PwC SG Digital Asset Lead Wei Jie // Web3 Accountant Radio Ep1 Transcript
Chan Wei Jie is the Digital Asset Lead of PwC SG, a network of firms in 152 countries with over 327,000 people who are committed to delivering quality in assurance, advisory and tax services. He has spent 12 years in PwC and as the Digital Asset Lead, Wei Jie drives the cryptocurrency and application of blockchain in capital markets conversations in PwC. He leads the PwC digital asset audit conversations and has experiences in funding, process reviews and strategy engagements.
In this conversation, we dive into:
1. How do we get a web3 firm onboarded for audit?
2. Is audit readiness highly recommended or what should they look out for to know if they should be doing the audit readiness?
3. As a web3 firm, when is a good time to approach auditors for onboarding?
4. Why Wei Jie enter web3
5. What is 1 key / interesting, experience / lesson that Wei Jie will like to share with other web3 finance professionals
6. What is Wei Jie looking forward to in web3 finance or compliance area. And more!
Hi everyone, welcome to the Web3 Accountant Radio, the podcast where we dive into the fascinating world of Web3 Finance and Compliance. I’m today’s host, Diana, and today my partner is Wei Xiang. Hi, Wei Xiang.
Hi, Diana. Today we are very happy to have Wei Jie join us for the first episode of the show. Okay, so let’s make a simple introduction for Wei Jie.
He is the PwC Digital Asset Lead and he has spent 12 years in PwC as the Digital Asset Lead. Wei Jie drives the cryptocurrency and application of blockchain in capital markets conversation in PwC. He leads the PwC Digital Asset Audit conversation and has experience in funding, process revenue and strategy engagement.
So let’s welcome today’s guest, Wei Jie. Hello, Wei Jie. Nice to meet you.
Hi, thank you so much for inviting me to this podcast. I’m so fortunate to be here. I just want to make a small correction here.
I’m PwC Singapore’s Digital Asset Lead. There’s quite a few of us around the world, but every one of us would definitely love the opportunity to be on this podcast and see how we can support the Web3 world in driving the initiative. So lovely to be here.
Thank you so much for inviting me. Yeah, thank you. So I think today I thought long and hard on what topic we should actually cover for this podcast.
And the first topic that many people have reached out to me is on from maybe founders or head of finance perspective. How do we get a Web3 firm onboarded for audit? Because audit is essential and crucial for Web3 entity. And this is where I think there is no better person than a PwC Singapore head of digital asset to give us an answer and maybe to guide us, to give us an overview of what should we be looking out for from the finance and compliance perspective.
Yeah, awesome. Wow. If you want to ask this question, we might need a two hours recording.
Audit is such a massive topic. We can go on and on, especially in this space for various business models. But if we want to take a step back first, I think it was typically not the favorite topic for this space for a while.
If you look at it from a crypto projects perspective or various Web3 business models, I think the various stakeholders were staying away for quite a few years. Now, shortly, when a few more sagas have happened, then I think the need to establish trust in this space becomes fundamentally important. And obviously, auditors pop straight in your mind.
But audit as a profession in this, with respect to this topic, has always been a challenge and a journey. You need your auditees and the auditors and any other standard setters to sort of work hand in hand in this space. So really, I just thought it’s good to at least set the scene right and just paint how the journey has been for many of us.
Now, then again, post FTX, this topic is required to be discussed more than ever. In fact, we have more and more finance, Web3 finance professionals who are coming into this space. And I’m sure many people online and listening to the podcast and even the likes of yourself will be very interested on really what is important for a crypto audit.
So jumping straight into the question from here, then, I think the first thing and the first principle to highlight is that it is not very different from any traditional audits. Or in our world, we like to call it a Web2 audits. The kind of management assertions that auditors will be working on, the way we look at it from balance sheet P&L, from materiality standpoint, in terms of assessing the risk and the necessary required response from a testing approach perspective, really fundamentally from a principle base doesn’t change dramatically.
I think what change is the subject matter at hand? What change is the fact that we have to deal with a technology where different stakeholders may not be as familiar with? So when you are trying to identify risk, for example, when you try and identify relevant accounting standards, for example, or even the right person to speak to in an organization, I think that’s where you can get convoluted and sometimes challenging. And in my experience, the ball gets pushed around sometimes. Right.
But if we stay true to the principles, then I think we can then as finance professionals sort of zoom in on what is important. So what is really important? And if I look at over the steps of the audit, right. So first, I think the top of the mind for a lot of people really starts with the accounting policy.
The auditors would like to look at the process first, but the finance professionals would like to look at accounting policy first. In fact, it makes up more than half of my conversations when we talk about audit. So fundamentally, the accounting policy of identifying what is relevant, it’s, I would say, mildly to highly challenging depending on how sophisticated the client is.
The fact of the matter is a lot of the assertions put out there is that the accounting standards and we have not had one standard just for token. Right. And these have proved to be a challenge for people who try to apply financial reporting principles based on what they know today.
It can be GAAP, it can be IFRS, etc. So accounting standards will be fundamentally important. My personal view and my experience is I still feel the standards board were right.
There isn’t really a need for a crypto standards for today because ultimately it’s still a ledger that represents whatever it wants to represent. Right. So whatever it wants to represent and we look at substance over form, will tend to lead you towards the right kind of standards.
So accounting standards is one key area. And I think we assess a fair bit of our clients. Another area which I think is quite important in this space, which we also spend a bit of time on and sometimes depend on the business model of the clients.
Right. Is the definition of control and the definition of control. Again, it’s sometimes lead to a certain impact on financial reporting, which then the auditors have to look at.
So, for example, is it going to be on or off balance sheet? Right. Are you a principal or are you an agent? And these are principles that are probably around even in web 2.0 world. I think the question here is when you look at a blockchain, whether it’s public or private chain. Right.
How do you establish whether your auditee has control or not? I think that is another area of topic that we spend a fair bit of time with our auditee on. Right. Sometimes because of the way the industry is moving, you may have new products like staking.
Right. And perhaps other types of business model like DEX, etc. How do you actually establish whether they have control? And subsequently, what are the material items to look at? What are the relevant risks to assess? And hence, what are the relevant controls or such as procedures to perform? So you see, there’s quite a downstream impact on audit.
And again, this is another area which I think is quite important that we work a fair bit with our clients on. Right. The last thing I think that’s of growing importance.
Of course, there’s many, many more things, but maybe three is good enough for our audience today. I think the third one is with regards to compliance. I think it’s good to touch on it.
Not in all cases, I would say, not all cases are the auditors required to assess deeply into this particular area. But I think in many of our auditees, especially in recent years, given that the regulatory environment has far advanced. We tend to perform or assess compliance, the regulatory compliance controls as part of our audit.
So I think that is another angle which I think we spend a fair bit of time on as well. A lot of times you have to look beyond the numbers. You have to look at some of the key risks that are relevant to our auditees and the environment that they’re operating as well.
So I give an example. I think in the public chain world, money laundering risk is, people are very familiar. There’s a lot of effort put in on travel rule.
But if you look at it from a financial number standpoint, I would say it’s two steps down the line in terms of its importance. But fundamentally, certainly as auditors in this space, I think risk related to such an area and then how they comply, especially as license entity becomes top of the mind or one of the top topics for us to focus on. So by and large, I think I just want to just highlight these three topics for our audience as I think important areas that we discuss a fair bit on when we look at it from an auditor standpoint.
Thank you. I think you’re right to say if we want to cover this full topic, it’s not possible to finish it within today. And I think that is three very fair viewpoints.
And I think one thing that you put it out is many of the Web3 companies, they are startups. And in the maybe what’s known as the Web2 world, many of the startups do not need to be audited. But when we come to the Web3 world where many of the maybe called startups, they want to get their license in two to three years.
That is where this might be a huge stepping stone. But also, maybe you can enlighten. I think many people who is watching this will want to know when should a client choose to do audit readiness? Like, you know, whenever we try to, when I say we, I mean, when the public try to get an audit, one of the key things that auditors would recommend is, you know, maybe you should do an audit readiness from your standpoint and what you have seen for a company to be successfully audited.
Is audit readiness highly recommended or what should they look out for to know if they should be doing the audit readiness? Because I think there’s fees involved and I think many founders would want to hear this answer from somebody like you. Right. So I do want to touch on one point just before I dive straight into audit readiness.
I think the determination of whether you need an audit or not does not lie on the fact of whether you’re a startup or not. It typically lies on what are your stakeholder’s requirements. And in this case, it can be statutory bound to when an audit is required because of a legal entity that you have in a certain country.
It can be because you’re bound by a certain regulator. Right. So, for example, your license entity, you’re expected to do an audit or you can be bound or you can be expected to perform so by the stakeholders, for example, an investor.
So I think it’s important to also highlight that sometimes the choice of whether doing an audit or not is not always up to the founders and the stage. It also depends on the operating environment that they are in. Now, having established that, then we can dive into whether an audit readiness is helpful.
What is its relevance and when should you execute this? Now, by and large, there isn’t a hard and fast rule around when. I think a lot depends fundamentally on your strategy. So strategy is very important.
As I advise a lot of my clients, you have to look at when do they need an audit? What kind of picture do they want to paint for the stakeholders, the readers of the financial statements and the audit report? How will it affect their value proposition, their market positioning in the eyes of their customers, their channels, or even in the eyes of the regulators? So there’s a lot of downstream implications.
So as I was saying, it really depends on how you want to position yourself in the eyes of the readers of the report. And you start working yourself backwards so that you give yourself the best shot, depending on how you’re strategically positioning your company. So I think that’s very important.
If you’re a project versus a potentially licensed entity versus you potentially going for another round of funding. I think the timeline and how and what you want to get out of this will differ. The second point that’s important also depends on when you do an audit readiness exercise.
Of course, with the right professional services firm and they can highlight the areas of enhancements appropriately. What you also do is you take the opportunity to enhance your internal controls environment and the level of governance. So this is fundamentally important.
An audit readiness don’t really just serve for the purpose of an audit. An audit readiness can also be an exercise which helps to drive certain enhancements amongst the operating process or the financial reporting process. So again, this is an exercise where we would advise our clients to weigh the pros and cons of adopting such an exercise.
And when they do so and they do remediate the areas or the various observations, what would this present them as in terms of target state? This is again very important that an audit readiness can have achieved. So those are I think the two major considerations I will put on the table for anybody who wants to consider audit readiness. I would not advise everyone to just jump into one.
Sometimes the cost can be exorbitant and sometimes you may not even if you have gone through such an exercise, you may not have the resources to perform the necessary remediation and then becomes a white elephant exercise. Thanks. So I think what I’m hearing so far is audit helps to build trust.
It can improve your internal control environment. You should look at why do you need the audit report? But okay, to one more question that I don’t find it publicly is when is a suitable time for a company to approach the auditors to maybe do onboarding exercise or to say, you know, can you get us onto the audit? Like how many months ahead before they need the report or what kind of timeline do you recommend? Because when I speak to many head of finance or founders, they are saying, oh, we need the report maybe end of the year. Now is not an important timeline for the getting of audit.
But my own experience when it comes to dealing with auditors is we might need more time because of like what you mentioned, many of the companies may not have in place appropriate accounting policies. So from your view, when should a founder approach auditors to get an audit? I think it’s important for me to highlight that when they get an audit from us, it’s not contingent on the adequacy of the accounting policy.
For the fundamental fact that auditors do not participate in the design of their policy. I think it’s important to maintain a level of independence. But taking a step back, if I look at this space and I look at the degree of familiarity of auditors in this space with Web3 audit, I think it varies across different professional services firms.
Some of them, especially the big four, have established a much longer process, typically taking from six months to a year to get onboarded. So if you really want to be onboarded with these big four professionals, you probably want to start a bit earlier. I’ve known of other firms in the industry which you can get onboarded in less than two weeks.
If they love you and they like your business model, you can do that. So really from an onboarding perspective, it varies tremendously across the industry. I think the finance professionals have to decide for themselves.
What is the type of auditors they’re looking for? And why are they prepared to weigh the potential value and the costs associated with their audits, especially in terms of the level of maturity of their firm, and make the appropriate decisions from there. Then the timeline will commensurate from there. The second point is I think the finance professionals should also build in some buffer for your potential auditors to reject you at the onboarding stage.
I think this is quite a common problem. And some of our dear web2 finance professionals who just newly crossed into this world, cannot comprehend or have not come across such experiences. Whereas a few of us who’ve been around long enough would know that this is the norm rather than the exception.
So using this opportunity, I just thought it’s good to highlight as well. The timeline fundamentally depends on the degree of buffer you build for yourself and the type of auditors you’re trying to attract. That will be wrapped around your operational strategy.
Thanks. Thanks for sharing so much information with regards to the audit. And I think this information will be very helpful to many of the viewers of the podcast.
And I think part of this podcast, other than drawing your professional knowledge, is I built into this podcast a more personal touch for us to have a chance to understand from professionals like you guys. What you all have been through, how did you all get here and what’s next? Personally, these are some stories which I want to know. And so when I designed the podcast, I thought there was a chance to let people like you share this kind of views.
Because in other podcasts, I always hear only professional knowledge. And hopefully this is a chance where we can get to know Wei Jie from another point of view. Yeah, Diana, over to you.
OK, thanks Wei Jie. And I think I have learned a lot of things about audits during the previous conversation. And now let’s go to the free talk session.
And in this session, I have a few questions that I would like to ask Wei Jie. And this question will relate to the Web3. And the first question is, why did you decide to enter the Web3 space? Right.
Thanks. Thanks for the personal questions. I’m happy to share as well.
Why did I decide to get into the Web3 space? The honest answer is, to start, I was trying to run away from the Web3 space. And uncannily, I became the digital assets lead. When I first knew about Bitcoin, it was in 2013.
Back then, I was a young bank auditor who was getting my feet wet about AML. What is AML? And in Singapore, AML is MAS notice 626. So I was getting familiar with all this.
And then my trader friends would talk to me about Bitcoin. And I thought it was the ultimate scam and ultimate hack back then. Now, fast forward many, many years later.
I think it was quite interesting. I suddenly, step by step, eventually land on the road, digital assets lead. I think we were fortunate that enterprise adoption took off.
We were fortunate that PwC was keen to enter this space much earlier than a lot of big professionals. And as someone who always liked new stuff, disruptive technology, breaking new barriers, this was a natural opportunity for me to put up my hands. And of course, under the guidance and support of my boss, enter this space.
So on a professional level, the opportunity arise. On a personal level, whilst I was staying away, by 2016, 2017, I started to see that, hey, actually, this is quite a cool tech. I want to be involved as part of the ICO days, etc.
So it was quite fun, but I never thought it was going to be a career. It was only upon indicators of enterprise adoption that started to take off from a Singapore observation perspective that this somehow became a career, which was very interesting. Oh, so you have been in this area for about 10 years because you just said that you entered this area very early, maybe in 2016? No, no.
Yes, I started about 2016. I would say it’s 10 years. 10 years is more like 2013.
And then I will be, you know, probably still holding a lot of bitcoins, buying pizzas back then. But in 2013, I didn’t believe in it. I just heard about it over drinks with my friends, with my trader friends.
I only got into it a little bit later, but I still deem OG into this context, of course. Okay, so can you share maybe one key experience which you learn in your Web3 journey? One key experience of my Web3 journey? Maybe I share something a little bit more from the professional lens. So as one of those driving the first few crypto audits in Singapore, you tend to be scolded by everyone.
I used to go to a Singapore Fintech Festival and the panelists on stage will be shouting out loud, where are the auditors? We need auditors. And those were like, you know, three, four years ago at a Singapore Fintech Festival. So I actually have been visiting them every single year since 2016, 17-ish.
And one fine day, you know, when a lot of companies started getting their audits done, we realized that the biggest problem was not that you cannot find the auditors. The biggest problem was you cannot find the valuers. Audits rely on a lot of subject matter experts.
We have people who want to do the explorers, people who need to help you in various capacities from tech, from accounting, etc. But one group of people is constantly missing in the entire industry, and that’s the valuers. So a year later, I decided to get on one of the panels and ask the broader crowd, you know, where are the valuers? So I raised the question, hopefully for someone to then respond publicly and be able to push their efforts in that space.
You come to realize you do not have a good valuation methodology. And even today, it’s very hard for us to do our job as finance professionals and as audit professionals. So it’s just really tough without the valuers, and that’s the truth of the matter.
The products move so much faster. A lot of the valuation methodology that we are typically familiar with, like VCF and multiples, don’t apply so much in this space. So I just thought it’s nice to highlight that on the public forum, the various professions are challenging each other to push the bar forward.
I think with regards to valuation, it’s interesting that recently the argument was on, when I look at active quoted prices on active market on valuation, which exchange is a fairer representation or more accurate and in accordance with the standards, or maybe we can use coin market cap indexes, etc. It hasn’t reached a stage where you mentioned about valuers, and I appreciate why is there a need for valuation in that area. So thanks for sharing this very interesting information.
But when you talk about valuation, yes, definitely, you know, DCF or multiples, other methods that is more used in the web2 world be helpful to us. And actually, I have a question that very curious. And what’s the difference between the web2 audit and the web3 audit in your idea? No problem.
Happy to help you out. Right. As I mentioned earlier, there’s not very big difference in terms of the principles and the way that we approach the standards don’t change.
We still use our ISA and the various IFRS in Singapore is SFRS and SSA. It doesn’t really change. Approach and methodology don’t change dramatically.
Of course, there are little tweaks that have been made. For example, in PwC, we have our own independent explorer that we go into the blockchain and obtain the necessary evidence and validate the ownership of the keys. So we have things like that.
So there are procedures that we have put together that respond to the design of this new technology. But the principles don’t change. We still have to sign our financial statements accordingly on a material basis.
It’s just that our approach as well as our considerations and maybe perhaps subject matter experts that we work with, you will defer just to make sure we at the end of the day are still comfortable with what we are signing on. What are you looking forward to in Web3 Finance or compliance area? What am I looking forward? On a personal basis, this is not a representation of PWC. The bigger the number for my price on my tokens, the better, of course.
But jokes aside, what am I truly looking for? As someone who has been in this space, really driving the efforts or doing my best to open doors for professional services to play a part for this ecosystem, I have gone through a fair bit of ups and downs with various stakeholders in various conversations. So if you really ask me what am I looking forward to, I would say personally, I’m looking forward to more collaboration. This is very important for me.
I think far too often the ball has been kicked around and really it’s new for pretty much everyone at every position, depending on whatever role you play in the ecosystem. So really what we do with new things, the fundamental effort is to work hand in hand on this new space, to help each other get up to speed faster so that we can all seize the market opportunities available, as opposed to kicking the can around saying that you are an auditor, so you must know how to audit. You are a lawyer, so you must know how to draft a contract for tokens or DAO.
You are an accountant, so you must know the FRS. I think these are very simplistic views. And if we don’t take a collaborative approach across the industry, especially given the speed at which this space evolves, what really happens is that we then move forward more slowly.
And this drag on the industry sometimes can be pretty painful. So if we can have more dialogues, more collaboration, I would imagine we would have already moved a fair bit faster in terms of bringing the whole ecosystem forward. Thank you.
I think one thing to talk about collaboration, really thankful to be for you on this podcast. So the Web3 accountant is maybe education linked, maybe community linked, and for an auditor to step out and say that I will help with the podcast. So I think that is something where we are pushing collaboration in the right space and working together to see how we can actually do something and assist the market.
Yeah, I think it is not about PwC or just you guys creating a podcast. I think Web3 has proven itself to be a very unique community. There is a lot of energy.
There’s a lot of people who put up their hands and do things for the things that they believe in. Of course, there are some bad actors around from time to time. But as a community, I think it’s very admirable.
A lot of people have been doing things on their own initiatives, on their own efforts and trying to craft the path ahead. Sometimes not just for themselves, but for a group of people way bigger than themselves. So this is amazing.
It’s the least we can do as PwC to put a voice based on our experience. We don’t believe this is coming in for us. We believe that 10, 20, 50, 100 years from now, Web3 blockchain is here to stay.
And we’d like to be part of that future. And to be part of that future, it starts today. So we’re happy to be here.
We’re happy to support in any way as long as it drives the community forward. I think it’s the least any ecosystem player can do. Actually, I think in the Web3 community, the collaboration will be better in the future.
Yeah. And thank you so much for sharing your insight and experience with us today. And to our listeners, thank you for tuning in to the Web3 Accountant Radio.
If you enjoyed this radio, please subscribe and leave a review for us. So do you have anything else for our listeners? Maybe I’ll just end off with a last thought for everyone.
Look I think it really doesn’t matter who you are regardless of the role you play as a listener in the eco-system. I think this community has been very welcoming and for anyone who wants to do something to alter the course in their life whether it is professional course or otherwise. It has been great. It has not only been a community but also a technology that has brought a lot of people together and probably even more going forward. So I truly enjoy being part of this momentum and i think and hopefully anyone listening online can also agree with what I am saying. We can all reach out and collaborate. So that this can continue to get better right for this place.
Thank You Wei Jie and Diana. I think if I have a choice, I will want to lengthen this podcast but I think we need to treasure the time of everybody and also thanks for tuning in and if there are other people which you will like to nominate for this podcast, you can drop me a message or if you want to join the podcast and to support the podcast, you can also let me know and for the last part, I want to have a shoutout to Web3 Accountant where in the month of August, we are going to release a global crypto tax report 2024. More information can be found in our page and I hope to see you around. Thank You.
Thanks for the invitation. Good Bye