With cryptocurrencies becoming more mainstream, Weaver is consistently asked to decrypt what crypto means for individuals and businesses that want to learn more. Recently, we co-hosted a webinar with BGSF covering various business implications of cryptocurrency. Our Cryptocurrency Task Force covered topics such as regulation and compliance, financial reporting, taxation and information technology considerations.
Below are some of the key takeaways from each of the topics presented.
Regulation & Compliance
Both federal and state regulators face an issue with the classification of cryptocurrency. Without a universal identity, which regulator can claim jurisdictional authority over cryptocurrency? Should cryptocurrency be considered a security, commodity, currency, or perhaps even its own asset class? Currently, we are in an environment of regulation by enforcement, but advisors for the digital assets community doubt the current status for regulation and compliance is sustainable as cryptocurrency technology advances.
Financial Accounting & Reporting
How do the Financial Accounting Standards Board (FASB) and Association of International Certified Public Accountants (AICPA) define cryptocurrency? While the AICPA issued a practice aid on accounting for digital assets, no authoritative accounting guidance currently exists. Based on the practice aid, cryptocurrencies should generally be accounted for as indefinite-lived intangible assets and evaluated for impairment for U.S. GAAP purposes. Additionally, companies accepting cryptocurrency as payment should also look to ASC 606, as defined by FASB and the International Standards Board, for revenue recognition considerations.
The IRS established a position classifying virtual currency as property. For most taxpayers, classification of cryptocurrencies as property results in capital asset investments, ultimately producing capital gain or loss upon disposition or exchange. However, those with substantial transaction activity will be tasked with burdensome documentation and data maintenance requirements. As cryptocurrency advances and utility evolves, the classification as property may need to be expanded to engage the variations of token functionality.
The emergence of cryptocurrency on a wide scale inevitably gives rise to cybersecurity threats. There have been targeted attacks on mining operations, wallets, decentralized finance protocols and exchanges, exposing vulnerabilities resulting in estimated losses exceeding $12 billion in 2021, up 600% from 2020. Maintaining strong data security measures are critical in asset protection. Always ensure private keys, passwords and credentials are controlled and protected. Also evaluate how your service providers maintain their security protocols to protect your digital assets and data.
About Weaver’s Cryptocurrency Task Force
As a top 35 national CPA firm with capabilities far beyond the traditional assurance and tax services, Weaver’s philosophy has always been about doing more than expected. Weaver’s Cryptocurrency Task Force identifies the evolving needs of the digital asset community including investment funds, financial institutions, blockchain companies, and more. We support those needs through a wide array of services such as risk advisory, IT advisory, financial advisory, audit, and tax. Weaver also serves clients across a variety of industries, including large public, private, national, and international organizations, as well as government and not-for-profit entities.
To keep up to date with the evolving business regulations surrounding cryptocurrency, contact us. We are here to help.