Blockchain and cryptocurrencies put “the finance side of the world at the forefront of tech, which is not something that happens often,” Blox CEO Alon Muroch said at Consensus: Invest 2018, held in New York City on Tuesday.
A few years ago, some people called bitcoin “funny money,” but “no one is laughing now” as the adoption of cryptocurrencies and blockchain is growing, Muroch said.
He joined a panel on blockchain's accounting and tax implications along with Hee Lee, practice leader at EY Financial Accounting Advisory Practice; Jeremy Drane, chief commercial officer of Libra Tech; and moderator Ron Quaranta, chairman and CEO of the Wall Street Blockchain Alliance.
How blockchain will affect accounting and auditing
Fears that blockchain will lead to the elimination of accounting and auditing are unfounded, the panelists said.
“Someone’s got to check the checker,” Drane said. The auditor will play a key role in looking at exceptions and offering a perspective on why those exceptions occurred, he said.
Hee Lee, practice leader at EY Financial Accounting Advisory Practice, said blockchain is no different from other automation tools that capture routine transactions. Changes will occur in how auditing is done, but auditors will remain vital in judgmental areas, Lee said.
Lee said a great deal of interest is developing around how blockchain can benefit intercompany transactions.
“The whole idea is to have a single source of truth, and that’s what blockchain technology will allow,” Lee said. If that is the case, no reconciliation will be necessary, which will save a great deal of headcount and thereby improve the profitability of financial institutions and other complex organizations, he said.
Drane said blockchain's potential for auditing data in real time means that employees can be repurposed for other tasks.
“Broadly speaking, whether or not you are an internal auditor at a large enterprise or if you're an external auditor at a big accounting firm,” audit procedures will change, he said.
How regulation needs to evolve
Lee said “nonbelievers” and regulators who have overlooked blockchain technology have “got to start believing in this,” because it's not going away. That includes the Financial Accounting Standards Board and the International Accounting Standards Board, he said.
Drane said that “if you want mass adoption of the [crypto] asset class, broadly speaking, you have to be able to ... allow the human on other side to easily pay their taxes for the transactions.”
One issue is that cryptocurrency platforms might consider the transferring of a digital asset to be a disposal, which is a taxable event, even though the consumer might be thinking otherwise, Drane said.
Muroch said people who received airdrops of cryptocurrencies could be subject to taxation even if they didn't want the airdropped tokens. However, trying “to convince the IRS [that] you got something and don’t want it” would pose a challenge, he said.
How back and middle offices should handle data
With regard to back- and middle-office processing, Drane said organizations need to focus on the basics of sourcing their data and processing it appropriately, but a great deal complexity is present in each step of that process. Libra's “thesis,” he said, is that it is better to build crypto-native solutions to address such complexity rather than retrofit existing systems.