Reporting virtual asset transactions entails the following procedures:
- monitoring cryptocurrency transactions on the blockchain;
- assessing the reliability of blockchain records, and strategies for extracting blockchain information;
- determining the appropriate classification and size of virtual-asset transactions; and
- determining a suitable cut-off for cryptocurrency transactions.
Companies that keep cryptocurrencies on behalf of others, as well as their own, need to have in place processes and controls to:
- track client balances separate from their own balances in cases where they are commingled in the reconciliation process;
- onboard new clients;
- authorize and monitor cryptocurrency transactions; and
- affirm that sufficient cryptocurrencies are held to satisfy client obligations.
Auditors obtain an understanding of management’s process for pricing cryptocurrencies to evaluate whether accounting and disclosure requirements are ‘appropriate and consistent with the applicable financial reporting framework’ (ISA (UK) 315 (Para. 20)). That understanding may be obtained by inspecting management’s valuation policies and documentation and making enquiries of management, or those charged with governance, that address various considerations – including, but not limited to, how the entity:
- identifies the principal marketplace for each cryptocurrency;
- considers the reliability of pricing records received;
- evaluates any potential variances among prices; and
- identifies and assesses indicators of impairment in accordance with its accounting policies (where the entity applies an accounting policy that calls for assessment of asset impairment, for instance if accounted for as intangible assets).