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Prepare for Success: First-Year Audit Tips for Digital Asset Companies

As the crypto markets continue to drive upwards, more and more companies are eyeing potential capital markets transactions (i.e., IPOs, SPACs, reverse mergers) to take advantage of that uptick in investor sentiment. However, for many digital asset companies, preparing for the aforementioned and the accompanying audit process is a daunting proposition.

It doesn’t have to be that way. You can help minimize the pain of a first-year audit and prepare for audited financial statements by getting your books in order now. For a deeper dive into the audit process, refer to our External Accounting Audit Preparation Checklist or our Shoebox to Audit webinar.

The following are some tips to help you prepare your financial records and take control of your digital asset activity before the end of the year:

1. Take inventory. Compile a comprehensive listing of all wallet addresses (both public and private) and all exchanges on which you transact. Maintain this listing and ensure it remains up to date. Then, identify and classify the types of digital assets you/your company owns and transacts in (i.e., crypto assets, stablecoins, non-fungible tokens (NFTs), wrapped tokens, etc.). Each type of digital asset may have different accounting, tax, and regulatory implications.
2. Retain year-end reporting from exchanges. Regulations requiring crypto exchanges to issue a Form 1099 are still in the proposal stage. Not all exchanges on which you transact will issue a Form 1099 to you, depending on your trading volume. Regardless, you should export your transaction history on each exchange you utilize and retain for your records (should be done at least quarterly).
3. Take wallet snapshots as of 12/31/2024. In addition to exporting exchange data, obtaining a snapshot of your digital asset wallets provides you with a record of the balances and values of your digital assets at the end of the year. This will be useful for reconciling year-end balances and transaction details, which will be used to calculate year-end realized and unrealized gains and losses.
4. Assess potential software implementation. Understanding the volume of your transactions is key when assessing if there is software that will help you gain efficiency over tracking your digital assets in spreadsheets. While spreadsheets are a great tool, they are prone to formula errors, data entry issues, and the possibility of incomplete data. By utilizing a digital asset subledger software (akin to Bitwave, TaxBit, Cryptio, Tres.Finance among others), you can take advantage of automated features, including transaction pricing and coding, and integrate your digital asset subledger with your current accounting system. More importantly, in the event a new company wallet or exchange is identified, adding that missing activity via a digital asset subledger software takes a fraction of the time compared to layering in the new activity via a spreadsheet.
5. Track non-employee compensation. United States tax regulations require businesses operating in the US to issue Form 1099-NEC for nonemployee compensation totaling $600 or more, even if the payments were made with digital assets. Non-employee compensation refers to the money a company pays to an independent contractor who provides services. The 1099 reporting filing date comes up fast, 1/31/25 for 1099-NEC & 3/31/25 for 1099-MISC. Retaining records of all vendor and contractor payments, as well as collecting W9’s/W-8-BENs from all vendors and contractors, is useful in determining the 1099 reporting eligibility.
6. Prepare technical accounting position papers and accounting policy documentation. As a part of the audit process, external accounting firms will typically review all documentation supporting a firm’s accounting treatment and classification of certain transactions. Revenue recognition, classification of company-issued tokens, and adoption of fair value accounting in accordance with ASU 2023-08 tend to top the list of accounting policy memos requested by auditors for digital asset companies preparing financial statements for the first time.
7. Engage with your auditor. In preparing for the audit, engage in early conversations with your auditor to identify areas of audit focus, to obtain an understanding of testing strategies and audit evidence that the firm may require to successfully complete the audit.

By following these tips, you can get a jump start on getting your books in order now and make your first-year audit less stressful and more efficient.

How Centri Can Help

It is imperative that you choose financial reporting experts who understand digital assets and financial reporting requirements. Our dedicated, skilled professionals collaborate with international and domestic token issuers, and digital asset exchanges, including decentralized finance platforms, venture capital, miners, media, blockchain and enterprise platforms, and other leaders. This allows us to find solutions for your unique accounting needs. Please contact us to explore how our expertise aligns with the specific needs of your company. Remember, the sooner you start, the better off you will be.

Mike Andrusko

Partner | Fintech and Digital Assets Practice Leader | CPA

Michael is a Partner at Centri Business Consulting and the leader of the firm’s Fintech and Digital Asset Practices. He has more than 10 years of experience in the accounting treatment of various transactions, including complex debt and equity analysis, business combinations and acquisition accounting process integration. View Mike Andrusko's Full Bio