CCA DeFi & Digital Asset Valuation 2 — Questions and Answers
Question 1: A company receives 1 BTC as payment for services rendered. When does revenue recognition occur under ASC 606?
- When the performance obligation is satisfied, with revenue measured at the fair value of BTC on that date (Correct answer)
- When the BTC is converted to USD
- When the invoice is issued
- When the customer sends the BTC transaction on-chain
Correct answer: When the performance obligation is satisfied, with revenue measured at the fair value of BTC on that date
Under ASC 606, revenue is recognized when the performance obligation is satisfied and measured at the transaction price, which for crypto consideration is the fair value of the cryptocurrency at the date the obligation is fulfilled.
Question 2: When auditing a DeFi protocol's treasury, the auditor notes the protocol holds its own governance token as a treasury reserve asset. What is the primary audit concern?
- Self-referential valuation — the treasury value is circular because the token's price depends on the protocol's perceived health (Correct answer)
- Lack of diversification in the treasury
- Violation of SEC holding company rules
- Insufficient liquidity for operational expenses
Correct answer: Self-referential valuation — the treasury value is circular because the token's price depends on the protocol's perceived health
A protocol holding its own governance token creates circular valuation — if the protocol struggles, the token drops, reducing treasury value, which further undermines confidence in the protocol, creating a self-reinforcing spiral.
Question 3: For U.S. tax audit purposes, which cryptocurrency transaction type triggers a taxable realization event?
- Exchanging one cryptocurrency for another on a DEX (Correct answer)
- Transferring crypto between two wallets owned by the same taxpayer
- Receiving newly mined crypto as block rewards
- Depositing crypto into a cold wallet
Correct answer: Exchanging one cryptocurrency for another on a DEX
Under IRS guidance, swapping one cryptocurrency for another is a taxable disposition of the first asset, triggering capital gains or losses based on the fair market value at the time of the exchange.
Question 4: What is the most reliable price source an auditor should use when determining the fair value of a major cryptocurrency like Ether at a specific historical date and time?
- Volume-weighted average price (VWAP) from multiple major exchanges aggregated by a reputable data provider (Correct answer)
- The last trade price on the auditor's preferred single exchange
- The price listed on the entity's own internal records
- The price listed on a crypto news website
Correct answer: Volume-weighted average price (VWAP) from multiple major exchanges aggregated by a reputable data provider
A VWAP aggregated across multiple major exchanges from a reputable data provider (e.g., Coin Metrics, Kaiko) minimizes single-exchange manipulation and represents the most defensible, market-wide price for audit evidence.
Question 5: A stablecoin issuer claims its token is 1:1 backed by USD reserves. Which audit procedure provides the highest assurance over this claim?
- Confirming reserve balances directly with the custodian bank and reconciling to total stablecoin supply on-chain (Correct answer)
- Reviewing the stablecoin's smart contract code
- Checking the stablecoin's peg stability over the past 30 days
- Reviewing the issuer's press releases and attestation reports
Correct answer: Confirming reserve balances directly with the custodian bank and reconciling to total stablecoin supply on-chain
Direct bank confirmation of reserve balances, reconciled against the total circulating token supply verifiable on-chain, provides the highest assurance that the 1:1 backing claim is accurate.
Question 6: Which accounting event would NOT trigger impairment recognition for a cryptocurrency held as an intangible asset under legacy U.S. GAAP?
- The cryptocurrency's fair value recovering above historical cost after a previous impairment write-down (Correct answer)
- The cryptocurrency's fair value dropping 30% below its cost basis
- A significant decline in trading volume suggesting reduced market liquidity
- A hard fork that the entity determines eliminates the utility of the original coin
Correct answer: The cryptocurrency's fair value recovering above historical cost after a previous impairment write-down
Under legacy GAAP's cost-less-impairment model, previously impaired assets cannot be written back up even if fair value recovers, so a price recovery above cost creates no accounting entry.
CCA DeFi & Digital Asset Valuation 2
A company receives 1 BTC as payment for services rendered.
When does revenue recognition occur under ASC 606?