A Look Into How Cryptocurrencies Will Be Audited
Crypto Related Guidelines In Japan: A Recap
With the enactment of the amended Payment Services Act in April 2017, Virtual Currency Exchange (VCE) Service Providers will now be subject to financial statements audits and segregation of funds audits.
Because comparability of financial statements is considered one of the key qualities of accounting, financial statements are prepared according to accounting standards and other guidance to ensure consistency across different companies.
In order to maintain consistent audit quality, audits are also performed according to audit standards and other guidance.
However, no such accounting or auditing standard/guidance regarding crypto existed up until recently.
This would have led to varying practices in accounting and needless to say, auditing for cryptos and to address this issue:
- on May 31, 2017, the “Practical Guidance Regarding the Agreed Upon Procedures Over the Segregation of Customer Assets at Virtual Currency Exchange Service Providers” (Segregation of Funds AUP Guidance)
- on March 14, 2018, the “Tentative Practical Solution on the Accounting for Virtual Currencies under the Payment Services Act” (PITF38)
And finally, on June 29, 2018, the “Practical Guidelines for Financial Statements Audits of Virtual Currency Exchange Service Providers” (Financial Statement Audit Guidance) was released.
We now have a series of guidelines that can be used to prepare financial statements and perform audits for crypto-related businesses.
See the table below for a recap of crypto-related accounting/auditing guidelines that have already been released in Japan.
For someone like me who’s been involved in the accounting/auditing profession for over 10 years, this is truly remarkable.
In the past few decades, the rules of accounting and auditing have been changing dramatically.
Unfortunately, these changes were not led by Japan, rather they were mainly led by the US and certain European countries.
The reality was (at least in my eyes) that accounting standards that were determined as USGAAP and IFRS were being imported into Japan with a few adjustments to make it “suitable” for Japan.
Same goes for the auditing standards.
However, things seem to be different for cryptocurrencies.