Crypto Brings Transparency, But Crypto Reporting Needs To Catch Up

Bitcoin

BTC
and other cryptocurrencies may have started the conversation about the concept of blockchain and crypto for businesses, but in recent years, the number of organizations adopting these technologies has grown rapidly as more crypto assets were created. Banking institutions, payment processors, credit card companies, insurance companies, logistics and transportation companies, medical practices, colleges and universities and almost every other type of business in the world have tried their best to implement blockchain and/or crypto asset solutions.

Along with this increased integration, the crypto asset landscape has also continued to expand, growing well beyond simple bitcoin-related price speculation. Stablecoins, a leader in organizational implementation and use by a wide range of organizations – including household names such as PayPal

PYPL
MasterCard

MINE
, and Visa – are just one example of the diversification of this sector. Decentralized finance (DeFi), non-fungible tokens (NFTS), decentralized autonomous organizations (DAOs), and the emergence of central bank digital currencies (CBDCs) round out this diverse landscape.

However, the one aspect of this space that has not been tracked is how organizations should report information related to blockchain or crypto assets. Let’s take a look at some areas where crypto reporting can – and should – improve.

Reports on annual accounts. A seemingly simple question that still poses a serious hurdle to organizations and policymakers is where exactly should crypto assets be reported in an organization’s financial statements? Since crypto does not fit neatly into an existing asset class or classification, this has left the question open to interpretation by market participants. This lack of consistency is exacerbated by the fact that to date no accounting standard setter has provided definitive guidance on this.

A logical step forward, which seems to be increasingly being considered by both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), is to try to clarify what cryptography is from the perspective of the financial statements. . Codifying, or at least starting to define, where crypto belongs in financial statements would be helpful to investors, regulators and other market participants.

Footnote report. Knowledgeable financial statement users, regardless of jurisdiction, almost all agree that financial statement footnotes are a rich source of information. Financial reporting policy choices, explanations of financial statements, and specific information about how financial statements are compiled are just some of the topics presented and discussed in the footnotes. Why should information about blockchain and crypto-assets be treated differently?

For example, should details of the blockchain protocol be disclosed for investors and other market participants to review? And what about the specifics of third-party wallet usage and security practices? With the spate of hot wallet-related hacks, this is not an abstract or useless concern for organizations looking to use crypto at the enterprise level. Finally, what type of data – and how much of that information – should be disclosed and reported because it relates directly to the crypto assets owned and used in the organization? Crypto assets are all different and must be accurately accounted for, reported and documented.

Method of Disclosure† Due to the demand and hunger for financial and non-financial information, investors and regulators rightly want access to the most accurate, relevant and current information. As organizations struggle to modernize and keep up with these traditional financial data demands, not to mention the sheer volume of environmental, social and governance (ESG) data demands, crypto must not be allowed to fade into the background. be pushed.

Given the volatility that surrounds the crypto-asset space — both in the prices of certain instruments and the uncertain and ambiguous regulatory outlook — it makes sense that the frequency of reporting this information should be more than once a quarter or year. to be. Press releases, social media posts and other informal communication methods may be tempting, useful and used by many organizations, but will not be enough in the future.

Establishing consistency and clarity in how often and in what format organizations must disclose information about crypto operations is arguably the most important part of this process.

The adoption and integration of cryptography continues to accelerate and spread in almost every aspect of the economy, but recognizing the benefits of this adoption requires greater clarity and consistency. This need for improved reporting and disclosure touches all aspects of how the organization uses crypto and how the results of this operation are communicated to interested outside groups. Consistency, transparency and objectivity are hallmarks of any effective communication method; communication about cryptography should not be an exception to this rule.

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