Digital assets like cryptocurrencies are a new asset class with a volatility and global availability that excites the investment community.

However, the ownership of digital assets comes with risks and its own set of compliance responsibilities. Organisations using cryptocurrencies must ensure their holdings are taxed appropriately, are compliant with the most current regulations and maintain a high level of security.

Security cryptocurrencies

Cryptocurrency transactions cannot be reversed, so both operational and information security are critical.  Organisations engage the use of digital wallets, the software or hardware that stores the address and private key and supports the interaction with blockchain. There are numerous forms of wallets that organisations can utilise, including online web, paper, mobile, air-gapped or offline, multi-sig and hardware-based.

Many small to medium enterprises do not have an adequate control set in place to effectively mitigate risks regarding the operation of virtual currency wallets. Organisations need to consider wallet management strategies and proper operational controls for their business processes and develop disaster recovery plans in the event of theft or loss. History has shown that improper wallet management controls can result in the theft of millions of dollars.

Transaction details digital assets

Understanding how transactions are recorded and what internal and external audits are required is essential to creating financial statements for digital asset transactions.
Transactions can include numerous complexities related to valuation, like-kind exchange, wash sale and transfer pricing. How the transactions are performed, such as on an exchange, through an OTC partner, in wallets or cold storage, creates a unique set of processes and reporting requirements to consider. The Australian Tax Office (ATO) states that Bitcoin and other digital currencies are neither Australian nor foreign currency. Instead, they are classified as an asset for capital gains tax (CGT) purposes. If an organisation uses cryptocurrencies for business transactions, the value of the cryptocurrency in Australian dollars will be declared as part of their ordinary income.

For more information about managing digital asset risks

For more information about cryptocurrency security or other digital asset security, please get in touch with Darren Booth.
Darren is the National Head of Security and Privacy Risk Services and has over 17 years of experience in IT internal audit, technology risk consulting, security advisory and data analytics.

This article was adapted from an article published on the RSM US website on 25 March 2019.