IAASB issued its latest Market Scan on Digital Assets

6 March 2023

digital asset is anything that exists in digital form only, has or provides value, is identifiable and discoverable, and is associated with ownership or use rights. Digital assets can be cryptocurrencies like Bitcoin and Ethereum, or non-fungible tokens (NFTs), as well as digital content like photos, audio files, videos, websites, presentations, spreadsheets, or text files. Cryptocurrencies use blockchain technology, a decentralized system that eliminates the need for intermediaries like banks for transactions. Cryptocurrencies can be traded on cryptocurrency exchange platforms or through digital wallets.

Why are digital assets important to accountants?

Cryptocurrencies are less expensive and provide for faster money transfers. However, they are subject to price volatility, and high energy consumption for mining activities. Lastly, it is easy to use crypto for criminal activities.

Digital assets are an increasingly common consideration when preparing financial statements and during reviews and audits. It is important to understand the specific risks associated with digital assets and address them appropriately.

What are the latest trends?

The publication discusses recent developments that may signal ongoing or future disruption.

1. The Crypto Winter

The collapse of the cryptocurrency exchange FTX in November 2022 was the most significant in a series of company failures that hit the cryptocurrency industry in 2022.

In May 2022, Terra’s UST stablecoin and governance token LUNA collapsed, sending shockwaves through the cryptocurrency market, and leading to a fall in the price of Bitcoin and other cryptocurrencies as investors started to pull their investments.

US regulators issued a joint warning to banks over the risks associated with the cryptocurrency market.

There is a call to agree on the fundamental core principles for the industry, including appropriate customer protection, governance, and risk management procedures.

2. Crypto audits under scrutiny

A Forbes survey of the world’s largest cryptocurrency exchanges highlighted that not all are subject to full financial statement audits. This contrasts with issuers of publicly traded securities in major developed markets whose accounts must be regularly audited and made public. Some cryptocurrency exchanges sought to reassure investors by providing transparency reports or proof that they have adequate reserves. However, investors were warned not to rely too much on these reports.

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