliance requirements.”

    As regulators pay more attention to the crypto space, being prepared for regulatory scrutiny is vital. “Transparency and adherence to regulatory standards will help mitigate risks associated with audits,” said Richard from Harris & Trotter.

    Staking Rewards and Data Accuracy in Audits
    Staking networks and protocols often allow up to 85 days for claiming rewards. Imagine you earn a reward today—you then have 60, 50, or 70 days to claim the corresponding token. Suppose you claim it after 35 days; it appears in your wallet, and you recognize it as revenue. However, according to IFRS 15, you didn’t earn that revenue on the day of claiming. Instead, you earned it when you initially validated the block.
    To ensure accuracy, you must trace back to the blockchain: What day did you validate that block? What was the token’s price on that day? How many tokens did you accrue for that revenue? The volatile value of tokens can lead to significant swings. If you miss the claim date, the revenue should still be recognized under IFRS 15. Even if you never claimed it, the story changes. The fact that you never claimed it, well, that’s a whole different story.”
    Quoted from Richard Lance, CA. Partner at Harris & Trotter, Digital Assets

    Overcoming Data Accuracy Challenges

    Data accuracy is a common challenge in crypto accounting. crypto accounting, data accuracy poses a common challenge. Our experts have shared effective strategies to address this issue. Blockchain analytics tools play a crucial role in ensuring data accuracy and providing real-time insights.

    Richard Lance emphasizes, “These tools track and validate transactions accurately, offering real-time insights.” For audit readiness, maintaining data integrity is essential. David Byrd advises implementing measures like regular audits and cross-verification of records.

    David further explains, “When dealing with digital assets on financial statements or revenue generated from staking, obtaining reliable data is challenging. Organizations must consider whether they rely on their own nodes or engage third-party vendors. Ensuring data completeness and accuracy is vital. (…) When preparing for an audit, ensuring data accuracy becomes a critical aspect. Auditors and companies alike must diligently track and validate data. Often, reliance on third-party data occurs, but how can we be certain of its accuracy? Companies should take responsibility for testing and verifying the data they use. Additionally, considering industry-specific reports like SOC reports can provide valuable insights”

    First-Year vs. Ongoing Audits

    Audits for Web3 companies, especially in their first year, often involve significant initial groundwork and preparation. This is because auditors are not just verifying current data but also need to establish the starting point for their audit, which can be complex in the absence of prior audits or with historical data from before the current team’s involvement.

    In the first year, audits for Web3 companies are often characterized by a significant amount of initial groundwork and preparation. According to David Byrd, “Generally, there’s a lot more in the first year just because, right? You’re creating these walkthroughs of the significant processes from scratch.” This process can be particularly challenging for companies that have never undergone an audit before or have complex historical data. Richard Lance emphasizes the importance of documenting processes in a way that is understandable to auditors, stating, “Let’s put it in layman’s terms and say, you know, this is what we’re doing. And let’s just discuss it and talk about it so that the accountant can come in and start reading it.”

    In ongoing audits, there is often a focus on continuous improvement. David Byrd notes, “The good news is that after having gone through this first-year audit, generally it’s gotta get a little better just because you’re adding incrementally to that.” With each subsequent audit, controls and walkthroughs can be improved and better documented, making future audits more efficient. However, as Richard Lance points out, the rapid pace of technological advancement in the Web3 industry means that auditors must continually adapt and learn. “Everyone’s still learning, just like the industry’s growing,” he says, highlighting the ongoing effort required to stay ahead of the curve.

    Conclusion

    Getting audit-ready for 2024 involves understanding the unique challenges of crypto audits, implementing robust strategies, and staying updated with regulatory developments. By adopting best practices and leveraging technology, crypto accountants and finance professionals can navigate the complexities of digital asset audits effectively.

    For more in-depth insights and practical advice, watch the full panel conversation here

    Talk now to a Crypto Accounting Expert
    Cryptoworth provides partners a growth opportunity for accounting firms, CPAs, and technology consultants. Let’s get in touch.


      About the Speakers

      David Byrd

      Partner at EY, focusing on clients related to digital assets. David has extensive experience in auditing and regulatory compliance for digital assets and cryptocurrencies. Follow on Linkedin

      Richard Lance, CA  

      Partner at Harris & Trotter, specializing in digital asset accounting. Richard provides expert advice on audit readiness and compliance for crypto businesses. Follow on Linkedin

      FAQs

      Technology tools, such as crypto sub-ledgers and other analytics tools, can enhance data accuracy, streamline audit processes, and ensure compliance with regulatory standards.

      Regular reconciliation ensures that all transactions are accurately recorded and helps in identifying and rectifying discrepancies promptly.

      Monitoring regulatory updates through official channels, engaging with legal and web3 accounting experts, following crypto back office space leaders, and participating in industry webinars can help you stay informed about the latest developments.

      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.

        View all posts

      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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