The field of crypto accounting has surged in recent years.
As the asset class becomes increasingly pervasive, more companies are holding crypto assets on their balance sheet, or using them in payments.
MicroStrategy, an enterprise software company, allocated $250 million of its cash reserves to buy Bitcoin.
As many as 22% of CFOs cited adopting blockchain technology.
Gartner predicts that by 2025, the business value added by blockchain will grow to over $176 billion, surging to over $3.1 trillion by 2030.
In response, accounting standard setters, tax authorities, and financial regulators have all introduced a range of new reporting regimes.
Recently, FASB issued the proposed Accounting Standards Update (ASU) to improve the level of disclosure surrounding a public company’s expenses and respond to investor demands for a more detailed breakdown of expense categories.
Starting 2024, any business that receives more than $10,000 in crypto - in a single transaction, or series of related transactions must file a Form 8300 within 15 days.
These have led to a growing range of opportunities for accounting and audit professionals to serve clients who deal in crypto assets.
Crypto accounting, a hybrid of traditional accounting and crypto, offers immense opportunities for the curious, adaptable, and ambitious.
In this guide, we’ll explore how accounting professionals can land a crypto accounting job in the Web3 industry.
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What are the crypto accounting challenges?
Before you start hunting for a job in crypto accounting, let’s get real about the challenges you’re about to face.
1) Lack of clarity in accounting treatment
Given the characteristics of most crypto assets, they generally have an indefinite useful life and are not amortized. Instead, they are tested for impairment annually or more frequently if impairment indicators exist.
Under IFRS, cryptocurrency is viewed as an intangible asset under IAS 38 Intangible Assets, unless it is held to be sold in its ordinary course of business, in which case IAS 2 Inventories would apply.
When it comes to intangible assets, if the carrying amount of a crypto asset exceeds its fair value, an impairment loss equal to the difference must be recognized. Once the intangible asset is impaired, the impairment loss is not reversed even if the fair value subsequently increases.
This accounting treatment, however, might not accurately reflect the economic value of a crypto asset on a company's balance sheet, especially if the asset is held as an investment and experiences rapid appreciation.
Tracking your impairment movements is important as it would show differing final results in your financial statements. Below is a summary of the different crypto asset accounting treatments allowed under IFRS and US GAAP:
2) Confusion between regulators and accounting standard setters
The primary contradiction here lies in the classification of crypto assets.
The contradiction exists between accounting standard-setting organizations like IASB and FASB, and regulatory bodies such as the Securities and Exchange Commission (SEC).
While the former are self-regulated private entities that set accounting standards, the latter are governmental organizations vested with the legal authority to enforce financial reporting requirements and either adopt or formulate accounting standards.
It’s worth noting that regulators have the power to override decisions made by accounting standard setters.
While the regulator’s focus is on regulating securities to protect investors, accounting standard setters are more concerned with how assets are represented on financial statements. This divergence in focus and interpretation can lead to complexities in financial reporting, especially for companies operating in multiple jurisdictions.
For example, IASB and FASB, which governs IFRS and US GAAP, generally classify cryptocurrencies as intangible assets. As discussed earlier, intangible assets are initially recorded at cost and are not amortized but are subject to impairment tests.
On the other hand, the SEC treats certain cryptocurrencies and tokens as securities. This classification would subject them to a whole different set of regulations, including disclosure requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934.
This creates a complex scenario if you’re to work for a distributed company, having to comply with multiple accounting standards and regulatory frameworks.
3) Complexity of crypto assets and their underlying structures
The scope and nature of digital assets continue to broaden due to technological innovations. The constant change in landscape, together with a variety of use cases, make them complicated to account for.
Consider a scenario where a stablecoin is fully collateralized by physical gold:
The accounting treatment for these stablecoins would diverge significantly if, for instance, the collateral were another form of cryptocurrency or if the stablecoins were only partially collateralized, thereby eliminating a cash redemption option for the holder.
The terms governing stablecoin redemption rights can be confusing, and the white papers that accompany ICOs may lack clarity.
There’s still a wide variety of digital assets that adds to the layer of complexity, including not just stablecoins and cryptocurrencies but NFTs, tokenized real estate, and more - each with its own set of accounting challenges.
How can I prepare myself to land a crypto accounting job?
1. Become a crypto native
As a potential crypto accountant, becoming a crypto native brings value to prospective employers. Understanding cryptocurrencies and the technology that underlies them - is a key competency that sets you apart from a traditional accountant.
Your role will not be limited to tracking Bitcoin transactions.
Instead, you’ll be expected to understand new asset classes, various blockchain technologies and layers, and crypto tax laws.
Here's an enriched list of resources:
1. New asset classes
DeFi (Decentralized Finance)
Books: "The Infinite Machine" by Camila Russo
RWA (Real-World Assets)
Courses: MIT's "Blockchain and Money"
Books: "Token Economy" by Shermin Voshmgir
NFTs (Non-Fungible Tokens)
Books: "NFTs For Dummies" by J. D. Lasica
LSTs (Liquidity Pool Tokens)
2. Blockchain technology and layers
Resources: Beginner’s guide on consensus mechanisms
Courses: "Blockchain Basics" by the Linux Foundation on Coursera
Smart contract apps
Resources: Solidity documentation, Dapp University YouTube channel
Courses: "Ethereum and Solidity: The Complete Developer's Guide" on Udemy
3. Crypto tax laws
Staying updated on crypto tax laws and regulations is important. Generally, you should pay attention to:
IFRS (International Financial Reporting Standards)
US GAAP (Generally Accepted Accounting Principles)
Tax laws in various regimes
MiCA (Markets in Crypto-Assets Regulation)
2. Learn to use crypto accounting tools
The next step is to explore the tooling landscape surrounding crypto accounting.
Crypto accounting tools are vastly different from what you’re familiar with in traditional finance, and it takes time to adapt to the various tools.
As a Web3 CFO, you’re accountable for learning and advising the company on what crypto accounting tools to use.
Here’s a good overview of the tooling landscape in crypto accounting to get started:
Token vesting tools, such as Superfluid and Liquidfi, are also crucial in managing the distribution of tokens over specified periods, ensuring compliance with vesting schedules.
When it comes to on-chain analytics, Dune Analytics and Nansen offer data-driven insights into blockchain activities and help you make informed decisions by analyzing transaction patterns, wallet behaviors, and market trends.
Crypto wallets and exchanges, such as MetaMask and Coinbase, are your crypto gateways. These are where digital assets are stored, traded, and managed. Knowing the best wallets and best practices for on/off ramp on these platforms are needed for safeguarding assets and ensuring compliance.
Price oracles like Chainlink and Band Protocol are essential for real-time asset valuation. These decentralized data feeds provide real-time asset prices, which are critical for executing smart contracts and for accurate financial reporting.
Learn how to automate financial operations and have hands-on experience with these tools, and they can be a significant advantage when you’re applying for crypto accounting roles.
3. Network and build a personal brand
Networking can help you stay updated with the latest trends, learn about job opportunities, and connect with like-minded professionals.
There are free communities and resource hubs like the Web3 CFO club - a community of C-Level executives of the Web3 industry, including, CFOs, CEOs, and Founders to share best practices around Web3 operations and finance. The club today boasts 600+ members from companies like Aave, The Graph Foundation, The Sandbox, Messari, Ledger, Near Foundation, Rarible and many more.
This is an exclusive club where CFOs can network with like-minded individuals and get recommendations on the emerging Web3 tooling. Online communities like these could also improve the visibility of your offerings and help drive your thought leadership on socials, webinars, and in-person events.
Social media platforms like LinkedIn can be instrumental in establishing your personal brand. By sharing your thoughts and insights about the crypto accounting field, you can position yourself as a thought leader and attract the attention of potential employers.
Your personal brand is a reflection of your expertise and passion for crypto accounting. It differentiates you from other professionals in the field and showcases your unique value proposition.
Invest time and effort in building a strong personal brand that aligns with your career aspirations in the field of crypto accounting.
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