Introduction to Cryptocurrencies, An Article Series – #3 of 3 – Financial Reporting Implications of Cryptocurrency Transactions

Sep 12, 2022

By Carlos Salgado, CPA, MSA – Supervisor, Tax and Ryan Lubinski CPA, CVA, Senior Manager

Throughout our three Silver Advantage Alerts on cryptocurrency, we will cover the following topics:

  1. A beginner’s guide (introduction) that defines and explains how to invest in cryptocurrency (published on May 31, 2022)
  2. Tax implications of cryptocurrency transactions (published on June 28, 2022)
  3. Financial reporting implications of cryptocurrency transactions

In this final installment, we will cover the financial reporting implications of cryptocurrency transactions. If you missed our previous Silver Advantage Alerts on cryptocurrency, be sure to check them out here. They contain some information that we build upon throughout this article.


The AICPA Digital Assets Working Group has issued nonauthoritative guidance on accounting for digital assets and transactions under GAAP. This guidance allows us to better understand the accounting for such assets.

Purchase of Digital Assets

Under FASB ASC 350, purchases of digital assets would be initially measured at cost and have an indefinite life (no amortization). Assets should be tested for impairment annually or more frequently if there are changes in circumstances. Subsequent reversal of impairment loss is prohibited.

Receipt of Digital Assets for Goods or Services

Under FASB ASC 606, receipt of a digital asset for goods or services would be noncash consideration, and transaction price is recorded at fair value at contract inception. Changes to fair value after contract inception would not affect the transaction price for the contract.

Sales of Digital Assets

Sales to customers should be accounted for under FASB ASC 606 Revenue Recognition and sales to non-customers under FASB ASC 610 with a gain or loss presented net outside of revenue.

Investment Companies

Under FASB ASC 946, investment companies that obtain funds for one or more investors and provide investment management services should record the holdings initially at transaction price and subsequently at fair value. Any changes in fair value are recorded as a gain or loss in the income statement.

In addition to the guidance above, the following needs to be considered by the accounting firm when completing an audit engagement for a business with cryptocurrencies:

Auditor Competence

The audit firm needs to evaluate its personnel’s competence (education and experience) to perform the engagement before acceptance or continuance. This includes the personnel’s industry expertise, understanding of digital assets, and understanding of how digital assets are being used in the specific client situation being evaluated.

Management Competence

Client’s management needs to acknowledge and understand the responsibility for the preparation and fair presentation of the financial statements and internal control and in providing the auditor with access to all relevant information. Auditors should consider whether management may lack the skills necessary to maintain the entity’s books and secure digital assets.

Management Integrity

The auditor must consider the integrity of the client before acceptance of the engagement. There is a higher opportunity for illegal activities with digital assets.

Processes, Controls, and IT

The auditor needs to gain an understanding of how the client uses digital assets, the IT environment, and the controls over these assets. There are risks related to entities that make digital asset transactions for the first time and their ability to maintain custody of these assets.

If your company has cryptocurrency transactions and a requirement to issue audited, reviewed, or compiled financial statements, our team of experts in the Accounting and Assurance Department at MichaelSilver is here to help. Please contact us at 847.982.0333.

Carlos Salgado, CPA, MSA – Supervisor, Tax, works with mid-size enterprises focusing on flow-through taxation within a variety of industries, including manufacturing and distribution, professional services, real estate, and retail. He has provided accounting and tax services for over six years, including compliance, tax planning, and management consulting. Carlos is a member of the AICPA and ICPAS.

Ryan Lubinski CPA, CVA, Senior Manager, has over ten years of accounting, auditing and business valuation experience working with businesses in a wide range of industries including manufacturing, automobile dealerships, retail, investment companies, holding companies, and employee benefit plans. He has been one of the key leaders of our team of accounting and assurance professionals.

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