“Accounting is the language of business,” said Warren Buffett. “You have to be as comfortable with that as you are with your own native language to really evaluate businesses.”
Buffett is right. Modern accounting is so important that some consider double-entry bookkeeping one of the great innovations of all time. According to economist Tim Hartford and others, it enabled Venetian and Tuscan merchants in the 1300s “to keep track of … extraordinarily intricate web[s] of transactions” around the Mediterranean over time, laying the foundation for managing the modern global enterprise.
Perhaps because of its long history, vast size and enduring usefulness, the accounting profession takes time to absorb new information and update the rules.
Currently, there are no specific rules for how to do accounting for cryptocurrency, which makes sense since the asset class itself is barely a decade old. This has made for some awkward jerry-rigging as the profession has tried to make the old rules fit a new asset class. That may soon change.
Earlier this month, the Financial Accounting Standards Board concluded firms should measure cryptoassets using fair value accounting, with gains and losses recorded in current period comprehensive income. This decision is not final and so it will take time before these standards are reflected in US GAAP and other accounting rules that guide the profession's day-to-day decisions. (For a detailed breakdown, read KPMG’s report on the decision.)
Still, this is a big step forward as it gets us closer to the day when it will be practical and straightforward for companies to carry cryptoassets on their balance sheets. Currently, the lack of clarity in accounting standards for cryptoassets is often cited as a reason for limited adoption of cryptoassets by firms.
According to a recent article in CPA Practice Advisor, most cryptoassets are accounted for as indefinite-lived intangible assets, such as trademarks, in the absence of crypto-specific US GAAP. This often means companies must carry the asset at the lowest value since purchase, rather than simply marking to market based on current values. Logically, a company will prefer not to hold an asset if it is carried at an artificially low value, especially if it means they need to take a significant impairment charge on that asset when it declines in value from the purchase price. Nonetheless, some companies like Block do carry Bitcoin despite the financial headache, while many more would like to do so.
In coming years, many enterprises will own cryptoassets, either as a treasury investment, or because it is essential to operating their day-to-day business—for example, it’s easy to imagine many corporations who offer web3 services needing to carry ETH on their balance sheets to act as a network validator. This should make adoption that much easier.
(Blockchain’s impact on accounting and other core functions of financial services will play a central role at the upcoming Web3 and Blockchain World Event November 8th-9th—there a handful of tickets left.)
In the short-medium term, this is a big positive that will ease the path for companies to own this asset class. Long term, however, we think that much of the accounting industry itself will be replaced as more transactions move on-chain. Blockchains enable triple-entry bookkeeping, with the third entry (or entries) appearing on-chain, that is, every transaction created an entry in a blockchain that anyone can see. Already, we can search, verify, and audit on-chain data across a range of blockchains. Soon, we will have a record of large amounts of economic activity, not only the movement of money, but also the trading in financial assets, IP, and even physical goods in this way.
The example of Yearn Finance is illustrative. The DeFi lender has made its GitHub repository a destination for data about the platform, all of which can be independently verified on-chain. On it, we can track every single Yearn transaction in real time, get transaction records and search protocol income, protocol expenses, income statements, end of month balances and more. We can see revenue projections, charts, tables, and other useful data. In the future some mix of verifiable on-chain raw data, data analysis tools, and verifiable information curated by individual projects like Yearn will replace the quarterly statements and other financial paperwork of today.
In a world where on-chain data gives us a perfect snapshot into the financial health of an organization, what role is there the accounting firm or auditor? Plenty, it turns out. However instead of auditing data in a spreadsheet, auditors will have to vet on-chain data and audit smart contracts. Time for them to brush up on Web3.
Alex Tapscott is a co-founder of The Blockchain Research Institute, host of W3B and Blockchain World, in Toronto, Nov. 8-9. Alex is also managing director of The Ninepoint Digital Asset Group. The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions or beliefs of Fortune.
This story was originally featured on Fortune.com
More from Fortune:
The American middle class is at the end of an era
Elon Musk is facing trial again over his $56 billion Tesla paycheck that’s ‘the largest in human history’
The winners of the $1.5 billion Powerball jackpot will probably take it in cash. That’s a huge mistake, experts say
The US may be headed for a ‘tripledemic’—one doctor issues an urgent warning
The regulator alleges the club was a crypto Ponzi scheme that raised bitcoins from investors around the world.
Anna Sorokin, the notorious scammer known as Anna Delvey, is bringing the party to her apartment while under house arrest.
Answers to those questions and more are up for discussion during a panel with guests Pascal Gauthier, CEO of Ledger; Kathleen Breitman, CEO and co-founder of Tezos; and Pratima Arora, chief product officer at Chainalysis at TC Sessions: Crypto on November 17 in Miami. Whether it's through holding your own crypto wallet keys to making codes open source, we’ll find out what the panelists think are the best ways to keep users safe.
Cryptocurrency News Weekly Wrap-Up: Coinbase earnings; Binance's potential Twitter role; Elon pumps Dogecoin; Visa kicks it with Crypto.com
Recent changes at MakerDAO, the largest protocol on Ethereum, have brought traditional finance assets into its portfolio.
The service will be available to 4.5 million users in the South American country in the coming weeks.
Twitter began widespread layoffs Friday as new owner Elon Musk overhauls the social platform and some employees filed a class action lawsuit alleging not enough time was given to them before getting the boot.
MATIC is pumping this month in the wake of Reddit’s surging Polygon NFTs and Instagram’s Polygon integration.
With its stock down 32% over the past three months, it is easy to disregard GDB Holdings Berhad (KLSE:GDB). However, a…
For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you…
If you want to know who really controls Golden Agri-Resources Ltd ( SGX:E5H ), then you'll have to look at the makeup…
While some investors are already well versed in financial metrics (hat tip), this article is for those who would like…
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com…
THE ADVICER MarketWatch Picks has highlighted these products and services because we think readers will find them useful; the MarketWatch News staff is not involved in creating this content. Links in this content may result in us earning a commission, but our recommendations are independent of any compensation that we may receive.
The share price of the Chinese electric vehicle (EV) maker Nio (NYSE: NIO) was soaring today after The Wall Street Journal reported that China might start easing its strict zero-COVID policies. The restrictions have resulted in many companies, including Nio, having to temporarily close factories or stop production when a COVID-19 outbreak occurs. The Journal also reported that U.S. inspectors are finishing up their audit of some U.S.-listed Chinese companies, and investors are hoping that the potential for some Chinese companies to be delisted from U.S. exchanges could soon be eliminated.
Century Aluminum Company (NASDAQ: CENX) shares are leading metal stocks higher with a 10.9% advance as of 2:13 p.m. ET, followed closely by similar gains from Alcoa (NYSE: AA), Southern Copper (NYSE: SCCO), and Rio Tinto Group (NYSE: RIO). Thank Alcoa, mostly. Separately but simultaneously, Alcoa is requesting the London Metal Exchange delist any Russian metals from its trading platform.
More hikes are likely coming. Can your portfolio handle it?
Look for oil stocks to buy as the best opportunities today, whether crude oil prices are rising or falling. These companies provide valuable energy resources to fuel our cars, homes, and businesses and tremendous opportunities for investors looking to profit from a market with well-established trends. Overall, there are three key oil stocks to buy that investors should keep an eye on, no matter what the market looks like. These companies have proven track records of success in both up and down m
With $1.5 billion at stake in the Powerball jackpot, what’s the best financial move for all that money if you win?
(Bloomberg) — Carvana Co. shares plunged to the lowest in more than five years after a Morgan Stanley analyst pulled his rating on the auto retailer and said its stock could be worth as little as $1.Most Read from BloombergLawyer Suing Twitter Over Layoffs Says Musk Trying to ComplyMusk Eliminates ‘Days of Rest’ From Twitter Employee CalendarsWells Fargo Faces US Demand for Record Fine Exceeding $1 BillionTwitter Latest: Civil Rights Groups to Boost Advertiser PressureMusk Plans to Eliminate Ha
Author
Administraroot
Related Posts
