Ep. 219: Matt Druckman - Navigating the Wild West of Crypto Accounting: Challenges and Best Practices

In this episode of the Count Me In podcast, host Adam speaks with
Matt Druckman, an expert in the field of crypto accounting, about
the challenges of accounting for digital assets. With no
authoritative guidance in place, Matt explains the framework of
best practices and opinions that have been pulled together to
guide the industry. However, as the nature of crypto and digital
assets is changing rapidly, there is a need for increased
vocalization and guidance from regulatory bodies such as the
FASB. Matt also highlights the complexities of cost basis and
accessing and making sense of data, which can present challenges
for accountants as they try to categorize and report on digital
assets. This episode is a must-listen for anyone interested in
the field of crypto accounting and the future of accounting for
digital assets.


Connect with Matt:
https://www.linkedin.com/in/matthew-druckman-60a21938/


Full Episode Transcript:
Adam:            Welcome
back to Count Me In. The podcast about all things affecting the
accounting and finance world. In today's episode we explore the
world of crypto accounting with Matt Druckman, currently, the
Vice President of Business Development at Soft Ledger. A company
focused on helping companies get their data faster. 


 


Despite the existence of non-authoritative guidance, there is
still no clear framework for crypto accounting. The lack of
clarity is due to the, constantly, evolving nature of digital
assets. Which are not easily categorized within traditional
accounting practices. Join us as we navigate the Wild West of
crypto accounting and discuss best practices for accounting, in
this rapidly changing field.


 


Matt, thank you so much for coming on the Count Me In podcast
today. I'm really excited to be talking to you about crypto
accounting. And, as everybody knows, Bitcoin has been around
since 2008. But when you look at the authoritative guidance there
is none, it feels like the Wild West. And maybe, as an expert in
the field, you can talk a little bit about what it looks like to
be in the crypto accounting space.


 


Matt:           
  Great, thanks so much for having me on, Adam.
Happy to get into this a little bit with you. You're exactly
right, there is not authoritative guidance, yet, on the topic.
What we have is non authoritative guidance. We have this
framework of best practices and opinions, that have been pulled
together that folks are following. 


 


There's a really good practice aid that the AICPA put out on
accounting and auditing digital assets, and that's proven to be
very helpful. But there is not this authoritative framework for
people to follow. So everyone's still figuring this out and the
nature of crypto, and digital assets, and their evolution is it's
this breakneck pace. Things are changing on a daily, weekly,
basis. 


 


So there's, definitely, a need and an increased vocalization to
have this guidance in place. And it does look like the FASB is
really starting to take a harder look at this, we'll probably get
into it a little bit later. But there's been some momentum,
recently, specifically, in October, but right now it's still
early days.


 


Adam:           
So when we think about accounting. It's been the same since the
15th century, when the first accountants came into place and they
were writing their entries. The accounting has pretty much been
the same at its core. And when you look at digital assets, they
don't really fit that core. And, so, what does that look like,
especially, prior to this FASB vote that happened in October of
2022?


 


Matt:           
  Yes, it's a great point. And, so, you have this
new asset class, digital assets, come into play here, and we need
to figure out a way to account for them. And, I think, that's
where some of this complexity has really arisen, is trying to
figure out where to put these. And then once you put them there,
what guidance are we following? And there, probably, isn't a
one-size-fits-all and that's what's happened. 


And, so, currently, or prior to this vote, digital assets, for
the most part, were treated as intangible assets, and following
the guidance within ASC 350. And, so, as a result, you also need
to follow the impairment guidance that exists, and it doesn't
quite match up with the economics of what's taking place with a
lot of these assets. Where you have these very active markets,
readily available prices. 


 


And, so, the idea of marking down an asset, and pairing an asset,
when there is an event, which would theoretically be anytime the
price drops below cost. You're never going to be able to write
that back up. And that just doesn't quite make sense, in terms of
how people are viewing these assets, and how they're using them,
and they're leading to some very material impacts on financial
statements. 


 


And, so, that in and of itself is an area that people have been
very vocal about, and trying to take a better look at how these
should be classified and updating how we're accounting for them.


 


Adam:           
So, Matt, are there any more complexities that accountants have
to be aware of, as they're really getting into the nuts and bolts
of this accounting?


 


Matt:           
  Yes, the cost basis piece is definitely a tricky
one that we've addressed, and that can present a lot of issues,
especially, with higher volumes. But another one that should be
known is just the accessing and making sense of your data. It
sounds like something that should be so simple. 


 


You have these series of transactions that are taking place on an
exchange, or within a wallet, or on a blockchain. And you're just
assuming that you can pull that data down, easily, and it's all
going to make sense, and everything's going to be nicely
categorized and classified the way you want to see it. And that's
really just not the case, at least, not in all cases, some have
better data outputs than others.


 


But, especially, as you start to get into more complex
transactions and, maybe, you're getting more involved in DFI's,
or dealing with NFTs, or just different less-plain vanilla
transactions, if you will. Being able to make sense of the data
that you're pulling down, and tag that properly, and ensure that
that's going to be getting into the system in a way that you want
to report on it. 


 


It can be a bit manual. There could be a process that needs to
take place, to make sure that you're properly categorizing
everything and getting it into the system. It's not just going to
pop out of an exchange or another data source, and everything's
going to be nice and neat. So I think that going into it, knowing
that there's going to need to be some work there and probably
some processes that need to be ironed out. 


 


Certainly, if you have maybe a little bit more of a sophisticated
operation, and you're capable of putting a business logic layer
on top of that data before it gets into your platform. A system
like ours, like Soft Ledger, that's programmable via API, that's
one way that data could be ingested. 


So there are some things to help automate that and smooth that
process, but it can be a bit manual. I would think that in the
future, as there's more reg...