CPAs’ top 5 questons about blockchan, yptocurrences

Blockchan has become such a hot topc among accountants that t’s easy to forget how quckly the term has burst onto the scene n our professon.

Consder the followng: A recent search of the term “blockchan” on journalofaccountancy.com produced 33 results. Of those, 27 were publshed between June 207 and June 208. A smlar pattern can be found wth other accountng publcatons and also wth the assocated terms “btcon,” “yptocurrences/yptocurrency,” and “smart contracts.”

Gven blockchan’s rapd rse nto the accountng conscousness, t’s no surprse CPAs have many questons about the technology. Ths artcle addresses fve of the most pressng concerns encounter regardng blockchan, smart contracts, and yptocurrences such as btcon.

Before we jump n, please keep the followng n mnd: At ths pont, there’s really no debate about whether blockchan wll radcally alter how we do thngs, whether you specalze n audtng, tax, or accountng servces. The key ssue now s how to leverage ths new technology to stay on top of our game and provde mproved servce to our clents.

Whle government regulaton surroundng btcon and other yptocurrences s stll n flux, t’s that users hopng to use ypto to skrt regulatons entrely are no longer able to operate n the shadows. A November decision by a federal district court n Calforna forced popular ypto-tradng ste Conbase to dsclose the nformaton of over 4,000 users so ther transactons could be taxed (Conbase, nc., No. 7-cv-043-JSC (N.D. Cal. /28/7)).

As of today, the RS treats cryptocurrencies as property rather than currency for federal tax purposes (ce 204-2). Holdngs are taxed, but gans and losses are. When a trader who holds a yptocurrency as a captal asset sells that yptocurrency, the rule s that f t was held for less than a year t s treated as short-term captal gan and taxed at an ordnary ncome rate. f t was held for more than a year, t s taxed at long-term captal gans rates. f t wasn’t held as a captal asset, the taxpayer wll recognze ordnary gan or loss on the sale.

neased regulaton, however, s a near certanty. We’re stll n the Wld West, but the days of a more settled landscape are fast approachng. The RS ssued a news release n March remndng taxpayers that ncome from vrtual currency transactons should be reported on ncome tax returns. n May, the ACPA submtted comments recommendng the RS release mmedate gudance regardng the tax treatment of vrtual currency transactons, smlar to that of ce 204-2 so that authortatve gudance exsts. All blockchan-based trades have a permanent record, so f you want to be conservatve, t s safer to report these transactons. e that yptocurrency held n a foregn exchange account may also be subject to FBAR reportng on FnCEN Form 4, Report of Foregn Bank and Fnancal Accounts.

There’s no hard-and-fast answer to ths queston, as every frm s dfferent. t’s worth ng that some PwC and EY offces accept bitcoin as a form of payment for certan servces. Followng sut wll certanly allow you to dfferentate yourself from compettors. Addtonally, frst practcng wth your own busness or wth your personal fnances can teach you how the technology works and what ntrcaces to watch for. You can conduct small tests to try t out wthout makng a huge commtment upfront.

f you do want to dp your toe n these waters, you can offset the rsk by settng up a merchant account that converts yptocurrency nto U.S. dollars upon delvery. Wth a merchant account, you can accept btcon wthout actually havng any on your books. Many reputable companies offer these programs. Of course, f you don’t mnd assumng some rsk, you may just want to keep the btcon you receve as s.

Smart contracts are aher technology that functons on a blockchan. They use code to automatcally execute the terms of a contract agreed upon by the two partes. As wth all blockchan-based technologes, smart contracts are stored aoss a vast decentralzed network, ensurng that no one party can alter the terms of the agreement, removng the for the mddleman.

Jacky Ch Ke Chan, an accountant turned software engneer, wrote n an artcle on medum.com that smart contracts present the potental for full cycle accountng. “By transactng through a shared accountng protocol over blockchan,” he wrote, “prevously ncompatble accountng software communcate(s) n a yptographcally secure way.” Smart contracts could result n a lot less tme spent manually reconclng nformaton. There are many examples of how smart contracts have cut out the mddleman and neased the speed of operatons, ncludng at Barclays Corporate Banking, whch uses smart contracts to log change of ownershp, makng payment to other fnancal nsttutons automatc and mmedate.

The most mportant steps you can take are to mmerse yourself n the possbltes and applcatons of blockchan and fnd experts wth whom you can dscuss potental clent s. t sn’t always about knowng everythng. Sometmes, t s about knowng enough, askng the rght questons, and connectng wth the rght . Develop relatonshps wth advsory frms that aren’t necessarly led by accountants but specalze n blockchan technologes and mplementaton. These frms can teach accountants both development and mplementaton strategy. For example, f you wanted to mplement smart contract optons but aren’t sure what the code should look lke, an advsory frm can help.

Beng able to dscuss these concepts wth your clents wll make a huge dfference n delverng the servces they wll n the future, and ths wll help them prepare to set up ther own systems properly. Furthermore, once they are more prevalent, nstantly verfable nformaton and full sets wll allow accountants and audtors to perform the work they do for busnesses on a more contnuous bass. By fndng ways to ncorporate ths technology, we can be more proactve n the busness. Delverng nformaton faster ramps up the value we provde to our clents.

Blockchan has been called the biggest technological advancement since the internet tself. We all know frsthand how much the arrval of the nternet changed accountng. t s why we are able to offer outsourced servces to our clents and offshore our own work f we choose to staff globally. These changes often occur wthout our cng untl we look back. However, wth a dedcaton to learning about rapdly changng technology, you can stay ahead of the curve and develop nnovatve ways to delver servces to your clents that aren’t necessarly vsble today.

t’s the queston on everyone’s mnd — even f many don’t say t out loud — but the answer s “no.” Whle blockchan s wthout a doubt a disruptive technology, there wll always be a for human accountants and audtors. No matter what technology has dsrupted n our professon over tme, that has remaned unchanged. However; roles and dutes wll surely shft, and that s where we to focus our efforts.

Lookng ahead, the accountng professon could look a lot dfferent n fve years. Frms such as Delotte beleve that blockchan technology could end up supplanting double-entry accountng, whch has been n practce snce the Renassance.

f you decde to take a “wat and see” atttude and do accept ths new technology and ts mplcatons, you could end up strugglng to compete. As there are always early adopters, we are approachng a pont n blockchan development where adopton s beng tested by many n the accountng professon, and technologcal development s movng fast. t’s mportant to start dentfyng small busness processes you can start testng and a plan together on how to address ths n your practce, even f the frst stage s dedcatng tme and nvestment to learnng more. Comng back to ths fnal queston, t’s ultmately up to you to stay relevant, learn how you can apply technologcal nnovatons such as blockchan to your servces, and ensure you stay agle along the way. The one thng that s for sure today s that change wll happen, and t wll happen often.

Even though blockchan s here, experts stll don’t know all the ways t could be mplemented. Ths leaves you the opportunty to be nnovatve and magne new ways of workng. Now s the tme to learn everythng you can, keep an eye toward the horzon, and make sure that the blockchan revoluton doesn’t happen wth you on the sdelnes.

Amy Vetter, CPA/CTP, CGMA, s member of the ACPA’s nformaton Management and Technology Assurance (MTA) Executve Commttee and leads MTA’s Emergng Technologes Taskforce. She also has authored the book, ntegratve Advsory Servces: Expandng Your Accountng Servces Beyond the Cloud, publshed by Wley. Learn more at amyvetter.com. To comment on ths artcle or to suggest an dea for aher artcle, contact Jeff Drew, a JofA senor edtor, at Jeff.Drew@aicpa-cima.com.


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