Audit Readiness Checklist for Web3 Startups
Checklist for web3 finance leaders who is preparing for financial statement audits
Many Web3 startups underestimate how complex a financial statement audit can become.
Missing documentation, unclear accounting policies, and weak internal controls can quickly increase audit costs and delay issuance of the financial statements.
Common audit pitfalls include:
• Incomplete revenue recognition documentation
• Lack of digital asset roll-forward reconciliation
• Insufficient segregation of duties in payment processes
• Unclear accounting treatment for token issuer lifecycle
• Missing adequate support for the fair value measurements
Addressing these issues early can reduce delays, lower audit friction, and improve readiness.
We put together a checklist covering the key areas finance teams should review before the audit begins.
Download the checklist here:
Audit Readiness Checklist for Web3 Startups
18.9MB ∙ PDF file
This checklist helps Web3 finance leaders prepare for financial statement audits by outlining critical considerations and common pitfalls. If you are preparing for an upcoming audit, this guide will help you identify potential issues early and reduce delays during the audit process. Many Web3 startups discover during their first audit that missing documentation, unclear accounting policies, or weak internal controls can significantly increase audit costs and delay financial statement issuance.
If your company is looking for assistance with the preparation for future audit, of help managing your ongoing audit, reach out.
CONTACT
Email: info@techaccountingpro.com
Link: https://cal.com/andrew-belonogov/30min
Site: https://techaccountingpro.com
LONG-TERM COMPENSATION PLANS
In this post, we revisit and compare two common approaches for recognizing the cost of long-term compensation plans, including both token-based and cash-based awards, under US GAAP.
Under ASC 710-10-25-9, compensation cost for benefit plans with awards tied to service periods longer than 12 months should be accrued over the service period in a systematic and rational manner. The selected attribution method should be applied consistently and should ensure that:
Compensation expense is recognized over the requisite service period, which is the period during which an employee must continue providing services to earn the compensation.
Cumulative compensation cost recognized in each period is at least equal to the cumulative vested portion of the award, meaning the nonforfeitable amount earned to date.
In practice, entities typically apply one of the following accounting policies:
Award-level straight-line attribution
Tranche-level accelerated attribution
Each method results in a different cumulative expense recognition pattern. The illustration below compares both methods using a multi-year vesting structure.
Employees receive cash awards under a compensation plan with the following vesting schedule: 75% in year 2, 20% in year 3, and 5% in year 4, as shown below.
How should the reporting entity recognize the related compensation expense? It depends on the selected accounting policy.
Under this policy, the full value of the award is recognized on a straight-line basis over the four-year requisite service period. As a result, 25% of the total award is recognized as compensation expense in each year of the four-year vesting period.
The chart below summarizes the financial effects of straight-line attribution by year:
Under this policy, entities recognize compensation cost separately for each tranche of the award based on its individual vesting date. In the first year, compensation cost is calculated by tranche as follows:
50% of the tranche that vests in 2024, which vests 2 years after the award date
33% of the tranche that vests in 2025, which vests 3 years after the award date
25% of the tranche that vests in 2026, which vests 4 years after the award date
The chart below summarizes the financial effects of accelerated attribution for each year when the expense is recorded:
The chart below compares the results of each policy election in the case study above.
You can find the Google Sheet with the calculations here.
For additional discussion of token compensation plans, see the related post below:
Customer Crypto Receipts with Near-Immediate Cash Conversion
This post provides insights on the cash flow statement presentation of proceeds from near-immediate conversion of customer crypto proceeds into cash
The cash flow presentation for customer crypto receipts remains a recurring audit question in digital asset businesses. ASC 230-10-45-27A requires operating cash flow presentation when cryptoassets received in the ordinary course of business are near-immediately converted to cash. The example below summarizes common classification approaches and the mechanics of the observed indirect methods:
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