Your Quick Guide to Audit Readiness with Crypto on the Balance Sheet
Crypto audits and proof of reserves reports are on the rise as the IRS increases oversight on cryptocurrency transactions. The lack of clear, universal guidelines, however, make it challenging for crypto companies to accurately value and report their crypto assets, adding to the complexity of compliance.
As a CPA at a top crypto audit company and consultant with extensive experience assisting cryptocurrency companies, ensuring audit readiness is crucial for maintaining financial integrity. This guide provides a comprehensive overview of best practices for audit readiness, from finding a qualified crypto audit company for your audit to managing costs and completing a successful audit.
What does the Crypto Audit Readiness Process Look Like?
To prepare your business for a crypto audit, be sure that your financial records, internal controls, and documentation meet the necessary standards required by external auditors. For companies with crypto assets, this process is particularly intricate due to the volatile nature of cryptocurrencies and the evolving regulatory environment.
Key Steps:
Internal Review: Conduct an internal review of your financial statements, focusing on areas with high risk, such as crypto transactions and valuations.
Documentation: Ensure all transactions are thoroughly documented, including dates, amounts, counterparties, and fair market values.
Internal Controls: Establish and test internal controls related to crypto transactions, storage, and security.
How Do You Find a Crypto Auditor?
Choosing the right crypto audit company is a critical step in the audit readiness process. Look for auditors with experience in crypto audits and a deep understanding of blockchain technology.
Factors to Consider:
Experience and Expertise: Look for auditors with a track record of working with crypto assets and familiarity with relevant accounting standards (e.g., GAAP, IFRS).
Reputation: Research the reputation of the crypto audit company within the industry, including client reviews and any regulatory history.
Resources: Ensure the firm has the necessary resources and technology to handle the complexities of a crypto audit.
Anticipated Costs:
Initial Assessment Fees: Costs associated with the preliminary review of financial statements and internal controls.
Audit Fees: Ongoing fees for conducting the audit, which can vary based on the scope and complexity of the audit.
Additional Costs: Potential costs for additional services, such as advisory support or follow-up audits.
How Do You Engage with Your Crypto Auditor?
Once you have vetted various crypto audit companies and selected the right one for your business, engaging effectively is crucial for a smooth audit process. This involves clear communication, regular updates, and thorough preparation.
Engagement Steps:
Initial Meeting: Hold an initial meeting to discuss the audit scope, timeline, and specific areas of focus.
Documentation Sharing: Provide the auditor with all necessary documentation for the crypto audit, including financial statements, transaction records, and internal control procedures.
Regular Check-ins: Schedule regular check-ins to address any issues or questions that arise during the audit process.
What are the Recommended Steps for Crypto Audit Readiness?
To ensure comprehensive audit readiness, consider the following detailed steps, which our firm can assist with:
A. Management Review and Documentation
Chart of Accounts Review: Assess the chart of accounts for risks related to the completeness, accuracy, and timing of financial accounting. This includes ensuring all relevant accounts on the balance sheet and profit and loss statement are accurately represented.
Internal Control Environment Review: Conduct a formal gap assessment of the internal control environment. Identify weaknesses and provide remediation assistance to ensure robust controls.
B. Documenting Transaction Flows
Major Revenue, COGS, and Expense Flows: Clearly outline and document transaction flows for significant revenue streams, cost of goods sold (COGS), and major expenses. This ensures transparency and traceability.
C. GAAP Alignment Assessment
Accounting Classifications and Treatments: Evaluate current accounting practices to ensure they align with GAAP. This includes classifications, treatments, and disclosures, allowing the crypto audit company to opine that the financial statements are free from material misstatements.
D. Adjustments Process
Recalculation and Clean-up: Assist in recalculating revenue, inventory, and other account entries for historical periods to ensure books are clean and auditable. Correcting past inaccuracies is one of the most important steps in preparing for a crypto audit.
E. Drafting Technical Accounting Memorandums
GAAP Assessments: Prepare technical accounting memorandums to document management's assessment of GAAP compliance.
Accounting Policies: Develop and document internal accounting policies and processes.
Risk Control Matrix: Implement a formal Risk Control Matrix to manage internal controls relevant to financial reporting.
F. Preparation of Financial Statements
Financial Statements and Disclosures: Draft financial statements and necessary disclosures in compliance with GAAP. This includes balance sheets, income statements, and notes to the financial statements.
G. Support and Facilitate the Audit Process
Audit Project Management: Act as a resource to support, facilitate, and project manage the financial statement audit process. This includes liaising with the auditor and ensuring timely provision of requested information.
Conclusion
Preparing for a financial statement audit with crypto on the balance sheet requires meticulous planning, robust internal controls, and a thorough understanding of the regulatory landscape. By following this guide and leveraging our comprehensive audit readiness services, you can enhance your crypto audit preparedness, bringing compliance and transparency to the forefront of your operations.
Contact The Network Firm, one of the top crypto audit companies in the U.S., for expert assistance with audit readiness. Our team of professionals has extensive experience leading clients through successful readiness projects, providing significant value and peace of mind.
Author Bio:
Nick Ward is a certified CPA and consultant specializing in audit readiness for cryptocurrency companies. With a proven track record of leading clients through successful audits, Nick Ward offers valuable insights and solutions to ensure compliance and financial integrity. Connect with Nick Ward on LinkedIn/Twitter for more expert advice.