Why Accountants Need to Know About Cryptocurrency
Although their popularity has somewhat been blunted by the collapse of FTX and the resulting domino effects in late 2022, cryptocurrencies remain popular and are everywhere. Most people will recognize Bitcoin and Ethereum, but there are thousands of speculative coins in the crypto world. Business leaders, small and large corporations, and individuals are interested in how they can leverage them today and what they can become for the world in the future.
Cryptocurrencies have serious business, legislative, audit, and tax implications. Any accountant who does not familiarize themselves with and get to understand cryptocurrencies risks falling behind. Here are some reasons accountants should familiarize themselves with these digital assets.
There is a New Financial Market
The first reason accountants should know about cryptocurrencies is the financial markets created around them. In the past, banks and other large financial institutions controlled finance, including debt, credit, and debit cards.
Cryptocurrencies introduced a way for users to cut out these middlemen and either go with exchanges or decentralized finance that allow the one-on-one exchange of various digital assets. The blockchain network has made all this possible and has seen many people and businesses switch to or at least start accepting cryptocurrencies.
If an accountant works with businesses that have switched to or accept these digital currencies, they must familiarize themselves with them. Adding cryptocurrency knowledge to one’s resume is an excellent way of growing an accounting practice.
For Financial Reporting Reasons
If an accountant does not know enough about cryptocurrencies, it will be challenging to account for them in their books. Accountants must familiarize themselves with cryptocurrencies to understand how to record and account for cryptocurrency transactions.
Their knowledge will help them recognize and record gains, losses, and expenses for using or accepting cryptocurrencies. This knowledge is essential for preparing accurate financial statements and complying with accounting standards.
Tax Implications and Compliance
Apart from trading, cryptocurrencies are a store of value, and this feature makes them great investment options. A good example is Bitcoin, which was being sold at $1000 a coin in 2017, only to peak at over $60,000 per coin in 2021. That is a massive gain for investors who bought the coin in 2017.
Selling cryptocurrencies is subject to capital gains tax like any other investment option. The tax a business or individual must pay on such a trade differs from country to country but is typically a percentage of the profit made on the trade.
Accountants are critical in helping businesses understand and comply with tax regulations, including those relating to cryptocurrencies. They need to understand how to calculate and report capital gains, capital losses, and other tax obligations related to investing in or trading cryptocurrencies.
There is an opportunity for accountants to specialize in crypto-related tax compliance, which can be very lucrative as more businesses adopt, invest in, and trade cryptocurrencies.
For Valuation and Asset Management
Cryptocurrencies are volatile, which makes their valuation very challenging. Depending on the needs of a business, accountants may be required to value cryptocurrency for financial reporting, investment purposes, or when assessing the value of a company that holds cryptocurrencies. Additionally, they must also understand the methodologies, best practices, and regulatory requirements for valuing cryptocurrencies.
Auditing
The bulk of most accountants’ work is auditing. Auditing is the practice of reviewing a business’s financial statements and verifying their accuracy. If these statements are accurate, accountants produce reports that they pass to investors who use them to make investment decisions.
As the number of businesses dealing with, accepting, or investing in cryptocurrency grows, the need for such audits grows as well. Consider that over 1500 digital coins exist, and more are being minted every day. As each requires an initial public offering, you can see how the demand for auditing services will grow over time.
Anti-Money Laundering (AML) and Know Your Customer (KYC) Compliance
Because of their anonymous nature, cryptocurrencies have been used for money laundering and other illegal activities. Accountants are required to ensure their clients comply with AML and KYC regulations when dealing with cryptocurrencies.
Stay Current with the Latest Trends
Cryptocurrencies are not the only trend accountants need to know about, as the accounting landscape is always changing. Continuing education is the best way to stay in the know and ahead. Accountants can register with companies that provide continuing professional education that do this using different formats, including webinars for accountants, online courses, and in-person training to help them gain additional knowledge and skills that help them serve their customers better.
Cryptocurrencies have serious implications for businesses that deal with them in any way. The accountants who work with these businesses must familiarize themselves with cryptocurrencies to provide their clients with the best accounting services.
