By Joseph "Joey" Ryan, CPA - CFO at Gilded
This week we are hitting on the concept of triple-entry accounting and its effect on accounting systems and auditors; as well as discussions surrounding accounting treatment for DAO CDPs. Let's jump right in.
This article put out by Deloitte in 2016 touches on the idea of triple-entry accounting. I know what you guys are saying..."Joey, why are you linking me to a blockchain piece put out in 2016!? That's like 100 years old in crypto-years!" Relax my friends, I wouldn't point this out if I didn't think it was important.
For those unfamiliar with the triple-entry accounting concept, the piece describes it best:
Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a joint register, creating an interlocking system of enduring accounting records. Since all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible. It is similar to the transaction being verified by a notary – only in an electronic way.
Request is currently working on tools within this space to bring blockchain-accounting to a whole new level. Creating this triple-entry system "would allow auditors to verify a large portion of the most important data behind the financial statements automatically. The cost and time necessary to conduct an audit would decline considerably. Auditors could spend freed up time on areas they can add more value, e.g. on very complex transactions or on internal control mechanisms."
Auditors, your job isn't going away. It's evolving to where you will be able to analyze information more accurately and timely, as well as have a more data-driven role; versus monotonously testing invoices all day.
Accounting for DAOs
DAOs (Decentralized Autonomous Organizations) are gaining steam within the Decentralized Finance (DeFi) sector.
If you are saying to yourself "what the eff is DAO and DeFi!?" I will cover these more ostensively in later newsletters.
This is the first accounting discussion surrounding DAO CDPs that I have come across. The details surrounding the accounting treatment are thoroughly elaborated, while also noting "at the danger of sounding like a broken record, there are currently no specific guidelines for how contributions to and receipts from a DAO should be treated from an accounting perspective. All we can do is take the rules we know and attempt to apply them as best we can."