Crypto accountants - The biggest challenges with Propeller Industries, Hash Basis, CAG & Kruze Consulting
The accounting landscape is undergoing significant transformations, especially in the realm of cryptocurrency. In a recent panel discussion at the Crypto Finance Forum (CFF), moderated by Tremaine Hudson, Sr. Accounting Strategist at Cryptio, a panel of experts delved into the challenges faced by crypto accountants today. The panel included Sam Leichman, Blockchain Practice Lead at Propeller Industries, Mackenzie Patel, Founding Partner at Hash Basis, Andrea Perlak, Founder & CEO at CAG, and Bill Hollowsky, Vice President at Kruze Consulting.
The challenges of transitioning from fiat to crypto accounting
Tremaine Hudson, Sr. Accounting Strategist at Cryptio, initiated the discussion by addressing the transition from traditional accounting to the crypto accounting world. Sam emphasized the importance of enthusiasm for technology and high-level comprehension of blockchain activities.
"So I think first is just jumping in and saying you can do it even if you're not exactly sure of all the answers... getting an enthusiasm for the technology amongst our teammates is important."
Mackenzie highlighted the challenges posed by the evolving crypto landscape, especially with new regulations like FASB and IRS notices impacting the industry.
"At Hash Basis, we pretty much started out as a crypto native accounting firm... But just some of the challenges, even though we are more crypto native, as you heard in all these panels, the landscape is so evolving."
Bill focused on the challenges faced by VC-backed startups, particularly in dealing with technology and the complexities of reporting.
“Some of the challenges that we had early on was the technology. How do you take the thousands and millions of transactions and actually record them, track and report them? That was a big challenge, just the infrastructure and technology.”
Andrea pointed out that crypto accounting goes beyond traditional accounting, involving regulatory advising and international considerations.
“Our biggest challenge at crypto accounting group is that we're doing a lot more than accounting, We're doing regulatory advising. We're doing tax. We're trying to find partners that will actually incur the risk.”
Identifying complex asset classes
Tremaine steered the conversation towards specific asset classes or protocols that the panel found particularly challenging. Andrea pointed to the difficulties associated with liquidity tokens and pools, emphasizing the custodial issues involved.
“Liquidity tokens and liquidity pools in general are very difficult to account for. You have a lot of custodial issues. So, you know, if someone's giving you funds and then you go and yield from that those aren't really your tokens. But depending on whether you put them on your balance sheet or not, are you subjected to the volatility of that individual token? It depends. Right?
Mackenzie shared her experience with Cardano, highlighting the intricacies of dealing with UTXO-based chains. Looking at how from an accountant perspective, it’s difficult to trace transactions manually using block explorers. Mackenzie underlines the importance of automating the process and using platforms like Cryptio that has an integration with UTXO-based blockchains like Cardano.
“From the accountant perspective, it's so difficult to trace through many block explorer pages and try to arrive at the truth of what's actually happening. One that just always comes up for me is Cardano, because I've had some clients, they weren't using Cryptio, because I know Cryptio is integrated with Cardano… But then some clients would try to do it manually.”
Keeping up to date with the latest crypto finance regulations
The discussion then shifted to how the panelists and their teams stay informed about the rapidly changing regulatory landscape. Andrea recommended industry-specific communities, such as the Chamber of Digital Assets, for staying updated as well as following other finance professionals on LinkedIn.
Bill emphasized the importance of paying attention to industry vendors, third-party partners, and forums.
"FASB industry, what our vendors and third party partners are doing. And then it's coming to forums like this and working with great partners and sharing with all of you so that really helps us."
Sam advised against relying on crypto Twitter and supported Bill’s viewpoint on events like the Crypto Finance Forum (CFF) in enabling crypto finance professionals to build long lasting connections.
"I think what you don't do is look at crypto Twitter. Just picking up the phone and, you know, saying, hey, we met at CFF six months ago. We'd love to have a chat. I will certainly never say no to that call."
Preparing for FASB changes
As FASB changes and new ASUs (Accounting Standards Updates) were discussed, Bill emphasized the need for comprehensive documentation to navigate the complexities of reporting.
“For those that we don't have a history of, we've got clients that have got five, you know, six years, a history, that's a different story. So what we'll do is we'll go back, try to pull all the details, pull all the documentation and then break out the chart of accounts, looking at new balance sheets, looking at the impact of the PNLs, the cash flow statements.”
Sam pointed out the potential challenges in dealing with dual methodologies on the balance sheet for projects involving native tokens.
"We work almost exclusively with venture-backed startups... in fact, the new guidelines are actually going to make things more complicated. So if you do have Bitcoin or Ethereum now, you're going to have to be doing two methodologies for your reporting on the balance sheet and tracking cost basis for both. And yeah, I think this is one of those it's going to get uglier before it gets better"
Andrea discussed the significance of carve-outs and the impact on organizations with their own native tokens.
“The carve outs here are a big deal. So if you have your own native token, you don't fair value that. Think about what that means for some of you. I mean, it's one thing if you're a VC and you're investing, everything's come back at fair value, but if you have your own token, it's how you fund your organization that's huge.”
Mackenzie provided practical advice, urging companies to have conversations with subledger providers, establish clear policies, and ensure squeaky-clean historical data.
"I think there's just a lot of logistics people need to figure out and it's best to do that. Those are things you can implement right now essentially. So get that in order, get your policies down. And one thing that's really important, just make sure your historical data is squeaky clean.”
Audit readiness: Navigating the shifting landscape of the FASB and industry dynamics
In conclusion, the panel highlighted the multifaceted challenges faced by crypto accountants, from staying informed about regulatory changes to handling diverse asset classes and preparing for upcoming FASB standards.
The panelists emphasized the importance of community engagement, in-depth customer understanding, and meticulous preparation to navigate the evolving crypto accounting landscape. As the industry continues to grow, adaptability and continuous learning remain crucial for success.