Home » How To Be Audit Ready in Web3: The Financial Frontier Podcast

How To Be Audit Ready in Web3: The Financial Frontier Podcast

Key topics include the importance of planning and compliance, common mistakes in crypto accounting, the evolving landscape of digital asset taxation, and the integration of new technologies like AI in finance

Introduction

In a recent episode of “The Financial Frontier with Patrick Camuso” Patrick sits down with Richard Pasquin. They talk about web3 audit-readiness, crypto accounting practices and tax planning for your business in the blockchain space.

Patrick Camuso is the Director of Camuso CPA, a tax and accounting firm specializing in Web3, Patrick brings a wealth of knowledge to the table, emphasizing this episode’s crucial takeaways for accountants navigating the complexities of digital asset accounting and compliance.

The episode is a must-listen for accountants navigating the nuances of digital asset management

TL;DR of the Episode

In this episode of “How To Be Audit Ready in Web3 with Cryptoworth” Patrick interviews Richard Pasquin, Director of Cryptoworth. 

They delve into the challenges and strategies for Web3 companies in managing accounting, audit readiness, and tax compliance. 

Key topics include the importance of planning and compliance, common mistakes in crypto accounting, the evolving landscape of digital asset taxation, and the integration of new technologies like AI in finance.

To watch or listen to the full episode click here.

Getting ready for proper Web3 accounting.

About Planning and Compliance

Patrick Camuso:What is some advice that you would have for businesses that are looking to get involved in the world of digital assets? And for that matter as well, for traditional CPA firms that maybe are looking to get involved in this world as well.”

Richard Pasquin underscores the importance of preparedness, noting: 

The advice I would strongly recommend for any business who wants to get into web 3 is to be prepared, plan it through the crypto accounting reporting… Doing a preliminary phase of research on how they’re going to be expecting to handle the accounting side of things and the financial reporting side of things in crypto because that is a major industry challenge.

The proactive planning of financial reporting is not just recommended but essential in the dynamic landscape of Web3. This highlights the critical need for companies to integrate crypto accounting into their financial strategies from the outset

Common Accounting Mistakes

Patrick: “What are some of the common mistakes that you see businesses make when they’re trying to put together an accounting system with a digital asset sub ledger and a general ledger?

Richard sheds light on this, saying, 

I think the common mistake is not knowing all the requirements ahead of time… you’re only going to find out once you’re completely blocked with the wrong solution. 

Questions to ask yourself:

  • What accounting method are you going to use for your crypto assets? 
  • Are you going to use FIFO, LIFO, HIFO? 
  • Are you going to sync your journals into a main ledger or are you going to use the solution as the main ledger?
  • If you’re choosing a solution, does it sync with NetSuite?Or with QuickBooks, or Xero?

A significant aspect of Web3 accounting involves recognizing and averting common pitfalls. This emphasizes the necessity of understanding the unique requirements of digital asset accounting before selecting tools and platforms that align with a company’s specific needs.

The Evolving Landscape of Digital Asset Taxation

As regulatory standards for digital assets continue to develop, staying abreast of these changes is paramount for Web3 companies. 

Recent FASB standards (ASU 2023-08 ) mandate the reporting of crypto assets at fair market values, marking a significant shift in accounting practices under US GAAP.

The ASU applies to all entities that hold certain crypto assets, including private companies and not-for-profit entities. 

The scope criteria are as follows:

  • The crypto asset meets the US GAAP definition of an intangible asset.
  • The holder does not have “enforceable rights to or claims on underlying goods, services, or other assets.”
  • The asset is created or resides on “a distributed ledger based on blockchain or similar technology.
  • The asset is secured by cryptography.
  • The asset is fungible.
  • The asset is “not created or issued by the reporting entity or its related parties.”

Ensuring Audit Readiness in Web3

Audit readiness in the Web3 domain involves meticulous ledger management, ensuring that reported balances on the blockchain match those in the company’s ledger. 

For Web3 companies, maintaining accurate ledger balances is crucial for audit readiness. 

The best way to be audit ready… is to compare what the calculated balances are versus what the reported balances are from the blockchain. In Cryptoworth, we have a sophisticated sanity check report that automatically calculates the calculated balances in the ledger versus the reported balances.

So we have multiple systems in place to help accountants. Like whenever there’s inventory deviations, or market price deviations for certain transaction events. Because not every token has fair market values. And some chains are different from others. And it also depends on the type of activity the company is doing.

Richard Pasquin, Director of Cryptoworth

Conclusion

This episode of “The Financial Frontier” with Patrick Camuso provided invaluable insights for accountants venturing into the Web3 space. It emphasizes the importance of proactive planning, compliance, understanding of digital asset taxation, and the necessity of audit readiness. 

Key Takeaways for Accountants

  • Importance of Planning and Compliance:
    Early and thorough planning for crypto accounting and financial reporting is crucial for Web3 companies to meet compliance requirements.
  • Common Mistakes in Crypto Accounting:
    Lack of prerequisite knowledge before selecting crypto accounting and tax solutions can lead to issues. Choosing the right accounting method (FIFO, LIFO, HIFO) and ensuring compatibility with existing systems (e.g., NetSuite, QuickBooks) are critical.
  • Evolving Taxation Landscape:
    The regulatory environment for digital assets is rapidly evolving. The FASB’s new standards for reporting crypto assets’ fair market values highlight the need for companies to stay informed and adaptable.
  • Crypto Audit Readiness:
    Audit readiness involves ensuring the calculated balances in the ledger match the reported balances on the blockchain. Cryptoworth aids in this by offering tools for sanity checks and reconciliation.

For those looking to deepen their knowledge on digital asset accounting and reporting, we recommend exploring IRS, FASB, and IFRS guidelines.

The transition into Web3 accounting is complex but essential. Resources like Cryptoworth are paving the way for accountants to adapt and thrive in the digital asset space.

Reference Sources

For further reading and compliance guidelines, accountants should consult:

  • FASB (Financial Accounting Standards Board) for standards on digital asset reporting.
  • IRS (Internal Revenue Service) for tax compliance related to cryptocurrencies.
  • IFRS (International Financial Reporting Standards) for global accounting principles concerning digital assets

Host & Guest Speakers

Patrick Camuso, CPA (Host) Patrick has been at the forefront of the cryptocurrency tax and accounting industry since 2016, offering comprehensive services ranging from digital asset accounting and tax planning to CFO and business consulting. His expertise extends to DeFi, NFTs, high-volume transactions, and all aspects of cryptocurrency transactions for both investors and businesses.

Richard Pasquin (Guest Speaker). Richard is an entrepreneur in the financial technology sector. He is both the COO and co-founder of Cryptoworth, a blockchain solutions company. Richard has played an active role across the development of Cryptoworth, specifically in defining product functionality and business execution.

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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