Welcome to the seventh Market Scan from the IAASB's Disruptive Technology team. Building on our ongoing work, we will issue a Market Scan every 2-3 months. Market Scans cover exciting trends, including new developments, corporate and start-up innovation, noteworthy investments and what it all might mean for the IAASB.

In this Market Scan, we explore Digital Assets, with a focus on recent developments within the Cryptocurrency market and what it might mean for the audit and assurance ecosystem. Future Market Scans will build on this area by focusing on related technologies, such as blockchain and smart contracts.

Technology Landscape, September 2022

We cover:

• What are digital assets and why are they important?
• The latest developments
• What this might mean for the IAASB

What Are Digital Assets and Why Are They Important?

A digital asset is anything that exists in digital form only, has or provides value, is identifiable and discoverable, and is associated with ownership or use rights. Types of digital asset include cryptocurrencies and non-fungible tokens (NFTs) as well as digital content like photos, audio files, videos, websites, presentations, spreadsheets, or text files.  

Cryptocurrencies (or crypto-assets) such as Bitcoin, Ethereum and Solana use blockchain technology, a distributed ledger that is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Using this decentralized approach eliminates the need for traditional intermediaries, such as banks, to enable funds to be transferred between two parties. Cryptocurrencies can be bought and sold using accounts with cryptocurrency exchange platforms (e.g., Coinbase, Crypto.com) or through a standalone digital wallet.

Stablecoins are a type of cryptocurrency whose value is pegged to that of another currency, commodity or financial instrument. Stablecoins seek to offer price stability by maintaining reserve assets as collateral or through algorithmic formulas designed to control supply. Examples of stablecoins include Tether, USD Coin and TerraUSD.

Cryptocurrency coins are native to their own blockchain (e.g., Ether on the Ethereum blockchain) and are mainly used for payments, investments and trading.

Cryptocurrency tokens have many uses, such as for buying products (transactional tokens), representing ownership (security tokens), conferring voting rights (governance tokens), accessing services (utility tokens) or supporting decentralized applications on the blockchain (platform tokens).

Coins vs Tokens: What’s the Difference? Three-minute watch, Coin Gecko

The advantages of cryptocurrencies include less expensive and faster money transfers and decentralized systems that are not reliant on a central intermediary. Disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities (where proof of work is the consensus mechanism used to confirm values on the blockchain) and how easy it is to use crypto for criminal activities.

From an audit and assurance perspective, there is an ever-increasing likelihood that audited entities may be engaged in digital asset related activities, such as holding, transacting or using digital assets; facilitating trading of digital assets on customers’ behalf; or creating digital assets for sale or distribution to third parties. These activities may have unique risks of material misstatement that need to be understood and appropriately addressed as part of a financial statement audit. For example, where digital assets are held by third parties (such as trading platforms or other custodians), obtaining an understanding of the material custodial arrangements and relevant controls related to safeguarding and maintaining records of those assets may be appropriate. 

In its Inspections Insights publication in November 2019, the Canadian Public Accountability Board noted certain recurring findings in its inspections of audit files of reporting issuers with activities in the crypto-asset sector. Areas for improvement included:

• Obtaining an adequate understanding of audit risks when designing the audit approach;
• Evaluating the reliability of information to be used as audit evidence obtained from crypto-exchanges and custodians, as well as from blockchains;
• Obtaining sufficient evidence to support an entity’s ownership claims to self-custodied crypto-assets; and
• Performing procedures in addition to vouching crypto-assets received to the blockchain, for entities engaged in crypto-asset mining activities.

A follow-up publication in August 2022, Auditing in the Crypto-Asset Sector, highlighted considerations for auditors when auditing the financial statements of reporting issuers that use custodians to safeguard their crypto-assets.

Recent Noteworthy Developments in Digital Assets

These recent developments may signal ongoing or future disruption in this area. It is not a complete list of all activities related to digital assets.

1.  The Crypto Winter

FTX Empire Goes Bankrupt in Sudden Fall of Bankman-Fried | Bloomberg Law – The collapse of cryptocurrency exchange FTX in November 2022 was the most significant in a series of company failures that hit the cryptocurrency industry in 2022.

How Terra's UST and LUNA Imploded |Decrypt – In May 2022, Terra’s UST stablecoin and governance token LUNA collapsed, sending shockwaves through the cryptocurrency market and leading to the fall in price of Bitcoin and other cryptocurrencies as investors started to pull their investments. This in turn led to crypto hedge fund Three Arrows Capital falling into liquidation and affected cryptocurrency lenders, including Voyager Digital, Celsius Network and BlockFi, which all subsequently filed for bankruptcy protection.

US regulators warn banks over cryptocurrency risks | BBC News – In January 2023, US regulators issued a joint warning to banks over the risks associated with the cryptocurrency market.

The Global Digital Assets and Cryptocurrency Association, a global self-regulatory association for the digital asset and cryptocurrency industry published an open letter calling for agreement on a set of fundamental core principles for the industry, including appropriate customer protection, governance and risk management procedures.

2.     Crypto audits under scrutiny

Crypto Exchanges’ A La Carte Approach To Audits A Recipe For Disaster | MSN – A Forbes survey of the world’s largest cryptocurrency exchanges highlighted that not all are subject to full financial statement audits. The article noted that, “depending on where they are based, cryptocurrency exchanges do not have to submit to audits. If they do, their financial statements can remain private or be shared only with regulators. This is in stark contrast to issuers of publicly traded securities in major developed markets whose accounts must be regularly audited and made public.”

SEC Increases Scrutiny of Audits of Cryptocurrency Companies | WSJ – In the wake of the FTX collapse, a number of cryptocurrency exchanges sought to reassure investors by providing transparency reports or proof of reserves information, some of which had been subject to agreed-upon procedures (AUP) reporting by an independent auditor. However, the US Securities and Exchange Commission (SEC) raised concerns about investors placing too much confidence on the reporting, which Paul Munter, the SEC’s chief accountant, said, “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.” Several audit firms have stopped providing proof-of-reserves work in light of concerns over investor overreliance and reputational risk.  

What This Might Mean for the IAASB

The IAASB is interested in maintaining its collective knowledgebase on digital technologies (including on specific sub-topics such as digital assets), promoting digital readiness and enablement through its engagement with stakeholders, and encouraging action by others to supplement and support the IAASB’s standard-setting activities.

Subject to the IAASB’s work plan decisions, possible digital technologies use cases for audited entities and audit or AUP engagements might provide input for further modernizing the IAASB’s standards so they are adaptable to and reflect the current business and audit environment, while remaining principles-based.

Despite the turbulence in the digital asset and cryptocurrency industry over the last year, there continues to be more than 300 million individual cryptocurrency users and approximately 18,000 businesses accepting crypto payments. The corporate failures experienced in this industry bring into focus audit’s important role in enhancing confidence in financial statements, thereby contributing to capital markets’ effective functioning and stability. In addition, it highlights the need for a consistent approach to financial reporting by, and regulation of, entities in the industry. Building suitable skills and expertise in this increasingly complex area is also necessary to enable audit and assurance professionals to act appropriately.

As this space evolves, the IAASB may need to consider how best to highlight the application of its principles-based standards in providing audit, assurance or related services to businesses operating in the digital asset ecosystem, including facilitating and supporting actions by others (e.g., in developing non-authoritative guidance).

Useful Articles and Resources

• What Are Digital Assets? | the balance, four-minute read
• The Relationship Between Blockchain and Cryptocurrency | GetSmarter Blog, five-minute read
• The Different Types of Cryptocurrency Tokens Explained | MakerDAO, five-minute read
• Cryptocurrency Explained with Pros and Cons for Investment | Investopedia, eight-minute read
• Distributed Ledger Technology - Overview, Importance | CFI, three-minute read
• Digital Assets 101: Intro to DeFi | Fireblocks Academy - YouTube, four-minute watch
• Is Cryptocurrency Regulated? | CUBE global, five-minute read

Interesting story

Sales from the crypto: Muse NFT album to become first new chart-eligible format in seven years | The Guardian, three-minute read

British rock band Muse released their ninth studio album, Will of the People, in NFT form in August 2022 and it became the first NFT album to reach number 1 in the music charts.

 

 

Progressing sustainable development goals, including those related to climate change, requires urgent public sector action. Yet, as of now, no internationally recognized public sector reporting framework exists to help governments to measure and report on their critical contributions to addressing the global climate emergency and other sustainability challenges. With its public sector standard setting expertise and support of the international community, the International Public Sector Accounting Standards Board (IPSASB) is exploring how it might change that.  

IPSASB, IFAC and Accountancy Europe will host an interactive discussion around key ideas the IPSASB is exploring related to the development of sustainability standards and the resources necessary to deliver the urgently needed public sector reporting guidance. 

Equipping the Public Sector for Sustainability Action: Advancing transparency, comparability, and accountability with sustainability reporting will be held in Brussels, Belgium on April 4, 2023, from 4:00pm-6:00pm followed by a networking reception until 7:00pm.  

“The urgency of advancing public sector sustainability reporting cannot be overstated,” said Ian Carruthers, IPSASB Chair. “While the IPSASB is pleased to be playing a leading role in developing the thinking on this initiative, the involvement of the global community will also be crucial to equipping the public sector with the tools it needs to address climate change and other sustainability challenges.”  

“Public sector specific sustainability reporting standards will undoubtedly strengthen the global response to the climate crisis,” said Kevin Dancey, IFAC CEO. “IFAC applauds the IPSASB's lead on addressing this gap and encourages all of our stakeholders to get involved however they can.”  

“The public sector is essential to the economy in European countries: the necessary transition will not happen without it”, said Olivier Boutellis-Taft, Accountancy Europe’s CEO. “Proper sustainability reporting is a minimum and long-awaited first step. We applaud the IPSASB’s leadership and look forward to this discussion.” 

The event will feature:  

• Ian Carruthers, Chair, IPSASB  
• Olivier Boutellis-Taft, CEO, Accountancy Europe  
• Andrew Blazey, Deputy Head of Division and Lead, Green Budgeting, OECD 
• Maria-Rosa Aldea Busquets, Deputy Director General, DG Budget, European Commission 
• Laura Leka, Principal, IFAC
• Alex Metcalfe, Global Head of Public Sector, ACCA 
• Vivi Niemenmaa, Secretary General - INTOSAI WGEA / National Audit Office of Finland 
• Lebogang Senne, Technical Director, Pan African Federation of Accountants (PAFA)  
• Ross Smith, Program and Technical Director, IPSASB  
• Eelco van der Enden, CEO, GRI  
• Additional participants TBA 

The in-person interactive discussion will be followed by a networking reception. The event is free to attend and will be held in English. View the agenda and register now.  

About IPSASB 
The International Public Sector Accounting Standards Board (IPSASB) works to strengthen public financial management globally through developing and maintaining accrual-based International Public Sector Accounting Standards® (IPSAS®) and other high-quality financial reporting guidance for use by governments and other public sector entities. It also raises awareness of IPSAS and the benefits of accrual adoption. The Board receives support from the Asian Development Bank, the Chartered Professional Accountants of Canada, the New Zealand External Reporting Board, and the governments of Canada and New Zealand. The structures and processes that support the operations of the IPSASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org. 

About IFAC 
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 180 members and associates in 135 countries and jurisdictions, representing more than 3 million accountants in public practice, education, government service, industry, and commerce. 

About Accountancy Europe 
Accountancy Europe unites 50 professional organisations from 35 countries that represent 1 million professional accountants, auditors, and advisors. They make numbers work for people. Accountancy Europe translates their daily experience to inform the public policy debate in Europe and beyond. Accountancy Europe is in the EU Transparency Register (No 4713568401-18). 

Progressing sustainable development goals, including those related to climate change, requires urgent public sector action. Yet, as of now, no internationally recognized public sector reporting framework exists to help governments to measure and report on their critical contributions to addressing the global climate emergency and other sustainability challenges. With its public sector standard setting expertise and support of the international community, the International Public Sector Accounting Standards Board (IPSASB) is exploring how it might change that.  

IPSASB, IFAC and Accountancy Europe will host an interactive discussion around key ideas the IPSASB is exploring related to the development of sustainability standards and the resources necessary to deliver the urgently needed public sector reporting guidance. 

Equipping the Public Sector for Sustainability Action: Advancing transparency, comparability, and accountability with sustainability reporting will be held in Brussels, Belgium on April 4, 2023, from 4:00pm-6:00pm followed by a networking reception until 7:00pm.  

“The urgency of advancing public sector sustainability reporting cannot be overstated,” said Ian Carruthers, IPSASB Chair. “While the IPSASB is pleased to be playing a leading role in developing the thinking on this initiative, the involvement of the global community will also be crucial to equipping the public sector with the tools it needs to address climate change and other sustainability challenges.”  

“Public sector specific sustainability reporting standards will undoubtedly strengthen the global response to the climate crisis,” said Kevin Dancey, IFAC CEO. “IFAC applauds the IPSASB's lead on addressing this gap and encourages all of our stakeholders to get involved however they can.”  

“The public sector is essential to the economy in European countries: the necessary transition will not happen without it”, said Olivier Boutellis-Taft, Accountancy Europe’s CEO. “Proper sustainability reporting is a minimum and long-awaited first step. We applaud the IPSASB’s leadership and look forward to this discussion.” 

The event will feature:  

• Ian Carruthers, Chair, IPSASB  
• Olivier Boutellis-Taft, CEO, Accountancy Europe  
• Andrew Blazey, Deputy Head of Division and Lead, Green Budgeting, OECD 
• Maria-Rosa Aldea Busquets, Deputy Director General, DG Budget, European Commission 
• Laura Leka, Principal, IFAC
• Alex Metcalfe, Global Head of Public Sector, ACCA 
• Vivi Niemenmaa, Secretary General - INTOSAI WGEA / National Audit Office of Finland 
• Lebogang Senne, Technical Director, Pan African Federation of Accountants (PAFA)  
• Ross Smith, Program and Technical Director, IPSASB  
• Eelco van der Enden, CEO, GRI  
• Additional participants TBA 

The in-person interactive discussion will be followed by a networking reception. The event is free to attend and will be held in English. View the agenda and register now.  

About IPSASB 
The International Public Sector Accounting Standards Board (IPSASB) works to strengthen public financial management globally through developing and maintaining accrual-based International Public Sector Accounting Standards® (IPSAS®) and other high-quality financial reporting guidance for use by governments and other public sector entities. It also raises awareness of IPSAS and the benefits of accrual adoption. The Board receives support from the Asian Development Bank, the Chartered Professional Accountants of Canada, the New Zealand External Reporting Board, and the governments of Canada and New Zealand. The structures and processes that support the operations of the IPSASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org. 

About IFAC 
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 180 members and associates in 135 countries and jurisdictions, representing more than 3 million accountants in public practice, education, government service, industry, and commerce. 

About Accountancy Europe 
Accountancy Europe unites 50 professional organisations from 35 countries that represent 1 million professional accountants, auditors, and advisors. They make numbers work for people. Accountancy Europe translates their daily experience to inform the public policy debate in Europe and beyond. Accountancy Europe is in the EU Transparency Register (No 4713568401-18). 

The International Ethics Standards Board for Accountants and the International Auditing and Assurance Standards Board applaud the recent announcement by the International Sustainability Standards Board (ISSB) that final decisions for all technical content related to ISSB's inaugural sustainability standards have been made and that the ISSB is entering the final stages of the standards development process ahead of an expected issuance at the end of Q2 2023.

We echo the recent statement of support from the International Organization of Securities Commissions (IOSCO) and appreciate IOSCO's encouragement for our boards’ work to develop standards by the end of 2024. The IOSCO statement is a timely reminder that providing the necessary assurance and ethics standards is essential to complete the sustainability reporting and assurance standards infrastructure. We will continue to work closely with all parties as we develop our sustainability standards, which we will discuss at our respective March meetings.

The Technology Consultation Group of the International Auditing and Assurance Standards Board (IAASB) today released non-authoritative support material to help address certain frequently asked questions about investigating exceptions and the concept of performance materiality when performing audit procedures using automated tools & techniques (ATT). While not unique to ATT, questions on these topics have become more prevalent with the increasing use of ATT, which enable analyzing data sets with large volumes of information.

The publication does not amend or override the International Standards on Auditing (ISAs), the texts of which alone are authoritative. Reading the publication is not a substitute for reading the ISAs. 

Other technology-related publications are available on the IAASB’s Technology web page.

Frequently Asked Questions on Investigating Exceptions and Relevance of Performance Materiality When Using Automated Tools and Techniques

This Frequently Asked Questions (FAQ) helps address investigating exceptions and the concept of performance materiality when performing audit procedures using automated tools & techniques (ATT). While not unique to ATT, questions on these topics have become more prevalent with the increasing use of ATT, which enable analyzing data sets with large volumes of information.

The publication does not amend or override the International Standards on Auditing (ISAs), the texts of which alone are authoritative. Reading the publication is not a substitute for reading the ISAs. 

The International Ethics Standards Board for Accountants (IESBA) recently held three global webinars on the upcoming Tax Planning and Related Services exposure draft (ED). The ED was released on February 17, and comments are requested by May 18.

During the webinars, members of the Tax Planning and Related Services Task Force explained the key proposals in the ED, among other matters, including:

• Compliance with the fundamental principles, highlighting the types of threats that might be created when providing tax planning activities.
• Understanding the applicable tax laws and regulations, the legislative intent behind the relevant laws and regulations, and the economic purpose and substance of the transaction.
• Exercising professional judgment to establish a credible basis for the tax planning arrangement in circumstances of uncertainty. This includes a consideration of the reputational, commercial, and wider economic consequences arising from the way stakeholders might view the arrangement.
• Communicating relevant matters or concerns with the individual client, management, or those charged with governance, including as part of an escalation process where necessary.
• Developing an appropriate level of documentation throughout the process to substantiate the judgments, decisions, and actions.

Watch the recordings now and learn more about these important proposals. 

 

Monday, February 27 | 10 am – 11 am EST | Click here, led by Jens Poll

Tuesday, February 28 | 4 pm – 5 pm EST | Click here, led by Andrew Mintzer

Tuesday, February 28 | 9 pm – 10 pm EST | Click here, led by Channa Wijesinghe

At the start of 2023, IFAC’s Professional Accountants in Business (PAIB) Advisory Group welcomed four new volunteer members nominated by the professional accountancy organizations that make up IFAC’s membership.  

Professional accountants in business comprise a significant part of the profession working in commerce, industry, financial services, education, and the public and not-for-profit sectors. Formed in 1977, the PAIB Advisory Group’s focus is to ensure these accountants meet the future needs of business and the public sector. 

The newest PAIB Advisory Group members are: 

• Esther Bosch, Head of Internal Audit & Risk, Stahl Holdings (Netherlands) 
• Lindawati Gani, Professor in Management Accounting, Faculty of Economics and Business, Universitas Indonesia (Indonesia) 
• Maria del Dado Alonso Sanchez, Group CFO, Berlin Brands Group (Spain) 
• Muhammad Samiullah Siddiqui, CFO, Oxford University Press Pakistan (Pakistan) 

"Each member brings a unique, valuable perspective of the different roles professional accountants perform in business and finance leadership to the profession and its key stakeholders,” said Sanjay Rughani, Chair, IFAC PAIB Advisory Group. “We are honored to have these new members join us to share their diverse experiences and provide strategic input on opportunities for professional accountants to create value in their roles across the globe.”  

The continuing PAIB Advisory Group members are:  

• Sanjay Rughani, Chair, CEO, Standard Chartered Bank Uganda (Uganda)
• Nancy Sau Ling Tse, JP, Deputy Chair, Independent Non-Executive Director [Hong Kong (Special Administrative Region of China)]
• Zia-Ul-Mustafa Awan, CFO and Business Administrator, Pakistan Expo Centres Private Limited (Pakistan)
• Gregory Bedard, Chief of Staff, Prudential Financial (United States)
• Anastasija Boljević, Secretary General, Institute of Certified Accountants of Montenegro (Republic of Montenegro)
• Ibrahim (Murat) Çağlar, Chief Financial Officer, Sanovel (Turkey)
• Sharon Ditchburn, Managing Director/Founder, Capital Advantage Consultants (Australia)
• Eric Freudenreich, Independent Non-Executive Director (France)
• Tim Herrod, FCPA, FCA, Vice President, Global Procurement, Albemarle Corporation (Canada)
• Nihar Jambusaria, Past President, The Institute of Chartered Accountants of India (India)
• Catherine Little, Non-Executive Director, Head of the Government Finance Function, and Second Permanent Secretary, HM Treasury (United Kingdom)
• Margaret Muinde, Financial Controller, Kenya Roads Board (Kenya)
• Stephen L. Muscat, Chief Financial Officer & Company Secretary, Liquigas Malta Limited (Malta)
• Esteban Quiros, Director of Global Business Services, Procter and Gamble (Costa Rica)
• Milton Segal, Executive Director: Standards, South African Institute of Chartered Accountants (South Africa)
• Ichiro Waki, Group CEO, JBA Group (Japan)
• Gloria Zvaravanhu, Managing Director, Old Mutual Insurance Company (Zimbabwe)

Member expertise is drawn upon to deliver timely reports, articles, and case studies relevant to professional accountants in business across the globe. Explore their latest insights. 

About IFAC 
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 180 members and associates in 135 countries and jurisdictions, representing more than 3 million accountants in public practice, education, government service, industry, and commerce. 

About the Professional Accountants in Business (PAIB) Advisory Group 
Professional accountants in business comprise a significant part of the profession working in commerce, industry, financial services, education, and the public and not-for-profit sectors. The Professional Accountants in Business (PAIB) Advisory Group focuses on ensuring these accountants meet the future needs of business and the public sector.