Crypto Brings Transparency, But Crypto Reporting Needs To Catch Up

Bitcoin
BTC
and other cryptocurrencies might have started the conversation around the concept of blockchain and crypto for enterprises, but during the last several years the number of organizations embracing these technologies has rapidly expanded as other cryptoassets have been created. Banking institutions, payment processors, credit card companies, insurance organizations, logistics and transportation firms, medical firms, colleges and universities, and almost every other type of company in the world has dabbled with the implementation of blockchain and/or cryptoasset solutions.

Alongside this increased integration, the cryptoasset landscape has also continued to expand and develop far beyond simply price speculation connected to bitcoin. Stablecoins, leading the way in terms of organizational implementation and usage by a wide range of organizations – including household names such as PayPal
PYPL
, Mastercard
MA
, and Visa – are just one example of the diversification of this sector. Decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), and the rise of central bank digital currencies (CBDCs) round out this diversified landscape.

The one aspect of this space that has not keep up, however, is how organizations are supposed to report information connected to blockchain or cryptoassets. Let’s take a look at some areas in which crypto reporting can – and should – improve.

Financial statement reporting. A seemingly simple question that continues to prove a serious obstacle for organizations and policymakers alike is just where exactly cryptoassets should be reported on the financial statements of an organization? Since crypto does not fit neatly into any one existing asset class or classification, this has left the question open to interpretation by market participants. Compounding this lack of consistency is the fact that – as of yet – no accounting standard setting body has issued definitive guidance on the matter.

A logical step forward, and one that seems to be increasingly under consideration at both the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), is to try and clarify what crypto are from a financial statement perspective. Codifying, or at least starting to define, where crypto belongs on the financial statements would be of assistance to investors, regulators, and other market participants.

Footnote reporting. Educated users of financial statements, regardless of jurisdiction, would almost universally agree that the footnotes to financial statements are a rich source of information. Accounting policy choices, explanations of figures on the financial statements, and specific information as to how the financial statements are assembled are just a handful of the topics presented and discussed in the footnotes. Why should the information about blockchain and cryptoasset information be treated any differently?

For example, should details of the blockchain protocol be disclosed for investors and other market participants to scrutinize? Additionally, what about the specifics of wallet utilization and third party security practices? With the spate of hacks connected to hot wallets, this is not an abstract or idle concern for organizations seeking to leverage crypto at an enterprise level. Lastly, what type of data – and how much of this information – should be disclosed and reported as it connects directly to the cryptoassets held and used at the organization? Cryptoassets are all different, and need to be accounted for, reported, and documented accurately.

Method of disclosure. Mirroring the demand and appetite for financial and non-financial information, investors and regulators alike are justifiably interested in having access to the most accurate, relevant, and up to date information possible. As organizations struggle with how to modernize and contend with these demands for traditional financial data, not to mention the slew of requests for environmental, social, and governance (ESG) data, crypto should not be relegated to the back burner.

Given the volatility that surrounds the cryptoasset space – both in terms of the price of certain instruments as well as the uncertain and ambiguous regulatory outlook – it makes sense that the frequency of communicating this information should be more often than once a quarter or year. Press releases, social media postings, and other informal communication methods might be tempting, useful, and utilized by many organizations, but will not be sufficient going forward.

Establishing consistency and clarity around how often, and in what format, organizations should be disclosing information around crypto operations is arguably the most important part of this process.

Crypto adoption and integration continues to accelerate and proliferate across almost every aspect of the economy, but in order to recognize the benefits of this adoption, greater clarity and consistency is required. This need for improved reporting and disclosure touches on every aspect of how organization use crypto as well as how the results of this operation are communicated to interested third party groups. Consistency, transparency, and objectivity are the hallmarks of any effective method of communication; communications about crypto should not be an exception to this rule.