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Navigating the Brave New World of Cryptocurrency and ICOs

Defining the way forward for CPAs in a rapidly evolving space

Over the past decade, blockchain technology has captured the imagination of technologists around the world, and in the past year Initial Coin Offerings (ICOs) of cryptocurrency tokens have exploded in popularity. In just the first four months of 2018, ICOs raised $6.3 billion USD in funding, 18% more than in all of 2017.

ICOs present exciting opportunities for CPAs, given their broad range of roles as business and strategic leaders. But these opportunities also bring challenges and risks.

This paper provides practical insights to help CPAs navigate the rapidly growing cryptocurrency and ICO market, and support sustainable innovation in the space. ICOs promise a new source of broad-based funding that could help the burgeoning innovation economy in Ontario to thrive. CPAs can play a role in making that happen.

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Key themes

Broad issues CPAs may face

CPAs play a wide range of roles as business leaders. Across all of these roles, CPAs will face new and unforeseen challenges – from determining how to account for cryptocurrency assets, to developing new business models funded by ICOs, to adapting audit approaches to manage the technical complexity and market volatility of cryptocurrencies.

Regardless of the challenge, CPAs have the skills, training and professional judgement to navigate the domain’s uncertainty with the hallmark integrity of the profession.

What are ICOs?

Like other disruptive technologies, ICOs do not fit neatly into existing regulatory frameworks. Regulators and legislators around the world have been grappling with how to encourage innovation and capital formation through ICOs while adequately protecting investors.

One particular debate garnering attention is: are cryptocurrency tokens securities or something else? ICOs issuers often claim they are offering a digital currency or pure utility token. However, securities regulators are taking a “substance over form” approach when assessing ICOs.

Given the current uncertainty in the securities regulatory environment, CPAs should refrain from participating in a professional capacity in any offering that does not treat a token as a security. As existing securities regulations evolve or new securities regulations emerge, CPAs should advise their clients and businesses accordingly.

The role CPAs can play

CPAs are uniquely positioned to help the burgeoning innovation economy in Ontario thrive. As strategic thinkers with an understanding of both business and regulatory concerns, CPAs can help bridge the gap between securities regulators and ICO advocates and accelerate legitimate cryptocurrency innovation and capital formation in the province.

However, many issues CPAs will face as they engage in the cryptocurrency domain remain unresolved, and CPAs will need to rely on their skills, training and professional judgement to navigate the domain’s uncertainty successfully. Ontario has the conditions in place to be a global leader in blockchain and cryptocurrency innovation, and a sustainable ICO market can provide an important source of broad-based funding and lifeblood for this new industry.

Building the framework for innovation

Governing bodies in accounting and finance, businesses and regulators need to move quickly and cooperatively to help this emerging space thrive. Whereas once a slower pace of change allowed for deliberate responses, today we need to grapple with emerging issues more quickly.

CPA Ontario, CPA Canada and the Canadian Accounting Standards Board are all working in their respective areas to provide greater clarity and direction for the profession, and to encourage the development of clear standards that will provide the right level of transparency, accountability and efficiency needed in this market.

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As a collaborative and innovative technology solutions provider, John Lee, Managing Director, Enterprise Innovation and Product Development, TMX Group, joins industry leaders to explore how disruptive technologies can help to unlock growth potential, drive value and streamline efficiencies for clients and members with blockchain technology.