Crypto Currency and Challenges in Auditing †MyAssignmenthelp.com

Question: Discuss about the Crypto Currency and Challenges in Auditing. Answer: The purpose of this mail is to provide a brief overview about crypto currencies and the challenges faced by the auditors while auditing the crypto currencies. Crypto currencies are currently spamming the environment, as they are one good source to earn income for people. In addition, there are many crypto currencies present in the environment (Narayanan, et. al., 2016). Further the below mentioned report explains the meaning of crypto currencies and the challenges related to them. A crypto currency is a digital currency that is created electronically and can be stored electronically in blockchains as well. This currency uses the encryption techniques to control the creation of monetary units and to verify the transfer of funds. Thus, this currency is very secure and safe as well. This is a digital asset that is designed to work as a medium of exchange (just like normal currency); it uses cryptography to secure its transactions. These are the virtual currencies are used in the stock market to increase the return on investments. The process opposes to the centralized electronic money and central banking systems (Park, et. al., 2015). The decentralized system of crypto currencies works through blockchains (public transaction database). Like, bitcoin, it was the first crypto currency introduced in the market in the year 2009. After bitcoin, many virtual currencies were introduced in the market. These currencies are frequently called altcoins, coming from the blend of alternative coins. In central banking systems, the Federal Reserve System, government etc. hold, control and supply the flow of currency and printing as well. Nevertheless, in the case of decentralized system of crypto currency, the firms, governments do not hold the authority to produce new crypto currencies in environment. A group of individuals known as Satoshi Nakamoto bases crypto currency on a technical system that was created (Mehta, Chakraborty, Choudhury, and Sharma 2017). Now, after bitcoin thousands of crypto currencies have appeared that work just like bitcoin in the environment. Further, most of the crypto currencies were designed just to decrease the production of physical currency and place an ultimate cap on the total amount of currency that is being circulated. The crypto currencies wallets store the public and private keys or address that are used to receive and spend the crypto currency. With the help of private key, one can write on the public ledger and spend the associated crypto currency and with the use of public key, it is probable for others to send currency to the wallet. It should be noted that these crypto currencies are not formed, printed or supplied physically; also they are not redeemable in another commodity like gold. Bitcoin, PPcoin, Namecoin, Spacecoin and Litecoin are some examples of crypto currencies present in the environment (Shapiro 2018). A person cannot value something that is only present in the virtual world. As it is noticed above that crypto currency is decentralized virtual money so the foremost difficulty faced by the auditors is to accumulate them. This currency has also created misbalance in the financial world as people do not know how to segregate them. Crypto currency cannot be actually regarded as a currency, the auditors do not know how to interpret them, as derivatives or securities or commodity as it can be segmented into any type (Chohan 2018). Thus, due to this issue, the auditors find it difficult to present these crypto currencies into books of accounts. Further the below mentioned are the issues faced by an audtor while accounting crypto currencies in a company: Revenue recognition and taxation: It is the duty of the auditor to evaluate the revenue and tax which is to be paid by an organization. It is not known that bitcoin are an asset or liability for the organization due to which they faces difficulty in revenue recognition and taxation activities. The companies might be liable to penalties if the tax paid is not relevant (Sutton, and Samavi 2017). Transparency: it is another major challenge faced by the auditors, although the transactions are completely transparent but the people related to the transaction are not known to anyone. Thus, there might be a case of money laundering and the auditor cannot identify this. Anonymity increases the chances of companies to act money-laundering activities and it is the liability of the auditor analyzes it and finds the culprit but due to lack of information they cannot complete this duty (Conley 2017). Volatility: The value of bitcoin keeps on fluctuating since released, the values even fluctuates in minutes due to which it becomes difficult to record the asset on their actual value. Recognition of less value might act as loss while recognition of higher value might show that the records are being tampered. The value of this digital currency is volatile due to which it might come as an obligation of the auditor to show the clear results of the financial statement. However, change in this value can make the auditors liable for the misrepresentation of the financial reports (Rooney, Aiken, and Rooney 2017). Thus, in the limelight of above mentioned events, it should be noted that crypto currencies are a great source for people to invest it as it repeatedly bring surplus returns on the investments within a short span of time. However, these currencies are digital and highly volatile which brings a challenge for the auditors to record them. It is the duty of the auditor to provide fine financial statement to the client but they face difficulty in recording this asset o liability due to which the financial statement also becomes corrupted. Hope you received a clear understanding about the concepts. References Chohan, U., 2018. Tethering Cryptocurrencies to Fiat Currencies Without Transparency: A Case Study. Conley, J.P., 2017.Blockchain Cryptocurrency Backed with Full Faith and Credit(No. 17-00007). Vanderbilt University Department of Economics. Mehta, I. S., Chakraborty, A., Choudhury, T., and Sharma, M., 2017, December. Efficient approach towards bitcoin security algorithm. InInfocom Technologies and Unmanned Systems (Trends and Future Directions)(ICTUS), 2017 International Conference on(pp. 807-810). IEEE. Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016.Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press. Park, S., Pietrzak, K., Alwen, J., Fuchsbauer, G., Gazi, P. (2015).Spacecoin: A cryptocurrency based on proofs of space(Vol. 528). IACR Cryptology ePrint Archive 2015. Rooney, H., Aiken, B. and Rooney, M., 2017. Q. Is Internal Audit Ready for Blockchain?.Technology Innovation Management Review,7(10), pp.41-44. Shapiro, D.C., 2018. Bitcoin Loans and Other Cryptocurrency Tax Problems.Journal of Taxation of Investments,35(2). Sutton, A. and Samavi, R., 2017, October. Blockchain Enabled Privacy Audit Logs. InInternational Semantic Web Conference(pp. 645-660). Springer, Cham.