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Alternative Market Briefing

Cryptocurrencies and digital assets create fair value headaches for auditors

Thursday, July 25, 2019

Bailey McCann, Opalesque New York:

Cryptocurrencies and other digital assets raise unique valuation questions for auditors. Digital assets are the only investments that truly trade 24/7/365 and also lack a clear principle market which makes it difficult for auditors to establish a consistent fair value. Delegates at the recent Opalesque Crypto Asset Pricing & Valuation Roundtable say that the industry will have to provide answers to valuation questions if digital assets are to be adopted for widespread use and as investments.

"We all know that from time to time there are pricing inconsistencies across these markets," says Joshua Lefcowitz, Partner-in-Charge, Valuation Services at accounting firm Cohen & Company. "If we are talking about fair value measurements for audited financial statements, how do you price these actively traded or liquid assets and establish consistency across the industry?"

Lefcowitz notes that often times individual clients will consider certain exchanges the "principal market" because they have consistently higher valuations listed or they are easier to use. But from an accounting perspective, that's a tough sell. Auditors will want to see the principal market defined as the primary market for a digital asset not just whatever exchange an investment fund likes best. Creating standardization around principal markets for individual digital asset classes will make it easier for auditors to convert the value of investment portfolios into US ......................

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