[NEWS] LDP web3 project team releases guidelines for accounting audits of Web 3.0 companies, focusing on IEOs

On the 6th, the Liberal Democratic Party's web3 project team announced new guidelines for accounting audits of Web 3.0 companies.

According to Akihisa Shiozaki, Secretary General of the web3 project team, before the announcement of the guidelines, the project team held a study session in collaboration with JCBA (Japan Cryptocurrency Business Association) and JICPA (Japanese Institute of Certified Public Accountants).

JCBA has published "Things to consider when considering accounting treatment for cryptocurrency issuers" jointly created with JVCEA (Japan Cryptocurrency Exchange Association), and JICPA has published "Research materials on issues in accepting audits for Web 3.0-related companies". This announcement was based on these two published materials.

When touching on the accounting treatment of cryptocurrency issuers, the focus was on IEOs conducted in Japan.

IEOs are a way for token issuers to raise funds through cryptocurrency exchanges. The feature is that the cryptocurrency exchanges review and monitor the IEOs, which ensures reliability compared to the ICOs that were used in the past.

In Japan, the tax reform for fiscal year 2023 has excluded self-issued tokens that meet certain conditions from the taxation of end-of-period mark-to-market valuation for corporate tax purposes, so it is expected that the number of IEOs will increase in the future. Four cases have been conducted in Japan so far.

However, JCBA points out that since IEOs are a new mechanism that utilizes crypto assets, there are no reference cases and no guidelines in accounting standards.

In addition, the transaction has not been well understood among token issuers, accounting practitioners, and auditing firms, making it difficult for listed companies that undergo accounting audits to conduct IEOs.

In response to these issues, JCBA explained that when considering accounting treatment related to the issuance of crypto assets, it is necessary to clarify the actual situation of transactions that require understanding in light of the Japanese regulatory environment, which led to the publication of this document.

According to the document, at present, there are no direct reference guidelines regarding the issuance of crypto assets in IFRS (International Financial Reporting Standards), U.S. GAAP, or Japanese GAAP.

Therefore, he said that cryptocurrency issuers should refer to existing accounting standards, set their own accounting policies, and make necessary disclosures.

In addition, points to consider in accounting include what kind of goods and services are provided, the relationship between cryptocurrency and the consideration that the issuer receives, penalties such as refunds, the legal validity of disclaimers, disclosure of transfer restrictions, and valuation models.

It is necessary to review and consider international discussions such as finding contractual relationships in the content of smart contracts and sorting out private law regarding de facto control of digital assets.

Regarding IEOs, it has been revealed by a report in the Nihon Keizai Shimbun that the JCBA and JVCEA are considering working together to impose trading restrictions on project sides such as developers and founders when tokens are listed.

In addition, they are also considering measures to prevent a price crash immediately after listing, and are preparing to establish rules based on the stock market.

Reference:LDP web3PT,JCBA
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