Crypto brings transparency, but crypto reporting needs to catch up
Along with this increased integration, the crypto-asset landscape has also continued to expand and grow far beyond simple bitcoin-related price speculation. Stablecoins, leading the way in terms of organizational implementation and usage by a wide range of organizations – including household names such as PayPal
The one aspect of this space that hasn’t kept up, however, is how organizations are supposed to report information related to blockchain or crypto-assets. Let’s take a look at some areas where crypto reporting can – and should – improve.
Reports on financial statements. A seemingly simple question that continues to pose a serious hurdle for organizations and policy makers is where exactly should crypto-assets be reported in an organization’s financial statements? Since crypto does not fit neatly into any existing asset class or classification, this has left the question open to interpretation by market participants. This lack of consistency is compounded by the fact that to date, no accounting standard setter has issued definitive guidance on the matter.
A logical step forward, and one that seems to be increasingly being considered by both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), is to try to clarify what cryptography is from the perspective of view of the financial statements. Codifying, or at least beginning to define, where crypto belongs in financial statements would be helpful to investors, regulators, and other market participants.
Footnote report. Knowledgeable users of financial statements, regardless of their jurisdiction, would almost all agree that footnotes to financial statements are a rich source of information. Accounting policy choices, explanations of financial statement numbers, and specific information about how financial statements are put together are just a few of the topics presented and discussed in the footnotes. Why should blockchain and crypto-asset information be treated differently?
For example, should blockchain protocol details be disclosed for investors and other market participants to review? Also, what about the specifics of using the wallet and third-party security practices? With the wave of hot wallet-related hacks, this is not an abstract or idle concern for organizations looking to leverage crypto at an enterprise level. Finally, what type of data – and how much of that information – should be disclosed and reported as it directly connects to the crypto-assets owned and used in the organization? Crypto-assets are all different and need to be accounted for, reported and documented accurately.
Method of disclosure. Reflecting the demand and appetite for financial and non-financial information, investors and regulators rightly want access to the most accurate, relevant and up-to-date information possible. As organizations struggle to modernize and keep up with these traditional financial data demands, not to mention the slew of environmental, social and governance (ESG) data demands, crypto should not be pushed into the background.
Given the volatility that surrounds the crypto-asset space – both in terms of the prices of certain instruments and the uncertain and ambiguous regulatory outlook – it makes sense that the frequency of reporting this information should be more than once per quarter. or per year. Press releases, social media posts, and other informal methods of communication may be tempting, useful, and used by many organizations, but will not suffice in the future.
Establishing consistency and clarity in how often and in what format organizations should disclose information about crypto operations is arguably the most important part of this process.
Crypto adoption and integration continues to accelerate and proliferate in nearly every aspect of the economy, but to recognize the benefits of this adoption, greater clarity and consistency is needed. This need for improved reporting and disclosure touches on all aspects of how the organization uses crypto as well as how the results of this operation are communicated to interested third-party groups. Consistency, transparency and objectivity are hallmarks of any effective communication method; communications on cryptography should be no exception to this rule.