How to Choose a Crypto Accountant

Blockchain technology exists to provide greater transparency and trust amongst participants. To exist in this space means to be wary of rugs, scams and fraud, and the amount of research and diligence required when considering investment in a new project.?

Let us turn the tables momentarily then; accountants and tax advisors exist to assist individuals and businesses not only with advisory capabilities within their respective industries, but to also ensure compliance with statutory obligations like, say, filing a self-assessment tax return with HMRC, or a set of company accounts.

A recent study showed that only 9% of accountants are looking to upskill in cryptocurrency and digital assets. That’s OK, because there are a lot of expert providers out there offering their services and claiming to be leaders within this space. Aren’t there??

Perhaps you don’t need an expert because your matters are quite simple, and your local accountant has informed you they have the relevant expertise, it’s all just capital gains at the end of the day. Isn’t it?

In a sector where DYOR is the key to survival, this article turns the spotlight back to the professional service firms that support the sector, providing you with some handy tips to help you make the best choice when in conversation with a potential new advisor.

Language

Talk about your investments. Talk about your projects. Use as much technical language as you can muster. Ask them about elliptic-curve cryptography or mimblewimble. Ask them about the regulatory landscape in the UK.

Test them. Try to make them feel uncomfortable. They’re an accountant after all, they probably deserve it.

Do they understand you? Do they understand the technical details? If they do not, do they ask sensible questions? Do they show an eagerness to learn??

This is your first indicator as to whether who you are talking to really understands the sector, has a passion for the sector, and can keep up with you.??

I once had a call with a client and another service provider in a different jurisdiction who kept referring to “the blockchain”. Singular.

Cringe.

Software

When it comes to crypto, accountants will use software to get the answers they need. Typically crypto transactions in one year can range from hundreds to hundreds of thousands, and the only real way to manage that from both a bookkeeping and base cost perspective is to use software. My thanks go out to all software providers in this space. But let's get sceptical.

1. If they’re not talking to you about the right software for your business or portfolio, red flag.?
2. Are they displaying a wider understanding of the software in this space? Software ranges heavily from tax calculators geared at individual portfolios to accounting packages for larger corporations. But what is right for you? If they are telling you they exclusively use nocryptotax.io without scoping further, then perhaps they are receiving an introductory fee for putting you on their platform. Is that in your best interest? How do you know whether that platform is right for you? Why should you trust them? What are your other options?
3. Software is great. Where would we be without it? But like most software, crypto software is as good as the information that is put into it. It also relies heavily on APIs from exchanges, which don’t often function as well as we might like them to. If your accountant has asked you to link your data to the software, and then prepares a tax return based on that information as is, it is likely your tax return is incorrect. Are the base costs accurate? How is the software treating NFT purchases? Is it even keeping track of your DeFi activity? If you forgot to add a L2 wallet that shares your ETH address, would your accountant notice?

Software is great for the heavy lifting, but it requires a great deal of further analysis to ensure the data is complete and accurate. True story: we once saved a client ￡800k in tax just by fully analysing their onchain data. Their previous accountant had filed the return based on the data in the software, and yes, this accountant claimed to be a crypto specialist. No, this is not uncommon.

Cost

We are currently in a bear market, and that understandably puts pressure on decisions regarding cost. However, there are a few things to consider when it comes to quotes that you may have received.?

1. Number of transactions - typically the number of transactions you have undertaken in the year will have a direct impact on the quote you receive. Why? As we discussed under software, to get your accounting information or tax position correct the data needs to be complete and accurate. More transactions means more time checking the data, which warrants a time cost.? If you have undertaken 25,000 transactions in the tax year and your accountant is happy to prepare your tax return for ￡500, something is off. Specifically, the accuracy of your data.
2. Complexity - If the software can’t understand what your transactions are doing, then more manual input is required to make sense of the data resolved by collaboration with you, the client. Often the data tells a story, but you were there. You lived it. To get the right position this may involve having to manually input a number of transactions to get the picture right which, if the accountant is undertaking, takes time.
3. Cheap advice - Perhaps you’ve requested some tax advice and you’ve received a quote that is more than you were expecting, or willing, to pay. Another firm has offered it to you at a fraction of the price. “Well they’re both professionals so the outcome must be the same” I hear your inner Scrooge say. Not necessarily, Ebenezer. If an offer is too good to be true, it usually is. When it comes to tax advice, bad advice is more costly than paying for good advice.?

Accounting

I will try to keep this one brief. Crypto is not cash. It should not be disclosed as cash. Yes, it makes sense to run crypto as a bank account in Xero or (insert choice of software) so you can keep track of transactions and payments, but it is not cash.?

The number of accounts I have seen filed where crypto is included within cash is mind boggling, and displays a lack of understanding of financial reporting standards, and indeed crypto.?

How crypto is displayed in the accounts depends on what it is and what you are using it for. If your accountant is not explaining to you how they’ve disclosed crypto, and the rationale behind doing so based on their understanding of what you are undertaking, request a disengagement letter.?

Does your business require an audit? If so, does the same firm undertake all the other services your business requires such as preparing the statutory accounts, running payroll, assisting with token incentives. Does any of this work affect management decisions??

There is a reason the Big Four have been looking at segregating non-audit related services to manage conflicts of interest.?

How independent are the auditors? Of course it is possible to have walls within the firm to segregate duties, but with the scrutiny crypto comes under, what does that risk profile look like for your business??

Who can you trust??

Crypto is a niche area, and niche usually equates to opportunity. It doesn’t take much to market oneself as the leading accountant or tax advisor in the space and wait for clients to fall at your doorstep. It’s not hard to update a website with a few buzzwords to optimise your SEO and climb those google rankings.?

So where do you start? Perhaps you’ve googled ‘crypto accountant’ and you’ve got a few hits. Where next?

My suggestion? Shop around. Don’t click on the first link and walk blindly into the abyss. There are a lot of accountancy firms out there that have embraced crypto, but in reality it is some of the younger members of a firm that have a passion for crypto, and those firms are happy to market the services because it makes them look ‘modern’; the people in charge pulling the strings are entirely disengaged from the service. What happens if that person leaves? How much experience do they really have? When you look at the firm’s website and you look at blogs and articles they post, are they crypto related? Have they won any awards for their work in crypto? Do they have any specific crypto qualifications? How can you tell whether they are keeping up with the ever changing face of regulation and taxation? Do they have a team or just an individual that does crypto? Do they solely work in web3 or do they do it on the side? Do they have any testimonials from clients and if so, are those clients well known within the industry?

What is my motivation behind this article? Passion and frustration. There are accountants out there doing amazing things to support web3 clients. There are some who talk the talk, but fail in substance.?

In my experience from onboarding clients from other accountants there is not a single case where we do not have to correct something in the previous accounts, or amend a previous tax return, and these accountants have been paid to provide a professional service by clients who have hired them to get it right. Clients that might be overpaying tax due to incorrect accounts, or poorly reviewed data.?

When those HMRC enquiries land, which they will, it will separate those who get it from those who don’t, but at the cost to those working to make Web3 a better place for all.?

DYOR.