Yes.
I started my accounting career over 20 years ago in audit and tax, at the time, accountants starting at large firms performed both tax and audit at the same time. Today the firms track accountants coming out of college to either tax or audit, but often times not both.
It has been my experience that those folks are coming out of accounting from college understand the new real economy, but accounting has never adapted. Although the new accountants bring a lot to accounting, they are drawn back to the old methods and big firms are no longer about customer service (I can explain in a different blog).
I put this from the perspective of I’ve been following cryptocurrency (“crypto”) very closely. In 2017, I helped a company that just finished their first initial coin offering (“ICO”) on the Ethereum network. Very successful venture for them and the money raised was sufficient to solve their mission detailed in the white paper. At the time we spend over $100k/month on legal advice surrounding the ICO. Attempting to answer the questions regarding how the SEC was going to regulate; additionally and maybe less time with same importance how the IRS was going to tax the funds. This was my role in the organization.
Fast forward 3+ years (circa 2020):
AICPA – Their position is not enough Companies hold Crytp positions on their balance sheet for them to produce a specific position.
SEC – They provided more guidance and there are firms that activity track and trade crypto activity via tracking stocks on major exchanges. They have recognized the change, however, they still do not understand the transactions or the ownership implications.
GOVERNMENT – Still figuring it out and are scared. How is crypto taxed? How does the ownership work? Who’s tracking the custody? Who’s regulating? How are they going to regulate? Is this happening outside of their control? Absolutely. Should they embrace it absolutely. Does this highlight significant problems with our economy? Absolutely and could be behind the “why” our aged government is is scare of it.
Finally, in 2020, I was contacted by the SEC in relationship to the ICO from 2017. The 90-minute conversation was touching on all the topics that we discussed 3-years prior with prestigious law firms. My take-away they still do not know what to do or how to address!
Fast forward to 2021, AICAP/FASB positions have not changed and major exchange listed companies are purchasing vast amounts of crypto to protect themselves against the government. The theme is cost of capital and uses of capital with associated hurdle rates. Net they recognize the Economy 2.0.
AICPA’S guidance, there are 2-methods to account for crypto:
- Intangible – my example is a like a painting
(this is not the Mona Lisa!)
- Crypto is booked at cost and if impaired (You are required to evaluate periodically), asset value decreases, the company is required to take the loss when incurred. Impairment impacts earnings.
- What if the value increases? No action! That is the current position! Crypto changes hands every second of every day since circa 2009 (Bitcoin started). If you are reading this you can trade crypto right now! Does it make sense that this intangible only be modified when the price goes down? No! Moreover, crypto is specifically excluded from the definition of cash and cash equivalents!
- Security/investment classification –
- only qualifying companies have the ability to treat
investments (“crypto”) in the manner in which the investment tracks reality and
price discovery.
- Who – companies that are in the business of selling investments as their business purpose. Company has one or more investments, there’s more than one in investor, et al. Basically, the definition of a regular investment firm…
- only qualifying companies have the ability to treat
investments (“crypto”) in the manner in which the investment tracks reality and
price discovery.
So back to my original question? Is it accounting behind the times? Yes.
Accounting is not factoring in the new digital currency that could very well be the life blood of our economy.
As of the date that I’m writing this blog, COVID19 has impacted the United States for approximately one year (Feb 2020 – Feb 2021). Although we are close to a vaccine to the general public, “normal” economy as we know it is drastically different compared to February 2020. The bulk of the school age kids in the United States still do not go into in school for their primary education, teaching is all remote. This fact in and of itself has made crypto even more important. Basic economics will tell you that as the government prints more money, to subside the impacts of COVID19, inflation is looming. Meaning the US dollar will begin to lose his purchasing power if it already has not. Crypto does not have these inflationary pressures, it is solely based on supply and demand with effectively distributed governance. Realistic guidance on how to account for these transactions needs to be in place with the new digital economy.
Two fundamental truths need to be in place:
1 – An understanding of what cryptocurrency and digital assets are.
2 – A reader of the financial statements understands the transactions within a company. Balance sheet & income statement.
I can purchase a car for crypto , but the company that received my crypto cannot account for the foresaid crypto as cash on their balance sheet . How does that make sense? It does not make sense, accounting is behind the times! Right now companies that receive crypto often exchange it for fait dollars at the same time to enable them to reflect the cash on their balance sheet.
Accounting needs to reflect the digital economy and embrace Economy 2.0. This is the future accountants.