Any organization holding or transacting in Bitcoin or other cryptocurrencies must make efforts to secure those digital assets by performing a full assessment of the risks associated with them. In this session, we covered valuable information on operating in the brave new world of Bitcoin and other digital assets. Key takeaways included: Cryptocurrency basics An overview of internal controls and environments Wallets and separation of duties

1. Operational and Internal
Control Considerations for
Companies Transacting in
Digital Assets
April 14, 2021 | MasterSnacks Webinar Series

2. DAVID J. ROSENBAUM, MBA, CISA
Principal
Citrin Cooperman
drosenbaum@citrincooperman.com
914-693-7000
Welcome &
Introduction

3. • Why is your client transacting in cryptocurrencies?
• How are they managing cryptocurrency risk?
• How are they accounting for cryptocurrency activity?
• How are they protecting their tokens and coins?
• Key legal considerations?
• Custody of cryptocurrency for 3rd parties?
• Additional considerations for miners?
Top Considerations For Businesses
Transacting In Cryptocurrencies

4. • Cryptocurrency Definition
• Bitcoin
• Alt-Coins
• Various Terminology
Digital Assets
Introduction

5. Key Terminology
• Blockchain
• Public Addresses
• Private Keys
• Wallet Seed

6. • Objectives / Risk Tolerance
• Investment
• Hold
• Active Trading
• Business
• Revenue
• Expenses
Why Is The Company
Transacting In Cryptocurrencies?

7. • Choosing to Convert to Fiat
• Hedging
• Automated Stop-loss
• Trading
• Monitoring trading
• Algorithmic trading
• Monitoring controls
Conversions Between
Fiat And Digital Assets

8. • Established Controls / Periodic Assessment
• General IT Controls
• Software and Systems
• Systems Integration
• Smart Contract Controls
Managing Risk

9. • Separation of Duties
• Staff Changes
• Compromised Accounts
• Staff Vacations
Access And
Separation Of Duties

10. • Paper Wallet
• Software Wallet.
• Hardware Wallet
• Exchanges
• Other Custodians
Storage Options

11. • Multiple Wallets Types and Multiple Wallets
• Reusing Addresses
• Multiple Signature Wallets
• Backup Seeds
• Use of Exchanges for Trading / Storage
• Knowledge and Verification of Transactions
Wallets and Security

12. • Merchant Service Providers
• Accuracy/Integrity of Addresses Presented to
Customers (Physically and Electronically)
• Verifying Receipt
• Unidentified Receipts
• Investigating
• Custody
• Recording
Receipt of
Digital Assets

13. • Periodic Reconciliations
• Timing Differences
• Reconciling in Fiat or Digital Assets
• Investigating Discrepancies
• Separate Reconciliations by Asset / Exchange
Reconciliation Of Balances /
Investigation Of Discrepancies

14. • General Ledger Software
• Digital Asset Sub-Ledger
• Recording Transactions – Purchases, Sales, Receipts,
Expenses, Trades, Realized/Unrealized Gains
• Pricing Digital Assets – Historical Cost or Fair Value
• Expense Categorization
• Financial Statement Categorization
Accounting and Reporting

15. • IRS Revenue Bulletin 2014-16, Notice 2014-21
• Buy it
• Sell it
• Earn it
• Spend it
• Forks & Airdrops - IRS Revenue Ruling 2019-24
• Considerations – Pricing, Reporting
US Federal
Taxation

16. • Types of Digital Assets Owned / Used Regularly
• Staking
• Voting Rights
• Rights & Obligations
• Onboarding New Digital Assets
• Forked / Airdropped Tokens
• Privacy Coins
Considerations For
Different Digital
Asset Types

17. • Identifying “dirty coins”
• Financial Institutions –
• OFAC / BSA
• SAR and CTR
• Bit-license
• Securities and
Exchange Commission
Legal Considerations
• Securities and Exchange Commission
• Howey Test
Securitization Considerations
• Auditor Ability
• Audit Footnotes
• Auditor Independence
Audit Considerations

18. • Combined or Separate Wallets
• 3rd Party Key Control
• Controls Over Incoming Instructions
• SAFU
• Third Party Security Tests
• Customer Expectations
Custody of Digital
Assets for Third Parties

19. • Measuring ROI
• Accounting for Mining Equipment
• Controls Over Mining Equipment
• Allocating Overhead
• Staked Coins
Additional
Considerations for
Mining Entities

20. Questions?
DAVID J. ROSENBAUM, MBA, CISA
Principal
Citrin Cooperman
drosenbaum@citrincooperman.com
914-693-7000

21. Thank You
F o r Wa t c h i n g & L i s t e n i n g
UPCOMING MASTERSNACKS WEBINARS:
LEGAL ISSUES IN CRYPTOCURRENCY
April 21, 2021 | 12:00 PM ET/9:00 AM PT
Featuring: Jeff Neuburger, Partner at Proskauer Rose
TAXES ON BITCOIN AND DIGITAL ASSETS
April 28, 2021 | 12:00 PM ET/9:00 AM PT
Featuring: Peter Goodrich, Manager, Forensic, Litigation, and Valuation Services