7 Mar 2018 12:46pm

Practice Q&A: Cryptocurrency and accounting

In the second of a new practice Q&A series, we ask the experts about cryptocurrency, auto-enrolment and the skills chartered accountants will rely upon
Caption: Illustration: Andrew Manzati

Q: What is the definition of cryptocurrency, how do we account for it and why is there no accounting standard?

A: A cryptocurrency is an online-only asset tracked through a distributed ledger system, usually blockchain. The best-known example is bitcoin. Cryptocurrencies don’t have a central bank or government backing, but instead derive their trustworthiness from cryptography – that is, computer-based security algorithms. The value of cryptocurrencies derives from their scarcity, security, and lack of restrictions on transfer.

Some new companies and products are seeking enterprise funding through “Initial Coin Offerings”, in which units of a new cryptocurrency created by the company are sold to fund it, sometimes but not necessarily in exchange for ownership or control rights in the entity. These ICOs are high-risk as there is presently no regulation or protection for investors.

Cryptocurrencies fall short of the definition of cash and cash equivalents due to issues around their volatile valuation, low liquidity into regular currencies, and relatively small number of outlets that accept them. However they aren’t fundamentally different from other kinds of assets and as such no specific standard has been deemed necessary. For most businesses, they should be treated as a commodity (so as inventory or an intangible asset depending on the entity’s business model) and valued at initial cost less any impairments.

An entity that trades in bitcoin, or a “mining” company that operates hardware to run a cryptocurrency in exchange for some newly created ones, might instead account for their cryptocurrency holdings at fair value through profit and loss. Any entity with significant holdings or transactions should consider appropriate disclosures about their activities in this area.

David Lyford-Smith, technical manager, IT & the profession in ICAEW’s IT Faculty

Q: What do I need to know about auto-enrolment compliance?

A: Advising employers on pension scheme selection is not regulated investment advice so practitioners can do this without FCA authorisation or a DPB licence, but the regulatory position will depend upon all the circumstances of any given case. An unauthorised accountant can also have general discussions with employees on the different types of pension products available, but cannot discuss the merits or suitability of a specific pension contract, or recommend specific personal pension contracts.

The distinction between an employer and its employees may be a fine one, particularly in the case of micro-businesses. To mitigate the risk of inadvertently providing investment advice, you could specify in your engagement letter that any advice to an employer is provided to them in their capacity as an employer and not as an individual.

If you are helping clients write to staff about automatic enrolment and their rights, using letter templates (for example generated by payroll software) will help prevent you inadvertently giving investment advice. If a practice decides it is not sufficiently skilled to identify a suitable pension scheme, they may choose to use a Permitted Third Party (PTP). If the practice has a DPB Licence, it can effect introductions to the PTP and also comment on the advice given.

Where a member is offering a payroll solution linked to a single or limited number of pension schemes (or is otherwise restricting/influencing scheme choice, for example, via differential charging structures to reflect payroll compatibility), they should make their employer clients aware there may be other pension schemes available. They should also make their clients aware of the need to assess the various factors, clearly state the extent to which the practitioner has or has not assessed the client’s specific needs against these and ensure the employer accepts responsibility for scheme selection.

Liz Cole, ICAEW business law manager

Q: what skills will the chartered accountant of the future need?

A: Making Tax Digital, increased audit thresholds and the use of data analytics in audit mean the smaller practice of the future will focus more on advisory than compliance work. Chartered accountants will need strong client engagement skills, as well as analysis, interpretation and communication skills – and will need to develop them quickly.

ICAEW has refreshed the professional skills development part of ACA training, following consultation in the UK and internationally. It gives greater prominence to key professional skills for advisory work in an age of rapid technological change – adaptability, critical thinking, insight, perspective and lifelong learning.

Professionals will need to think critically about the reliability of data and identify any gaps. These are likely to be critical skills for advisory work.

The 2018 ACA syllabus incorporates topics including data analytics, making tax digital, cloud accounting, and cyber security. Students need to identify the commercial opportunities and risks these technologies create for clients, evaluate them, and communicate their conclusions and recommendations. Long recognised for the breadth and depth of technical knowledge and professional skills it develops, the ACA will retain its relevance as we shift to advisory roles.

Alison Stiles, head of business development, ICAEW

Five in brief:

1) Gender pay gap

Companies with 250 or more employees have until 4 April 2018 to publish six pay metrics including average hourly pay for male and female employees, average bonuses paid, the proportion of men and women receiving bonuses and the proportions of male and female employees in each of four pay quartiles.


New data protection regulations come into force on 25 May 2018. These replace the Data Protection Act and require organisations to ensure the data they hold is audited, well documented and that data collection procedures are compliant. There are swingeing penalties for non-compliance.

3) MTD pilots

Making Tax Digital for VAT live pilots are expected to start in April 2018. This will give HMRC a year to iron out any glitches in the system that will be mandatory for VAT registered businesses over the VAT threshold in April 2019.

4) Non-financial reporting directive
New narrative reporting requirements for “public interest entities” are effective for periods beginning on or after 1 January 2017. Listing rules also now require disclosure of board diversity policy (Disclosure and Transparency Rules TR 7.2).

5) Risk and viability reporting

This will be a key focus area for the Financial Reporting Council in 2017/18 reports. A recent Financial Reporting Lab report encourages best practice.