Financial Executives: Bitaccounting for the Bitcurious

he digital currency is gaining acceptance beyond its niche audience. But financial executives looking to move Bitcoin onto the balance sheet may have a long wait for guidance.

The emergence of Bitcoin is spurring a group of accounting, tax and other financial professionals to force the square peg of digital currencies into the round hole the existing supervisory framework.

The payoff would mean first adopter advantage in the ultra-conservative accounting and tax services industry. The downside means years of regulatory and client headaches.

But for those willing to accept the challenge, accounting for Bitcoin is shaking up the staid industry.

“Accounting is not often this exciting,” says Charles Evans, co-founder of and a visiting instructor of Finance at Florida Atlantic University.

Created in 2009, Bitcoin is currency that only exists online. Without a central authority or bank to regulate its transfer, Bitcoin users hold any assets in a virtual wallet that sits on a computer’s hard drive or through a third-party broker. In order to purchase something with Bitcoin, the buyer sends a “key” through an encrypted network to the seller. The transaction can can occour instantly or in as little as 15 minutes.

The benefit of digital currencies like Bitcoin are twofold according to it’s proponents: security and zero transaction costs.Since all transactions happen with strong encryption, digital currencies are virtually untraceable. In addition, there are no transaction costs, unlike current credit card and ACH exchanges.

As users move into Bitcoin and other virtual currencies, some accountants are following.

“There are a lot of accountants that are hesitant, but this is a revolution in the monetary system,” says Ryan Lazanis, principal with Xen Accounting in Montreal, Quebec.

Xen accounting is one of small, but enthusiastic group of professionals attempting to apply traditional accounting and tax methodologies to virtual currencies.

“A typical accountant is not going to take the time to understand, so they are not going to pursue it,” Lazanis argues. “I see that this is the future, and although there is very little guidance there is some things to go on to apply existing accounting standards to Bitcoin.”

The lack of supervisory guidance on how to report, account and tax virtual currencies remains a major hurdle.

No official statement has been made regarding Bitcoin accounting methods, other than financial reporting for Bitcoins falls under “other comprehensive basis” of accounting since there are no generally accepted accounting principles for digital currencies. That was only revealed after several questions were posed during a Financial Accounting Standards Board (FASB) Small Business Advisory Committee last December.

In addition, Bitcoin accounting is not currently not a topic that the FASB is considering to add to its research agenda, a FASB spokesman says.

Since there is little, if any, accounting and tax guidance out in bitcoin a small group of industry professionals are attempting to use their “best professional judgment” to navigate the issues. few accountants that are involved with Bitcoin who have decided to treat it like barter and hope for the best,” Evans says. “So Bitcoin is not really like yen, you treat it like chickens.”“From the accounting perspective, there are a few accountants that are involved with Bitcoin who have decided to treat it like barter and hope for the best,” Evans says. “So Bitcoin is not really like yen, you treat it like chickens.”

Lazanis says that Canada has also endorsed the barter method. “I don’t think that it easily fits into that category, but the Canada Revenue Agency had to fit it into something. It most easily fit for those purpose.” Having the barter method bring up issues of valuation, Lazanis explains, since with these rules the company receiving Bitcoins in exchange for goods or services need to follow traditional methodologies. “In Canada, you need value what you are giving up and not the Bitcoins you are receiving. If someone is paying you with Bitcoins for a movie, you have to determine the market value of the movie you are giving up and include this in your income, not the value of the Bitcoins you are receiving.”

From the CFO perspective, while taking Bitcoin has its risks it also has its advantages, Evans says. “Some are sending their Bitcoin to intermediaries like Coinbase or Bitpay, who will then ACH U.S. dollars into your account by the end of the day. So you are accepting Bitcoin without really touching it.”

The risk of accounting for virtual currencies goes beyond financial reporting issue to market volatility and the occasional bad acts. For example, earlier this month the once the exchange for digital currency, Mt. Gox closed its doors after saying that criminals stole approximately 850,000 Bitcoins, worth over $500 million, in attacks taking place over several years.

Although no public information is available, it appears that the collapse of Mt. Gox had nothing to do with accounting issues since there appears to have been very little accounting going on according to public reports, Evans says. “From reports of people claiming to be on the inside, it was an amateur operation from top to bottom that it didn’t have anything to do with the theoretical accounting difficulties surrounding the Bitcoin market,” he argues. “This is couple of D&D geeks that didn’t hire professionals, when big money started moving through the site that had nothing resembling proper accounting controls.”

And even those losses will need to be accounted for.

For investors, Evans says that the tax treatment would be the same as a type of “lost or stolen property” although that would be a small comfort for investors. “You don’t even have a website any longer, which means people have lost their transaction histories” Evan says. “Anybody who was surprised by this has been asleep at the wheel. Their problems have been known for a long, long time.”

Despite the fallout of Mt. Gox and the myriad regulatory challenges, there remains a engaged and enthusiastic group of financial professionals that remain undeterred from digital currencies and Bitcoin.

And although regulations may “take years” to offer additional guidance, Lazanis explains focusing on this market is a long-term commitment. “I am not sure if bitcoin is the future, but I know that digital currencies certainly are,” Lazanis says. “This is where things are headed and I want to be there for that.”

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About Xen Accounting

Xen Accounting is a virtual accounting firm designed for modern day small business owners with one goal in mind: to create a truly pain-free accounting experience. Through technology and a forward-thinking approach, Xen Accounting is focusing on delivering professional accounting services for businesses in the digital age. To contact Xen Accounting, please email

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