DAO Accounting

DAO Accounting

DAO Accounting is an outsourced financial service investors, companies, nonprofit organizations, and affluent individuals need for reporting to the IRS and SEC (Securities & Exchange Commission). Outsourcing accounting and tax services enable you to timely report all your financial transactions based on GAAP, FASB standards, and AICPA guidance. It will remove the burden and pressure associated with meeting deadlines for reporting financial statements and income tax forms. If you want a better understanding of what a DAO is and how it can impact your financial position, below is enlightening information you will find helpful. After you complete reading about DAOs, you will see why partnering with an outsourced accounting controller is best for your business.

What is DAO?

DAO is a decentralized autonomous organization that organizes global people, establishes its own rules in a smart contract, and decides the autonomous-encryption coding. Controlling the DAO computer program are the organization’s members who have voting rights to set or correct a code as necessary. Embedding the code with coded rules eliminates the need for a manager, central government, or hierarchy executives as an incorporated company. Blockchains enable automated trusted transactions and exchanges of value in an effective and secured environment with organizational members having the same interests. When interviewing an outsourced accounting controller specializing in decentralized autonomous organizations, be sure to ask about the prospect’s experience with DAO accounting.

History and Background of DAO

The name “DAO Entity” appeared in a document in 2015, when Christoph Jentzsch, the CTO (Chief Technology Officer) of The DAO explained its concept. Co-Founders Christoph, Simon Jentzsch, and Stephan Tual established the unincorporated organization The DAO in 2016 through their German corporation, Slock.it UG. The Slock.it blockchain sold about 1.5 billion tokens in exchange for nearly 12 million ETH (Ether) in digital currency. When the blockchain offering closed, The DAO raised approximately $150 million in US Dollars value of the Ether.

Within two months of selling ETH, Slock.it experienced problems with the code due to hackers resulting in $50 million in cyber theft. Some people started distrusting DAOs and crypto coins after the horrific event until Bitcoin Ethereum began to boom as a blockchain. Bitcoin evolved in 2008 and was listed on exchanges in 2010 for investors to purchase, sell, trade, and store at a few cents before reaching an all-time high in 2017. Bitcoin Ethereum remains the dominant cryptocurrency on the market after a $20,000 value in US dollars per token and a drop to less than $12,000 in September 2020. Bitcoin was the first successful DAO with programmed rules and automated functions following the establishment of The DAO in Germany.

If you included Bitcoin or other cryptocurrencies in your investment portfolio, seek outsourced DAO accounting and tax guidance from an accountant. Outsourcing financial accounting services provide you benefits including:

  • Saving expenses for employers’ tax liabilities, benefits, and payroll.
  • Smooth and accurate financial statements and tax reporting.
  • Freeing your daily functional schedule to focus on oversight and operations of your business.

Overview of the Present DAO Environment

Today, decentralized autonomous organizations use blockchains to buy NFTs (non-fungible tokens), borrow, invest, charity, and fundraising. For nonprofits, a DAO can accept donations from people internationally, and the members can decide how much to spend with a collective vote. For example, Jenny DAO bought the first NFT and an original song produced by Steve Aoki and 3LAU. Considered a metaverse organization DAO provides fractional ownership of NFTs, which members can manage purchases of NFTs and smart contracts.

Allowing DAO members to have a collective voice without centralization is a huge benefit and the latest trend for unincorporated organizations. Analysts and industry experts support DAO organizations which are becoming more relevant and potentially replacing traditional companies. It can impact how consumers interact and engage with brands and businesses and vice versa. Being a member of a blockchain requires a DAO accounting professional to account for your investment and evaluate its market value.

I reached out to the Fusion team and within about a week they got me onboarded and started managing my company’s books. Now I’m able to spend more time with my family and friends, and not wake up in the middle of the night worrying about whether I categorized last month's expenses correctly or if I filled out the right tax forms. The Fusion CPA team are truly the best.

Jerry Levington

Fusion CPA can help you understand the appropriate accounting methods to apply when dealing with cryptocurrency

Accounting for DAOs

Accounting for DAO transactions on your books requires following the issued American Institute of Certified Public Accountants (AICPA) Guidelines. Only an outsourced, licensed accounting controller has the expertise to prepare your financial statements including, income, cash flow, and balance sheet. While policymakers discuss accounting standards for digital assets under the existing GAAP (General Accepted Accounting Principles), AICPA issued digital assets guidance in 2019.

Accounting for a NFT and Cryptocurrency

Accounting for a non-fungible token or cryptocurrency digital assets must meet the definition of an intangible asset and lack material substance. Accounting for NFTs should follow the FASB ASC 350, Intangible-Goodwill, and Other.

Accounting for Donations Received by a Nonprofit

When a DAO blockchain or nonprofit receives a donation, the receiver must recognize the gift at fair value, measuring under FASB ASC 820, Fair Value Measurement. Considering the type of digital asset, the determining fair value of the donation will vary if it remains non-cash convertible.

Accounting for a Cryptocurrency Donation

When a nonprofit receives an intangible asset donation, the recipient should record its fair value based on the present cryptocurrency market value.

Accounting Donated Cryptocurrencies and NTFs to a Nonprofit

Charities receiving donated cryptos and NTFs should account for the transactions as intangible assets according to FASB ASC 350. When recognizing digital assets as intangibles, a nonprofit should evaluate impairment based on accounting standards. Report any gains or losses after a charity sells an NFT and cryptocurrency and converts the transactions into cash.

Cryptocurrencies have gained significant attention in the past few years, with businesses and individuals taking advantage of this new technology. Examining these digital assets highlights the importance of understanding how these areas should be dealt with using the appropriate cryptocurrency accounting methods. Doing so helps to ensure you’re handling your accounting for cryptocurrency correctly and efficiently. However, you may run into challenges quickly when creating your financials for these assets as the accounting for cryptocurrency GAAP guidelines need to be updated.

Fusion CPA is a certified public accounting firm specializing in business advisory and business process outsourcing services

We help you optimize the financial health of your business by ensuring your adherence to tax accounting and accounting standards. 

This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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