Warren Buffett said, “Accounting is the language of business. To truly appreciate a business, you have to be as comfortable as your native language.”
Buffett is right. Modern accounting is so important that some consider double-entry bookkeeping to be one of the greatest innovations of all time. According to economist Tim Hartford and others, merchants in Venice and Tuscany in the 1300s “were able to track a very complex web.[s] Over time it traded around the Mediterranean and laid the foundation for managing a modern global company.
Perhaps because of its long history, enormous scale, and enduring usefulness, accounting professionals take time to absorb new information and update their rules.
There are currently no specific rules on how to account for cryptocurrencies, but this makes sense as the asset class itself is only 10 years old. This caused some nasty jelly-rigging as pundits tried to adapt old rules to the new asset class.
Cryptoassets: fair value and fair treatment
Earlier this month, the Financial Accounting Standards Board Conclusion Companies should measure crypto assets using fair value accounting and record gains and losses in current period comprehensive income. This decision is not final, and it will take time for these standards to be reflected in US GAAP and other accounting rules that guide the day-to-day decisions of professionals. (For a detailed breakdown, see KPMG Report on Decision.)
Still, this is a big step forward as the day is approaching when it will be practical and easy for businesses to run cryptocurrencies on their balance sheets. Lack of clarity in accounting standards for crypto assets is often cited as a reason for the current limited adoption of crypto assets by businesses.
According to a recent article in CPA Practice Advisor, most crypto assets are described as perpetual intangible assets such as trademarks in the absence of crypto-specific US GAAP. This often means that companies need to keep an asset at the lowest price since purchase rather than simply pricing it based on its current value. Logically, an entity may own an asset if it is held at an artificially low value, especially if it means that it will have to incur significant impairment charges when the asset depreciates from its purchase price. prefer not to hold.However, there are companies that I like. block Despite the financial troubles, while holding bitcoin, more and more people want to do so.
Over the next few years, many businesses will own crypto assets, either as a financial investment or because they are essential to running their day-to-day business. A balance sheet that acts as a network validator. This makes deployment much easier.
(The impact of blockchain on the core functions of accounting and other financial services will play a central role in upcoming conferences. The World of Web3 and Blockchain Event November 8-9 — Few tickets left. )
Beware of GAAP: A Leap Forward in Traditional Accounting
In the short term, this is a big plus that eases the path for companies to own this asset class. However, I believe that in the long term, much of the accounting industry itself will be replaced as more transactions move onto the chain. ) appears on the chain. This means that every transaction creates an entry on the blockchain, which can be seen by anyone. You can already search, verify and audit on-chain data across different blockchains. Soon, we will have a large volume of records of economic activity, not just the movement of money, but also the trading of financial assets, IP, and even physical commodities.
The Yearn Finance example is one such example. DeFi lenders have made GitHub repositories the destination for data about their platforms. All of these can be independently verified on-chain.On top of that, you can track all Yearn transactions in real-time, get transaction records, search protocol income, protocol costs, income statement, month-end balance, etc. . See earnings forecasts, charts, tables, and other useful data. In the future, a combination of verifiable on-chain raw data, data analysis tools, and verifiable information curated by individual projects like Yearn will power quarterly financial statements and other financial statements today. will take its place.
What role do accounting firms and auditors play in a world where on-chain data can provide a complete picture of an organization’s finances? However, instead of auditing data in spreadsheets, auditors must scrutinize on-chain data and audit Smart Her contracts. It’s time they brushed up his Web3.
Alex Tapscott is the co-founder of Blockchain Labs, W3B and the world of blockchain, Toronto, November 8-9. Alex is also Managing Director of The Ninepoint Digital Asset Group. Opinions expressed in commentary articles on Fortune.com are solely those of the authors and do not reflect the opinions or beliefs of Fortune.
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